CMA Part 1 Answers to Questions Answers to Questions 1 d - Monitoring is not a process of planning, but rather a review of what has already occurred. 2 b - If plans are made too formal it prevents managers from pursuing new opportunities or making necessary decisions as a result of changes in the environment from what was planned. 3 b - Strategic plans are long-term and therefore, the product mix for the current year is not a strategic plan. 4 b - The objectives of the company have to be determined before anything else can be set. 5 c - Top management must be involved in the budgeting process and this is usually by using the budget as a means to communicate the company goals. 6 b - If top management sets the budget levels without any input from others in the company, nobody will support the budget as their own. 7 b - The sales budget is the first budget that needs to be set. 8 d - Selling and administrative budgets should be detailed enough to be useful, including the understanding of the assumptions underlying them. 9 b - In zero-based budgeting, the budget starts with nothing in it and all costs need to be justified each year. 10 b - To solve a flexible budget problem we need to determine the standard cost per unit and then use this at the actual level of production. If the budget called for 144,000 units at a cost of $lBO,OOO, the standard cost per unit was $1.25 ($lBO,OOO .;. 144,000). If actual production was 1O,BOO units, the cost should have been $13,500 (10,BOO units x $1.25 per unit). 11 c - There is a lot of information in this question, but much of it is not needed. We are told what the formula is and that the actual shipping was 12,300 pounds. Putting this into the formula, we get: $16,000 + ($.50 x 12,300) = $22,150. 12 b - Again, when making flexible budget calculations we need the standard rate per unit. In this budget, the contribution per standard unit is $6.50 ($975,000 contribution .;. 150,000 units). If they sold 1BO,000 units the total contribution would be $1,170,000. Subtracting the fixed costs of $750,000 from this, we get the total profit at 1BO,000 units of $420,000. 13 c - In order to solve this problem we need to determine a total fixed cost and the variable cost per unit. The total fixed costs are $200,000 ($100,000 each of manufacturing and selling costs) . The total variable costs in the 100,000-unit budget are $450,000. This gives a standard variable cost of $4.50 per unit. Therefore, to produce 110,000 units the company will incur $495,000 in variable costs and $200,000 in fixed costs for a total of $695,000. 14 c - We again need to use the same formula to determine production amounts, but this time instead of doing it for a month, it is done for a quarter. This is not a problem because the formula works for any period of time. We first need to calculate the level of sales in each month, given a 5% increase each month. The expected sales are: July - 200,000; August 210,000; September - 220,500; and October - 231,525. Though October is not in this period we need it to calculate ending inventory levels. The units needed for the quarter are 630,500 and since ending inventory needs to be BO% of the next months sales, this is 1B5,220 (231,525 x .BO). There are only 150,000 units in beginning inventory so the company will need to produce 665,720 units during the quarter (630,500 + 1B5,220 - 150,000). 15 c - In order to determine the total cost of materials, we need to know how many units must be purchased. They will produce 600,000 finished units and since each finished unit requires 4 units of materials, they will need 2,400,000 units of material just for production. Ending inventory is 25% of the usage this period or 600,000. We are told that they had BOO,OOO units in beginning inventory so they will need to purchase only 2,200,000 units at $1.20 per unit. This is a total materials cost of $2,640,000. 16 c - This is a basic question of units needed in a period, but it is about the number of units of the raw materials that are needed. There are 3 units of raw materials in a finished unit. The amount needed in the third quarter itself is 102,000 units of raw materials (3 x 34,000 finished units). In addition, the ending inventory is 30% of the next quarters needs. This is 43,200 units of raw materials (4B,000 finished units x 3 x .3). The beginning inventory was 30% of the current quarters needs or 30,600 (102,000 x .3). This means that a total of 114,600 units of raw materials need to be purchased this period. 17 b - This is a very long question, but with only a few important pieces of information. In January, the production will be equal to 1.5 times the expected sales in February. Expected February sales are 36,000 so in January the company will produce 54,000 units. 18 b - In February the production will be equal to 1 .;. 2 of March sales. March sales are expected to be 33,000, so February will see production of 16,500 units. The variable cost per unit is $7 ($3.50 + $1 + $2 +
Posted on: Tue, 18 Mar 2014 13:59:23 +0000
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