Chartered Institute of Management Accountants (CIMA) Operational Level: Management Accounting (E1, F1, P1) Flashcards

24 sample cards from the Operational Level: Management Accounting (E1, F1, P1) deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What is a non-controlling interest (NCI)?

   The portion of a subsidiary's equity (net assets and profits) not owned by the parent, presented separately within equity in the consolidated statement of financial position.

2. In consolidation, why are intra-group balances and transactions eliminated?

   Because the group is presented as a single economic entity; intra-group sales, receivables/payables and unrealised profit on inventory must be removed to avoid overstating group figures.

3. What is the difference between a subsidiary and an associate, and how is each accounted for?

   A subsidiary is controlled (>50%) and fully consolidated; an associate is one over which significant influence (usually 20–50%) is held and is accounted for using the equity method.

4. What is the difference between direct and indirect taxes?

   Direct taxes are levied directly on income, profits or gains of the entity that bears them (e.g. corporation tax); indirect taxes are charged on transactions/consumption and collected by an intermediary (e.g. VAT/sales tax).

5. What is the difference between tax avoidance and tax evasion?

   Tax avoidance is legally arranging affairs to minimise tax liability; tax evasion is illegally escaping tax by concealing income or falsifying records, and is a criminal offence.

6. What is the distinction between a competent jurisdiction and the residence basis of taxation?

   A competent jurisdiction is the tax authority with legal power to assess and collect tax; the residence basis taxes an entity on its worldwide income in the country where it is resident, often relieved by double-taxation treaties.

7. What is the purpose of managing working capital?

   To ensure the business holds enough liquidity to meet short-term obligations while not tying up excess funds in current assets — balancing profitability against liquidity risk.

8. Give the formula for the working capital (cash operating) cycle.

   $$\text{Cash cycle} = \text{Inventory days} + \text{Receivables days} - \text{Payables days}$$

9. How is the inventory holding period (days) calculated?

   $$\text{Inventory days} = \frac{\text{Average inventory}}{\text{Cost of sales}} \times 365$$

10. What is the current ratio and what does it measure?

    $$\text{Current ratio} = \frac{\text{Current assets}}{\text{Current liabilities}}$$ It measures short-term liquidity — the ability to meet current obligations from current assets.

11. State the Economic Order Quantity (EOQ) formula.

    $$\text{EOQ} = \sqrt{\frac{2 C_o D}{C_h}}$$ where $C_o$ = cost per order, $D$ = annual demand, and $C_h$ = holding cost per unit per year.

12. What is the difference between direct and indirect (overhead) costs?

    Direct costs can be traced specifically to a cost object (e.g. raw materials, direct labour); indirect costs (overheads) cannot be traced directly and must be apportioned/absorbed (e.g. factory rent, supervision).

13. What distinguishes a fixed cost from a variable cost?

    A fixed cost remains constant in total over the relevant range regardless of activity (e.g. rent); a variable cost changes in total in direct proportion to activity level (e.g. materials per unit).

14. How is the overhead absorption rate (OAR) calculated?

    $$\text{OAR} = \frac{\text{Budgeted overheads}}{\text{Budgeted activity level}}$$ e.g. per labour hour or machine hour.

15. What is the key difference between absorption costing and marginal costing?

    Absorption costing includes fixed production overheads in unit cost; marginal costing treats fixed overheads as period costs and only variable costs in unit cost. They differ in inventory valuation and profit when inventory levels change.

16. What is the main idea behind Activity-Based Costing (ABC)?

    Overheads are assigned to products using cost drivers that cause the costs (via cost pools), giving more accurate product costs than a single volume-based absorption rate, especially with diverse products.

17. What is the purpose of a budget?

    To plan and coordinate activities, communicate targets, authorise spending, motivate managers, and provide a basis for control by comparing actual results against plan.

18. What is the difference between a fixed budget and a flexible budget?

    A fixed budget is set for a single planned activity level and not adjusted; a flexible budget is recalculated (flexed) to the actual activity level, allowing meaningful like-for-like variance comparison.

19. What is zero-based budgeting (ZBB)?

    A budgeting method where every cost must be justified from a zero base each period, rather than incrementally adjusting the prior year's figures, helping eliminate wasteful spending.

20. What is a standard cost and what is variance analysis?

    A standard cost is a predetermined target cost per unit; variance analysis compares actual costs/revenues with the standard (flexed) and explains the differences, labelling them favourable (F) or adverse (A).

21. Give the formulas for the direct material price variance and usage variance.

    Price: $$(\text{Standard price} - \text{Actual price}) \times \text{Actual quantity purchased}$$ Usage: $$(\text{Standard qty for actual output} - \text{Actual qty used}) \times \text{Standard price}$$

22. How is contribution per unit calculated and why does it matter for short-term decisions?

    $$\text{Contribution} = \text{Selling price} - \text{Variable cost per unit}$$ In short-term decisions fixed costs are often unavoidable, so maximising total contribution maximises profit.

23. State the breakeven point (in units) formula.

    $$\text{Breakeven units} = \frac{\text{Fixed costs}}{\text{Contribution per unit}}$$

24. In short-term decision making, what is the relevant cost principle and what is an opportunity cost?

    Only future, incremental cash flows that differ between alternatives are relevant; sunk and committed costs are ignored. An opportunity cost is the benefit forgone by using a resource in one option rather than its best alternative use, and it is a relevant cost.

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Operational Level: Management Accounting (E1, F1, P1) flashcards FAQ