CIMA BA2 The context of management accounting: practice questions with answers

Question 1

Harlow Kitchens Ltd employs both financial accountants and management accountants. Which of the following statements describes management accounting rather than financial accounting?

1. A It must follow the formats and rules set by company law and accounting standards so that results can be compared between companies
2. B It produces information mainly for internal managers, in whatever format is most useful, and often looks forward to future periods
3. C It reports mainly to shareholders and other external users on the results of past accounting periods
4. D It is required by law for every limited company and its output is normally subject to external audit

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Answer: B. Management accounting provides information for managers inside the organisation to help them plan, control and make decisions. It has no legally required format, uses financial and non-financial data, and is often about the future.

Financial accounting records past transactions and reports them to external users (shareholders, lenders, tax authorities) in a format set by company law and accounting standards, and is usually audited.

Question 2

Which of the following is a responsibility of CIMA as the professional body for management accountants?

1. A Issuing the International Financial Reporting Standards that listed companies must apply in their financial statements
2. B Setting the ethical standards its members and students must follow and taking disciplinary action when they are breached
3. C Carrying out the statutory audit of the companies that employ CIMA members and students
4. D Approving the annual budgets that members prepare for their employers before they are adopted

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Answer: B. CIMA's role as a professional body includes: setting entry standards and running the qualification; requiring continuing professional development (CPD); setting the Code of Ethics and disciplining members who breach it; and developing and promoting management accounting practice (for example through research and the Global Management Accounting Principles) in the public interest. It does not set financial reporting standards, carry out audits or approve its members' work for employers.

Question 3

Fenwick Hotels is deciding whether to close its loss-making restaurant. Which of the following best describes the role of the management accountant in this decision?

1. A Taking the decision to close the restaurant, because the management accountant has the best understanding of the figures
2. B Providing analysis of the relevant costs and revenues and advising managers, who remain responsible for making and carrying out the decision
3. C Reporting only the restaurant's past profit, because forecasting future costs and revenues is solely the job of the operational managers
4. D Auditing the restaurant manager's figures and reporting a conclusion on them to the company's shareholders

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Answer: B. The management accountant works alongside managers as a business partner. They source and analyse financial and non-financial information (here: the relevant future costs and revenues of keeping or closing the restaurant, including any knock-on effect on room bookings), and communicate insight and advice. Line managers keep the authority and responsibility for the decision itself.

Question 4

Which of the following is a requirement that CIMA, as a professional body, places on its members?

1. A To keep their professional knowledge and skills up to date through continuing professional development (CPD)
2. B To hold a CIMA practising certificate before taking up any employed role in industry or the public sector
3. C To pass CIMA's professional examinations again every five years in order to keep the CGMA designation
4. D To send CIMA a copy of the management accounts they prepare each year so that CIMA can check their accuracy

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Answer: A. As a professional body, CIMA (part of the Association of International Certified Professional Accountants with the AICPA) sets the standards its members must meet. These include:

- entry standards, through its examinations and practical experience requirements;
- the CIMA Code of Ethics, with disciplinary action for breaches;
- continuing professional development (CPD) to keep members' skills and knowledge current;
- practising certificates for members who offer services to the public.

It does not check members' individual work outputs or require them to re-take exams.

Question 5

Priya is a management accountant who works alongside the operations director of Wexley Foods Ltd as a business partner. The director asks her to prepare the cost forecast for a new production line using his assumption that material waste will fall by 40%. Trial runs have so far shown waste falling by only about 10%. How should Priya act?

1. A Use the 40% figure without comment, because the director is responsible for operations and the forecast is therefore his decision
2. B Stop working with the director on the forecast and send her own version straight to the board, because operational managers cannot be trusted to forecast
3. C Raise the trial evidence with the director and challenge the assumption, working with him to agree supportable figures so that the forecast remains objective
4. D Use the 40% figure and also reduce other cost estimates, so that the forecast supports the director's proposal

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Answer: C. Modern management accountants act as business partners: they work closely with operational managers, understand the business and help managers make decisions, but they keep their professional objectivity and integrity. When a manager's assumption conflicts with the evidence, the management accountant should discuss it, challenge it constructively and agree figures that can be supported. Simply accepting the figure, or biasing the forecast further, would mislead decision makers. Going over the manager's head is a last resort, not the normal working relationship.

Question 6

Which of the following is an example of information, rather than data, for the sales director of Pinecrest Furniture Ltd?

1. A A report comparing each region's actual sales for the quarter with its budget and showing the variances
2. B The individual barcode scans recorded at the warehouse as each item is dispatched
3. C A file holding the details of every sales invoice raised during the quarter
4. D The raw time-stamped log of every visit made to the company's website

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Answer: A. Data are raw, unprocessed facts and figures (individual transactions, scans, log entries). Information is data that has been processed (sorted, summarised, compared, analysed) so that it has meaning and is useful to the person receiving it.

The regional sales report has taken the raw sales data, summarised it by region and compared it with budget. It tells the sales director which regions are under- or over-performing, so it is information.