# FREE CIMA Management Accounting Questions and Answers

#### Juan is looking to invest in the mining industry. He has narrowed his options down to two rival companies, both with sales of 200m. Company A has an EBIT of 10m whereas Company B has an EBIT of 14m.

This would suggest that Company B is the better investment but Juan is suspicious that Company B has more financial backing than Company A.

Which ratios will tell him which company will use his investment the best?

Explanation:

Return on Capital Employed (R.O.C.E) measures a company's ability to generate profits from its capital. It indicates how efficiently a company is utilizing its capital to generate earnings. Therefore, R.O.C.E would provide Juan with insights into which company is utilizing his investment more effectively.

#### YC is a government-funded hospital specializing in degenerative hearing conditions YC is renowned for its pioneering work resolving chronic ear problems and has, in the last year, conducted a record number of operations and achieved high levels of success. The excellent reputation of YC has led to high demand and a considerable strain on resources.

Although last year the average cost per patient fell, and success rates far exceeded targets, overall spending increased significantly. YC Hospital is expected to provide value for money (VFM). Which aspect of VFM has YC NOT managed to achieve in the last year?

Explanation:

While YC Hospital achieved excellence, effectiveness, and efficiency by achieving high success rates, conducting a record number of operations, and reducing the average cost per patient, it did not manage to achieve economy. Economy refers to minimizing costs, and since overall spending increased significantly despite cost reduction per patient, YC Hospital did not achieve economy.

#### AAA is a car manufacturer that has undertaken a strategy to lobby a regional authority to include Its flagship hybrid model in a regional initiative to grant low-emission cars access to faster-moving vehicle lanes. These faster vehicle lanes were historically only available to cars carrying passengers. Given the benefits of AAA's low-emission vehicles, AAA's cars were authorized to make use of the faster lanes, even when no passengers were on board providing AAA with a decisive competitive edge.

Which of the following strategies is AAA pursuing?

Explanation:

Explanation: AAA is engaging in activities that influence government policies and regulations to gain a competitive advantage. This falls under the realm of non-market strategy, which involves actions taken outside the traditional market environment to shape the rules of competition in favor of the company.

#### According to Kotter's process of change, what is the purpose of building a guiding coalition?

Explanation:

Building a guiding coalition is about assembling a group of influential individuals who can provide direction, support, and momentum for the change initiative. They help ensure that the change effort stays on track and has a clear sense of purpose and direction.

#### You have just assessed an investment proposal, involving an immediate cash outflow followed by a series of cash inflows over the next 7 years, by deducing the NPV and the IRR. You have now discovered that you have underestimated the discount rate.

Correcting the underestimation will have the following effect, relative to your original deductions:

Explanation:

Correcting an underestimation of the discount rate will decrease the present value of future cash flows, leading to a reduction in the Net Present Value (NPV). However, the Internal Rate of Return (IRR) remains unchanged because it is independent of the discount rate used for analysis.

#### Company Y is a global business selling a selection of technological items including phones, laptops, and other computer-related items. In addition, Y sells accessory items, music downloads, apps: digital books, and video downloads including films and television series through a cooperative partnership with other companies, designed to create value for the customer.

Which of the following terms best describes what Y has created?

Explanation:

Company Y has created an interconnected network of digital products and services, involving various partners, to enhance value for customers. This arrangement resembles a digital ecosystem, where different elements interact to provide comprehensive solutions and services to customers.

#### A has a portfolio of business units. One of A's units has a total market share of 25% and its largest competitor has a market share of 20%. In the last year, the overall market of this business unit has declined by 2%, although its revenues have increased by 12%. following a successful marketing campaign.

According to the BCG matrix. A's business unit would be classified as which of the following?

Explanation:

In the BCG matrix, a "Star" represents a business unit with a high market share in a growing market. Despite the overall market decline, if the unit's revenues have increased due to a successful marketing campaign, it suggests that the unit is performing well in its market segment, making it a "Star" in the portfolio.

#### A flexible budget is a budget that is __________.

Explanation:

A flexible budget is designed to adjust or flex based on changes in the level of activity. It allows for variations in activity levels and adjusts the budgeted figures accordingly to reflect these changes. This flexibility enables better cost control and performance evaluation, as it provides a more accurate comparison between actual performance and budgeted amounts.

#### The net present value of the cost of operating a machine for the next 4 years is 6,340. The discount rate used is 10%.

What is the equivalent annual cost and the present value of the cost in perpetuity of operating this machine?

Use discount factors to 3 decimal places.

Explanation:

To calculate the equivalent annual cost (EAC), you divide the net present value (NPV) by the present value annuity factor (PVAF) for the given number of periods at the given discount rate. In this case, EAC = 6,340 / 3.170 â‰ˆ 2,000.

To find the present value of the cost in perpetuity, you divide the net present value by the perpetuity factor. Here, the perpetuity factor is simply the discount rate (0.10) because the payments continue indefinitely. So, the present value of cost in perpetuity = 6,340 / 0.10 = 63,400.

Therefore, the correct option is the one stating:

Equivalent annual cost = 2,000

Present value of cost in perpetuity = 20,000

#### TTR Ltd plans to purchase a new plant for $1,000m on the 1st of January 20X6. The annual sales expected from the production of this plant is S400m per year. The plant has an expected life of five years. The financial accountant has computed the NPV of the project at $61.42m considering a discount rate of 10%. The marketing director wants to know the percentage drop in revenue that the sales team can afford before the project becomes unviable. Which of the following indicates the percentage required by the marketing director?

Explanation:

To find the percentage drop in revenue that the project can afford before becoming unviable, we divide the NPV by the total expected revenue ($61.42m / $400m = 0.15355). Then, subtract this from 1 to find the percentage (1 - 0.15355 = 0.84645 or 84.645%). Finally, subtract this from 100% to get the percentage drop (100% - 84.645% = 15.355% or 4.05% rounded). So, a 4.05% drop in revenue would render the project unviable.

#### The term 'budgetary slack' refers to the:

Explanation:

Budgetary slack involves intentionally inflating expenses or deflating revenues to make it easier to achieve budget targets. This practice can provide a cushion for unexpected expenses or allow for easier goal attainment, but it can also lead to inefficiencies and mismanagement if not carefully monitored.