CIMA Management Accounting 4

Question 1

A company has a margin of safety of 25%. This means:

Accepted Answer

Actual sales can fall 25% before the company makes a loss

Answer

A margin of safety of 25% indicates actual sales exceed breakeven by 25%, so sales could drop by that amount before a loss occurs.

Question 2

Process costing is most appropriate for which type of production?

Accepted Answer

Oil refining producing homogeneous outputs

Answer

Process costing suits continuous, mass production of identical or near-identical units such as oil refining, chemicals, or food processing.

Question 3

Normal loss in a process account is valued at:

Accepted Answer

Net realizable value (scrap value)

Answer

Normal loss is valued at its scrap/net realizable value; its cost is absorbed into the remaining good output.

Question 4

Which of the following best describes a 'relevant cost' in decision-making?

Accepted Answer

A future incremental cash cost that differs between alternatives

Answer

Relevant costs are future, incremental cash flows that differ between the decision alternatives being evaluated.

Question 5

A company is considering dropping a product line. Which of the following would NOT be relevant to the decision?

Accepted Answer

Historical development costs already spent

Answer

Historical development costs are sunk costs — they have already been incurred and cannot be recovered, making them irrelevant to the decision.

CIMA - Chartered Institute of Management Accountants Aptitude Test Practice Test