CIMA Performance Management and Control 1 — Questions and Answers
Question 1: In standard costing, what does an 'adverse variance' indicate?
- Actual performance was better than standard
- Actual costs were lower than budgeted
- Actual performance was worse than standard, increasing costs or reducing profits (Correct answer)
- The budget was incorrectly set
Correct answer: Actual performance was worse than standard, increasing costs or reducing profits
An adverse (unfavorable) variance indicates actual performance was worse than standard, either through higher costs or lower revenues than planned.
Question 2: Which budgeting approach requires managers to justify all expenditures from scratch each period, rather than basing the budget on previous years?
- Incremental budgeting
- Rolling budgeting
- Zero-based budgeting (Correct answer)
- Activity-based budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting requires all expenditures to be justified from zero each budget period, eliminating the assumption that prior spending levels are appropriate.
Question 3: What is 'throughput accounting' primarily focused on?
- Allocating overhead costs to products
- Maximizing throughput (sales minus direct materials) while managing operating expenses and inventory (Correct answer)
- Calculating the full cost of products including fixed overheads
- Controlling direct labor efficiency
Correct answer: Maximizing throughput (sales minus direct materials) while managing operating expenses and inventory
Throughput accounting focuses on maximizing throughput contribution (sales less direct material costs) while keeping operating expenses and inventory as low as possible.
Question 4: A 'flexible budget' differs from a 'fixed budget' in that it:
- Is set once and not revised during the year
- Adjusts expenditure allowances to reflect actual activity levels (Correct answer)
- Is prepared for a range of future scenarios
- Focuses only on cash flows rather than profit
Correct answer: Adjusts expenditure allowances to reflect actual activity levels
A flexible budget adjusts cost allowances to the actual level of activity achieved, enabling more meaningful variance analysis.
Question 5: In the context of responsibility accounting, what is a 'profit center'?
- A unit accountable only for costs incurred
- A unit accountable for both revenues and costs, and therefore profit (Correct answer)
- A unit accountable for return on capital invested
- A unit responsible only for generating revenues
Correct answer: A unit accountable for both revenues and costs, and therefore profit
A profit center is a responsibility center where the manager is accountable for both revenues and costs, and therefore for the profit earned.
Question 6: Which performance measurement concept links financial and non-financial KPIs to strategic objectives?
- Activity-based costing
- Balanced scorecard (Correct answer)
- Transfer pricing
- Variance analysis
Correct answer: Balanced scorecard
The balanced scorecard links financial and non-financial KPIs across four perspectives (financial, customer, internal process, learning and growth) to strategic objectives.
CIMA Performance Management and Control 1
In standard costing, what does an 'adverse variance' indicate?