Examination Practice Questions 80

CMA Part 1 – Financial Planning, Performance, & Control
Examination Practice Questions
© Copyright 2013 Institute of Certified Management Accountants

CMA Part 1 – Financial Planning, Performance and Control
Examination Practice Questions
1. A company is preparing the sales budget for two potential products. Both products require
the use of the same manufacturing equipment, which is only available for 60 hours each
month. The contribution margin of product A is $95 per unit and the contribution margin
of product B is $55 per unit. Product A requires 4 hours of machine time per unit and
product B requires 2.5 hours per unit. In order to efficiently allocate the equipment
resources, the company should manufacture
a. product A, because the contribution margin is more per unit than product B.
b. product B, because they can produce more units of that product than product A.
c. product A, because it will make better use of the equipment than product B.
d. product B, because they can produce many units and still save hours for product A.
2. Granger Company is reviewing its standard machine hours per unit to use in its budget for
the upcoming year. The machine manufacturer’s specifications indicated a unit could be
made in 0.75 hours, and a benchmarking study showed a competitor produced at a speed
of 0.78 machine hours per unit. Granger’s actual results from last year averaged 0.83
machine hours per unit even though a standard of 0.80 machine hours per unit had been
established using engineering studies. The standard Granger should use in its upcoming
budget is
a. 0.75 machine hours per unit.

b. 0.78 machine hours per unit.
c. 0.80 machine hours per unit.
d. 0.83 machine hours per unit.

3. While gathering information to use in preparing the annual budget, a company identifies
cost drivers associated with manufacturing costs. Which one of the following is a
quantitative analysis method the company can use to measure the average change in the
manufacturing costs associated with a change in a cost driver?
a. Time series analysis.

b. Exponential smoothing.
c. Regression analysis.
d. Learning curve analysis.
4. A company uses simple regression to predict one of its semi-variable costs. The computed
equation of Y = -25,000 + 2.5X appears to have a good visual fit. The cause of the
negative term in this equation could be that
a. the zero level of output is outside of the relevant range.

b. too many outliers were included in the data.
c. an inappropriate cost driver was used as the independent variable.
d. the cost does not exhibit semi-variable behavior.
5. Which one of the following statements best demonstrates the concept of the learning
curve?
a. A learning curve is a linear cost behavior influenced by learning.

b. A learning curve is a judgmental method of estimating costs when learning is present.
c. A learning curve is a percentage by which average time per unit produced decreases as
output doubles.
d. A learning curve is a percentage by which average time falls as output increases by 1.
6. Langley Corporation is developing a new product that will be manufactured in pairs. The
company recently produced the first two units of this product using 200 hours of direct
labor time. If Langley has a 90% learning curve and uses the cumulative average-time
learning model, the total direct labor time to manufacture the first four units of this new
product is
a. 400 hours.
b. 380 hours.
c. 360 hours.
d. 324 hours.
‫ﻣﻠﻐﻰ‬
7. Sunrise Corporation’s actual sales for May were $22,000,000, a result $600,000 greater
than projected. Actual sales for June totaled $22,500,000. Using exponential smoothing
with a smoothing factor (alpha) of 0.7, Sunrise’s projected sales for July would be
a. $22,476,000.
b. $22,296,000.
c. $21,856,000.
d. $21,820,000.
‫ﻣﻠﻐﻰ‬
8. Quarterly sales results for the first three years of Wheeler Company’s operations are
Year 1 Year 2 Year 3

Quarter 1 $100,000 $ 96,000 $110,000
Quarter 2 150,000 160,000 165,000
Quarter 3 90,000 85,000 82,000
Quarter 4 95,000 100,000 98,000
Wheeler uses time series analysis to forecast its sales. Which one of the following best
represents the sales pattern that Wheeler has experienced in the past three years?
a. Cyclical.
b. Irregular.
c. Seasonal.
d. Trend.
9. Ryotel is conducting market research to determine whether or not to launch a new product.
Management believes there is a 60% probability the research will yield favorable results
with a 40% probability the results will be unfavorable. If the results are favorable, there is
a 70% probability the product will be successful; if the results are unfavorable, the
probability the product will be unsuccessful is 75%. If the product is successful, Ryotel
anticipates annual profits of $10,000,000, but if the product is unsuccessful, Ryotel will
lose $4,000,000 each year. The expected value of the new product’s annual profit is
a. $3,000,000.
b. $3,280,000.
c. $4,000,000.
d. $5,300,000.

10. Last year, Bell Corporation’s sales totaled $200 million. In the current year Bell believes
there is a 10% chance sales will decrease to $180 million due to the loss of a major
customer, Rock Company. Bell also estimates there is a 40% probability sales will remain
constant, a 30% chance sales will increase to $240 million, and a 20% probability sales
will increase to $250 million. The expected value of Bell’s sales in millions for the
current year is
a. $160.
b. $184.
c. $202.
d. $220.
11. A company is in the process of identifying, evaluating, and selecting projects that require
a large commitment of funds and will generate benefits well into the future. The company
will look at the budget over the life of the projects and review many different options. This
is an example of
a. a rolling budget since they want information for multiple periods.

b. a flexible budget as they can prepare it using several options.
c. a capital budget to help with the evaluation and identification.
d. an activity-based budget to evaluate all activities for each project.
12. A company uses a type of budgeting that focuses on the cost of the processes required to
produce and sell products and services. This type of budgeting is known as
a. process budgeting.
b. activity-based budgeting.
c. master activity budgeting.
d. controllability budgeting.
13. A company is focused on continuous improvement and wants to ensure that its budgeting
process supports this goal. The company has already eliminated much of the waste from
activities during previous budget periods and now wants to concentrate on value-added
activities and improving relationships with suppliers and customers. Identify which of the
following is the least beneficial budget solution for this company.
a. Flexible budgeting.
b. Activity-based budgeting.
c. Zero-based budgeting.
d. Continuous budgeting.
14. Blackmore Inc. has a goal to reduce wastefulness and develop a tight, efficient budget.
The management team knows that this will take time, so they plan to allow more time and
additional resources in the budget process. For the next budget year, a complete review of
all activities and functions will be undertaken. The controller has elected to use this year’s
master budget as the starting point for next year’s budget process. Considering
management’s goals, did the controller make the most appropriate choice of budgeting
methodologies?
a. Yes, he should take the current budget and make incremental changes to reduce waste.
b. No, he should implement a continuous budget to provide more current information.
c. No, he should select zero-based budgeting to allow no costs unless they are justified.
d. No, he should select activity-based budgeting to focus on the historical cost patterns.
15. Medico has found that its annual budgets are quickly outdated once actual data is
recorded. Sometimes actual preparations have already begun for the period being budgeted
by the time the annual budget is finished, which leaves no time to react to changing
factors. Medico wants the budget to be as up-to-date as possible, and management is
willing to revise budgets as needed. Which budgeting solution would be most appropriate
for Medico?
a. Flexible budgeting.
b. Activity-based budgeting.
c. Zero-based budgeting.
d. Continuous budgeting.
16. Paddlemore Canoes planned to sell 100 canoes for the month of April at an average sales
price of $600. Midway through the month, the company had sold 65 canoes and forecasted
total sales of 130 canoes at an average price of $595. The actual sales for April were 120
canoes at an average sales price of $590. What is the flexible budget amount for canoe
sales revenue for April?
a. $60,000.
b. $72,000.
c. $77,350.
d. $78,000.

17. A manufacturing company estimates semi-variable costs by using the high-low method
with machine hours as the cost driver. Recent data are shown below.
If 29,000 machine hours were budgeted for the next period, estimated semi-variable costs
would total
a. €116,250.
b. €117,000.
c. €117,500.
d. €121,220.
18. As part of the master budget process, a merchandising company begins to prepare the cash
budget for the same period. Which of the following additional information will be most
useful to management in preparing this budget?
a. Sales credit policies, purchasing terms, and planned capital acquisition.

b. Projected revenues, projected expenses, and intended financing activities.
c. Credit policies, projected expenses, and inventory procurement policies.
d. Planned direct material purchases, planned direct labor, and purchasing terms.
19. OneCo had sales during the first three months of operations as follows.
January February March

Cash Sales $100,000 $110,000 $120,000
Sales on account 320,000 335,000 364,000
Total sales $420,000 $445,000 $484,000
OneCo finds that it collects cash from credit customers as follows:
Within the first ten days after the month of sale,

at a 2% early pay discount 60%
In the month after sale, after the discount period 30%
In the second month after sale 10%
What will be OneCo’s cash receipts for the month of March?
a. $329,480.
b. $449,480.
March =120000+(335000*60%*98%)+(335000*30%)+(320000*10%)= 449480
c. $466,532.
d. $484,000.
20. In November, a company finalized its budget for the upcoming calendar year. In
December, the decision was made to acquire new equipment in January by trading in old
equipment and financing the amount due by a loan with principal and interest due at the
end of three years. Out-of-pocket costs to operate the machinery would not change. This
decision would change which of the company's budgeted financial statements for the
upcoming year?
a. The budgeted balance sheet only.

b. Both the budgeted balance sheet and the income statement.
c. The budgeted balance sheet, the income statement, and the statement of cash flows.
d. Both the budgeted income statement and the statement of cash flows.
21. A project with a 4 year life has a cost of acquisition of $400,000 and installation cost of
$100,000. If the effective income tax rate is 40%, what is the cash inflow each period due
to depreciation expense?
a. $40,000.
b. $50,000.
c. $60,000.
d. $75,000.
22. Shoo Inc. owns several retail stores. After all initial budget requests were received for the
upcoming year, Shoo’s abbreviated pro forma income statement is as follows.
Sales $46,000,000
Cost of goods sold 20,700,000
Selling and administrative costs 19,800,000
Operating income $ 5,500,000
The cost of goods sold and a 5% sales commission are the only variable costs. Shoo’s
upper management believes that the sales manager underestimated projected sales units
and wants the sales budget increased such that the company can achieve its goal of a 15%
return on sales. The amount by which sales must increase to achieve this goal is
a. $4,000,000.
b. $3,500,000.
c. $1,750,000.
d. $1,400,000.

The relationship of new Cost-Volume-Profit can be re-established as follows:
Sales - Variable Costs -Fixed Costs = Budgeted Return on Sales
Sales - Cost of Goods Sold - Sales Commission - Fixed Costs = Budgeted Return on Sales
S - COGS - SC - FC = ROC
S - 45%S - 5%S - FC = 15%S
S - 0.45S - 0.05S - 0.15S = $17,500,000
0.35S = $17,500,000
S = $50,000,000
23. Alton Machine Company has established a strategic initiative to increase operating income
by increasing market share through being the lower cost provider. Assuming the total
market size remains the same, and based on the information provided below, has Alton
achieved the stated objectives?
a. Yes, because Alton was able to lower costs and increase operating income.
b. No, because Alton did not reduce marketing and administrative costs.
c. Yes, because the statements show a reduced cost of goods sold.
d. No, because it does not appear that Alton has increased market share.
24. Which one of the following best represents a factor that should be considered for medium
and long-term cash forecasting?
a. Pre-tax cost of capital projects.

b. Current monthly depreciation.
c. Impact of stock split.
d. Non-routine property sales.
25. Ward Corporation’s current year-end sales totaled $240 million and its ending cash
balance was $20 million. Ward anticipates its sales for the upcoming year will be $260
million. On average, 10% of a year’s sales will be collected during the following year.
Assume Ward has no uncollectable accounts. Ward also anticipates cash expenses of $240
million and depreciation of $5 million. During the next year, Ward intends to spend $30
million cash for capital improvements. If Ward’s policy is to have a minimum of $10
million cash available at the beginning of each year, its budgeted cash flow projections
indicate that it will need outside financing of
a. $0.
b. $2 million.
c. $7 million.
d. $26 million.
26. Huffman Corporation’s budget indicated that it should produce 50,000 units of finished
goods, while incurring 20,000 hours of direct labor and $150,000 of variable
manufacturing overhead. Huffman actually produced 52,000 finished goods units using
22,000 hours of direct labor and incurring $160,000 of variable manufacturing overhead.
If Huffman uses a standard cost system and applies variable manufacturing overhead
based upon direct labor hours, its variable overhead spending variance was
a. $4,000 unfavorable.
b. $5,000 favorable.
c. $9,000 unfavorable.
d. $10,000 unfavorable.
27. Robinson Corporation’s most recent performance report indicated:
Actual Results Flexible Budget Static Budget

Revenues $5,000,000 $4,600,000 $5,200,000
Variable costs 2,600,000 2,300,000 2,600,000
Fixed costs 2,300,000 2,000,000 2,000,000
Operating income $ 100,000 $ 300,000 $ 600,000
Robinson’s sales-volume variance for operating income is
a. $200,000U.
b. $300,000U.
c. $400,000F.
d. $500,000U.
28. Last year Elegis Skin Care Inc. budgeted $600,000 of fixed overhead for its plant that
manufactures moisturizing cream. The $600,000 was based on a denominator activity
level of 40,000 machine hours. There is 0.1 standard machine hours for each bottle of
moisturizing cream. 350,000 bottles of moisturizing cream were produced, and 360,000
bottles were sold last year. What was the production volume variance?
b. $75,000 unfavorable.
c. $60,000 favorable.
d. $75,000 favorable.

29. The controller of a company holds a monthly meeting where any department that has a
10% unfavorable variance to budget must explain the variance and develop a plan to
remedy the situation. This is an example of
a. activity-based management.
b. cost management.
c. continuous improvement.
d. management by exception.
30. TwoCo established a standard direct material cost of $20 per finished unit for its main
product. The standard is calculated using direct materials of 4 pounds and a standard rate
of $5 per pound.
For the month of March, TwoCo expected to produce 32,000 units. During the month,
TwoCo purchased and used 130,000 pounds of material and produced 31,000 finished
units. The actual price paid per pound was $5.40. What was the material quantity
variance for the month of March?
c. $30,000 unfavorable.
31. A company using a standard cost system established a standard fixed cost per finished unit
of $4.00, and forecasted production and sales of 300,000 units. For the year, the company
experienced an unfavorable production volume variance of $14,000. Which one of the
following would be the cause of this variance?
a. The number of units produced was more than 300,000.

b. The number of units produced was less than 300,000.
c. The number of units sold was more than 300,000.
d. The number of units sold was less than 300,000.

32. Conroy Inc. manufactures a product by mixing two materials as shown by the following
standards for one unit of finished goods.
Material A: 4 ounces @ $1.50/ounce

Material B: 6 ounces @ $2.50/ounce
Conroy actually produced 25,000 units of finished goods using 105,000 ounces of
Material A and 145,000 ounces of Material B. The actual costs of the materials were
$1.48 per ounce for Material A and $2.55 per ounce for Material B. Conroy’s direct
material yield variance was
a. $0.
d. $5,350 unfavorable.
33. Sleep-Fine Company is a mattress manufacturer. The company has a standard direct labor
rate of $25 per hour, 75 direct labor employees, and 50 indirect labor employees. Last
week the direct labor payroll was $90,000 for 3,000 hours worked. The company
manufactured 1,000 mattresses. The standard cost sheet allows for 2.5 hours of labor per
mattress. The direct labor rate variance was
34. A company manufactures its products in a highly automated, just-in-time environment and
uses a standard cost system. The variance that would cause the most concern would be a
a. 10% unfavorable fixed overhead spending variance caused by an unanticipated raise
given to production supervisors.
b. 5% unfavorable material quantity variance caused by low quality materials
that resulted in reworks.
c. 6% unfavorable labor efficiency variance caused by the hiring of lower-skilled part-
time workers.
d. 7% unfavorable variable overhead spending variance caused by the part-time workers
using more supplies than predicted.

35. Jonathan Rogers is the marketing manager for a local recreational sports complex. Rogers’
role in the marketing department is to advertise events, meet potential clients and plan
future events. Rogers is responsible for the revenues and costs of each event and reports to
the sports complex manager. Rogers’ marketing department is an example of which type
of responsibility center?
a. Investment center.
b. Cost center.
c. Profit center.
d. Revenue center.
36. Multinational transfer prices are sometimes influenced by restrictions that some countries
place on the repatriation of profits to the parent firm. Companies can minimize the effect
of such restrictions by
a. decreasing the prices of goods transferred into divisions in these countries.

b. increasing the prices of goods transferred into divisions in these countries.
c. charging less than the price that would be charged by an unrelated third party for
goods transferred into divisions in these countries.
d. keeping prices uniform throughout all domestic and foreign units within the company.
37. Division A of Teltriton produces a product that can be sold to outside customers or sold to
Division B for further processing. If the performance of managers is evaluated based on
division profitability, what transfer pricing method will the manager of Division A
request?
a. Hybrid transfer pricing.

b. Cost-based transfer pricing.
c. Market-based transfer pricing.
d. Standard transfer pricing.
38. Bonnert’s Finance Department has purchased a new color copier system for $10,000 that
will help with required reporting. Bonnert’s IT Department was planning to purchase a
similar system for an additional $10,000, but has realized that there are enough system
resources from the Finance Department’s purchase that both groups can share the new
equipment equally. In order to fairly allocate the common cost of the equipment, the
controller should use the
a. incremental cost method and allocate $10,000 to the Finance Department.

b. stand-alone cost method and allocate $5,000 to each department.
c. constant gross profit method and allocate $5,000 to each department.
d. net realizable value method and allocate $10,000 to the Finance Department.
39. Trilby’s finance group purchased a new project management software package costing
$100,000. For an additional $10,000, the tax reporting team purchased a smaller
application that would have cost $40,000 to buy separately. The controller will allocate the
costs mainly to the finance group, the primary users, and should use the
a. incremental cost allocation method, allocating $10,000 to the tax reporting team and
$100,000 to the finance group.
b. stand-alone cost allocation method, allocating $40,000 to the tax reporting team and
$70,000 to the finance group.
c. dual costing method and allocate $55,000 to both user groups.
d. method which best reflects the usage of the software package.
40. A manufacturer of men’s t-shirts had the following information for last year.
The company's operating profit last year was

a. $950,000.
b. $1,950,000.
c. $2,750,000.
d. $3,750,000.

41. A company has four regional divisions. A summary of financial results for the company is
shown below.
North East South West
Operating income $1,000 $ 5,000 $4,000 $7,500
Assets 2,500 15,000 8,000 25,000

Liabilities 500 7,000 1,000 5,000
Total equity $2,000 $8,000 $7,000 $20,000
Which division has the highest return on investment?
a. North.
b. East.
c. South.
d. West.
42. Pet Toys Inc. has four customers. Details on revenues and expenses are presented below.
Customer A Customer B Customer C Customer D

Units sold 10,000 20,000 35,000 50,000
Sales $100,000 $150,000 $200,000 $250,000

Cost of goods sold 50,000 60,000 70,000 75,000
Delivery cost 10,000 25,000 30,000 50,000
Order taking 15,000 20,000 25,000 30,000
Administration 30,000 30,000 30,000 30,000
Depreciation 20,000 20,000 20,000 20,000
Utilities 10,000 10,000 10,000 10,000
Profit / (Loss) $(35,000) $(15,000) $15,000 $35,000
Which customer has the highest customer level operating profit per unit sold?
a. Customer A.
b. Customer B.
c. Customer C.
d. Customer D.

43. The following is an excerpt from a corporation’s most recent financial statements.
Current assets $ 120,000

Total operating assets 1,750,000
Current liabilities 85,000
Total liabilities 985,000
Sales 1,240,000
Operating income $ 365,000
The corporation’s required rate of return is 12%. What is its residual income?
a. $155,000.
b. $126,800.
c. $123,600.
d. $113,800.
44. A company is considering the addition of a new product line. The new product line is
expected to generate a return higher than the cost of capital, but lower than the current
overall return on investment (ROI). If the company decides to add the potential new
product line, residual income will
a. increase.
b. remain unchanged.
c. decrease.
d. become higher than the firm’s return on investment.
45. Two examples of the learning and innovation measures of a balanced scorecard are
a. employee promotion rate and number of environmental incidents.
b. employee training hours and product defect rates.
c. number of employee suggestions and finished products per day per employee.
d. employee turnover rate and number of internal process improvements.

46. Central Vacuum Company recorded the following production costs during the previous
two-week period.
Assuming both weeks fall in the same relevant range, what was the total fixed cost during
week one?
a. $5,500.
b. $14,500.
c. $25,000.
d. $26,500.
47. The following information was taken from last year's accounting records of a
manufacturing company.
On the basis of this information, the company's cost of goods manufactured and cost of
goods sold are

a. $460,500 and $489,500, respectively.
b. $468,500 and $439,500, respectively.
c. $468,500 and $470,900, respectively.
d. $646,500 and $617,500, respectively.
48. Consider the cost of goods sold calculation shown below.
Beginning inventory $ 100,000

Plus cost of goods manufactured 2,500,000
Less ending inventory (125,000)
Plus variable overhead efficiency variance 10,000
Cost of goods sold $2,485,000
This is an example of which cost measurement technique?
a. Normal costing.
b. Standard costing.
c. Either actual costing or normal costing.
d. Either normal costing or standard costing.
49. Last year a company had sales of 75,000 units and production of 100,000 units. Other
information for the year is shown below.
Assuming no beginning inventory, what is the total value of ending finished goods
inventory under absorption costing?
a. $159,375.
b. $184,375.
c. $209,375.
d. $279,175.
50. Using absorption costing, Langdon Company’s income for October was $250,000.
Langdon began the month with 10,000 units in finished goods inventory that contained
$30,000 of fixed manufacturing overhead costs. During October, the company produced
330,000 units and sold 325,000 units. The fixed manufacturing overhead for October
totaled $990,000. If Langdon Company used variable costing, its income for October
would be
a. $265,000.
b. $250,000.
c. $235,000.
d. $234,308.
51. A company manufactures several products that originate in a joint process and are
separated at a split-off point. Which one of the following methods of joint cost allocation
would allocate the same unit cost to each separable product?
a. Net realizable value method.
b. Sales value at split-off method.
c. Physical-quantity method.
d. Constant gross-margin percentage method.
52. A specialty instrument manufacturer is in the process of establishing a cost system. The
company produces machines for customers that are unique and distinctive. These
machines are produced when purchase requests are received from customers. Although
some common parts and sub-assemblies are to be held in inventory, no finished goods
inventory is maintained since each purchase request is for a customized specialty
instrument. The type of cost accumulation system that would be best suited for this type
of environment would be
a. backflush costing.
b. batch-level costing.
c. job order costing.
d. process costing.
53. During the production of its single product, a company discovers that an unusual
overnight power failure caused an entire day’s in-process production to be ruined. How
should the cost of these spoiled units be charged?
a. Added to the cost of future good units produced.
b. Written off as a loss.
c. Added to the cost of the next day’s production.
d. Added to general factory overhead.
54. A primary reason for a company to change from traditional costing to activity-based
costing (ABC) is that ABC
a. is a simpler costing method to use.
b. reduces product undercosting or overcosting.
c. eliminates indirect cost application to products.
d. identifies the non-value added costs of production.

55. A company will introduce a new product in Year 1 that is expected to have a three-year
life. The company expects to sell 100,000 units each year. Estimated costs are shown
below.
Year 0 Year 1 Year 2 Year 3

Research/design $260,000 $ 0 $ 0 $ 0
Production 0 900,000 900,000 900,000
Marketing 10,000 300,000 100,000 50,000
Customer service 0 40,000 60,000 80,000
If the company uses life-cycle costing to price its new product and desires a 10% mark-
up over cost, the selling price for Year 3 would be
a. $13.20.
b. $12.21.
c. $11.66.
d. $9.90.
56. Huntley Company has two departments, Machining and Assembly, at its Milwaukee plant.
This year's budget for the plant contained the following information.
If the Milwaukee plant allocates manufacturing overhead based on machine hours, which
of the following represents the allocation rates?
Machining Assembly
a. $40/hr. $10/hr.
b. $10/hr. $40/hr.
c. $100/hr. $50/hr.
d. $50/hr. $100/hr.

57. Warren Company uses departmental rates to assign overhead to its two products.
Budgeted data for the next year are shown below.
Warren expects to manufacture 400,000 units of Product A during the year. Each unit of
Product A requires 0.5 machine hours in Department 1 and 1.5 labor hours in Department
2. The budgeted overhead cost for one unit of Product A is
a. $11.03.
b. $12.50.
c. $12.73.
d. $15.00.
58. A capital-intensive manufacturer of large construction equipment has a manufacturing

process that relies heavily on specialized machinery. This machinery is run by a relatively
few number of highly skilled laborers. In determining its predetermined overhead rate,
what allocation base should the company use?
a. Sales dollars.
b. Direct labor costs.
c. Machine hours.
d. Direct labor hours.

59. A company has two service departments and is planning to use the reciprocal method to
allocate service department costs. The following information from operations was
collected for analysis.
Which one of the following equations represents the complete reciprocated cost of the
Data Processing Department?
a. $70,000 + [(600/4,700) x $400,000].
b. $70,000 + [(3,000/16,200) x $400,000].
c. $70,000 x (600/4,700) + $350,000 x (3,000/16,200).
d. $400,000 + [(600/16,200) x $70,000].
60. Which one of the following is not an expected benefit of implementing a just-in-time
(JIT) production system?
a. Lower total storage costs.
b. Lower total set-up costs.
c. Lower manufacturing lead time.
d. Lower total rework cost.
61. Assume that a manufacturing firm maintains its product cost accounting records using
throughput costing. At the end of the fiscal year,

a. reported net income will be less than that which would be reported using activity-
based costing.
b. an adjusting entry will be required to restate the inventory accounts for external
reporting purposes.
c. the firm should convert its records to a direct costing basis.
d. the resulting production volume variance should be closed to Cost of Goods Sold.
62. A company has budgeted overhead costs at its normal capacity based on machine hours.
Variable factory overhead is $180,000; and fixed factory overhead is $560,000. If the firm
operates at a slightly lower rate of activity, it will expect total
a. fixed factory overhead of $560,000 and a lower hourly rate for variable overhead.
b. fixed factory overhead of $560,000 and the same hourly rate for variable overhead.
c. fixed factory overhead of $560,000 and a higher hourly rate for variable overhead.
d. variable overhead of less than $180,000 and a lower hourly rate for variable overhead.
63. An outside consultant has been hired by a manufacturing firm to evaluate each of the
firm's major products beginning with the design of the products and continuing through
the manufacture, warehousing, distribution, sale and service. The consultant has also been
requested to compare the manufacturer's major products with firms that are manufacturing
and marketing the same or similar products. The consultant is to identify where customer
value can be increased, where costs can be reduced, and to provide a better understanding
of the linkages with customers, suppliers, and other firms in the industry. The type of
analysis that the consultant most likely has been asked to perform for the manufacturing
firm is called a
a. balanced scorecard study.
b. benchmarking analysis.
c. SWOT (strengths, weakness, opportunities, threats) analysis.
d. value-chain analysis.
64. A small computer manufacturer employs 25 plant workers in its main manufacturing
facility. The performance improvement team has identified the following activities and
relative time demanded by each activity.
Classify the four activities as value-added and nonvalue-added.
Value-added Nonvalue-added
a. A, B, and C D.
b. A and B C and D.
c. A, B, and D C.
d. B and C A and D.

65. A company implemented a benchmarking program to compare itself to others in the
industry. Through this program the company management team discovered that a larger
competitor has a lower overhead per unit sold. Based on this information, management
concluded that steps must be taken to reduce overhead to remain competitive. Which one
of the following is the best critique of this conclusion?
a. Benchmarking should be performed with companies of similar size and sales.

b. Fixed overhead is difficult to control and should not be benchmarked.
c. Cost per unit is just one area of competitiveness and others should be looked at.
d. Companies operate very differently and comparisons should not be made.
66. A manufacturer of high technology consumer goods incurred the following quality-related
expenses last year.
Equipment maintenance $ 5,000

Spoilage 10,000
Liability claims 50,000
Supplier evaluations 5,000
Scrap 20,000
Customer support 50,000
Finished product testing 25,000
What is the total cost related to prevention?
a. $165,000.
b. $35,000.
c. $10,000.
d. $5,000.
67. The new Controller of a company is evaluating her department for proper segregation of
duties. Evaluate the following statements and determine which set of duties is acceptable
to be performed by the same employee while still maintaining proper segregation of
duties.
a. Receive the company’s deposits and record the transaction.
b. Collect the cash and checks and take the deposit to the bank.
c. Enter expenses into the general ledger and pay the credit card bills.
d. Authorize cash disbursements and deliver the payments.

68. When assessing inherent risk during a compliance audit the internal auditor should
consider each of the following factors except the
a. complexity of the specified compliance requirements.
b. effectiveness of the entity's internal controls over the specified
compliance requirements.
c. length of time the entity has been subject to the specified compliance requirements.
d. entity's prior experience with complying with the specified requirements.
69. A U.S. publically traded company completed its annual audit and internal control
assessment. An external auditor attested to the financial statements by giving an audit
opinion but did not report on management’s assessment of the internal controls. Did the
company violate section 404 of the Sarbanes-Oxley Act?
a. No, the company was still in compliance due to the safe harbor rules.
b. Yes, because the company did not include a certification from the CFO and CEO.
c. No, but the company has violated Section 302 of the Sarbanes-Oxley Act.
d. Yes, because the company did not have an auditor attest to and report on the assessment
of the internal controls.
70. In accordance with the Sarbanes-Oxley Act, which one of the following certification is not
included in periodic statutory financial reports?
a. The signing officers have reviewed the report and the report does not contain any
material untrue statements or material omissions.
b. Any significant changes in internal controls or related factors that could have a
negative impact are disclosed.
c. A list of all deficiencies in the internal controls and information on any fraud that
involves employees who are involved with internal operations.
d. The major internal control provisions of the Foreign Corrupt Practices Act.

71. Which one of the following best describes an important provision of the U. S. Foreign
Corrupt Practices Act?
a. Auditors cannot provide bookkeeping or other services related to the accounting records or
financial statements of the audit client.
b. Companies must follow the laws of the company’s home country as well as the laws of the
countries where any foreign subsidiaries are located.
c. The CEO and CFO must certify that they have no knowledge of any corrupt practices
occurring in any overseas subsidiaries of U.S. companies.
d. The internal accounting controls should be examined and if material weaknesses are found,
controls must be strengthened.
72. Which one of the following statements best describes the internal control requirements of
the US Foreign Corrupt Practices Act of 1977?
a. It is unlawful to bribe foreign government officials to obtain or retain business.

b. Management must establish systems to provide assurances that transactions are
authorized.
c. All major cash payments and receipts must be reported to the U.S. Department of the
Treasury.
d. It is unlawful to bribe officers or officials of foreign corporations to obtain or retain
business.
73. Which one of the following is the best description of the internal audit function?
a. It serves third parties who need reliable financial information.

b. It focuses on the historical information in the financial statements.
c. It evaluates controls designed to ensure that entity goals are met.
d. It works to detect fraud related to material misstatements.

74. Which one of the following statements most accurately explains the difference between
the internal audit department’s responsibilities in reviewing compliance and their
responsibilities in operational auditing?
a. Compliance reviews are a means of ensuring that the organization complies with laws,
rules and regulations, while operational audits are conducted primarily to identify
operational problems and enhance efficiency and effectiveness of operations.
b. Compliance reviews are performed to ensure that the entity’s financial statements are in
accordance with accepted accounting principles, while operational audits are performed
at the departmental level.
c. Compliance reviews are performed to assure that employees comply with company rules
and guidelines, while operational audits are directed toward specific financial issues as
directed by management.
d. Compliance reviews are directed toward ensuring that the organization complies with
rules and regulations, while operational audits are conducted to ensure that the entity’s
financial statements are in accordance with accepted accounting principles.
75. A company’s information system has a password matrix that allows a user to have only
permission rights needed to perform the user’s duties. This type of control is known as
a(an)
a. access control.
b. data validation control.
c. application control.
d. data capture control.
76. Which one of the following best depicts the path and timing of data as it moves through an
accounting information system?
a. Fishbone diagram.
b. Program flowchart.
c. System flowchart.
d. Decision table.

77. Which one of the following statements on the contingency planning for disasters is not
true?
a. A disaster recovery plan must be implemented at the lowest levels in the company.
b. The disaster recovery plan should be thoroughly documented and approved.
c. The design of the disaster recovery plan should include an evaluation of the company’s
needs, a list of priorities for recovery, and a set of recovery strategies and procedures.
d. A very important part of a disaster recovery plan is the specification of the backup site.
78. The IT team of a company created a disaster recovery plan for their employer. The plan
includes several versions of backups of data and systems, including at least one copy kept
off site. The plan also includes an off-site location selected for its reduced chance of
natural disasters like floods and hurricanes. This location is guarded by a security service.
The IT manager has a copy of the plan at home, and the plan is regularly tested. Select the
statement below that best describes the plan.
a. The disaster recovery plan has everything required because the company can access the
data backups and continue processing.
b. The disaster plan needs to ensure that there are copies of the disaster recovery plan
accessible on the computer system.
c. The disaster recovery plan needs to include a disaster recovery site that is a hot or cold
site with necessary capabilities.
d. The disaster recovery plan needs to include instructions for appointing a recovery team
when a disaster occurs.
79. A new management accountant is concerned about complying with the ethical standard of
competence in IMA's Statement of Ethical Professional Practice. Which one of the
following is not required under the standard of competence?
a. Maintain expertise in all areas of accounting.
b. Continually develop knowledge and skills.
c. Perform duties in accordance with relevant regulations and standards.
d. Provide recommendations that are accurate and timely.

80. Scott Jones, a new accounting clerk at a firm that had recently terminated several
employees due to budgetary cutbacks, accidentally viewed his supervisor’s biweekly
paycheck. Not realizing that the paycheck included an annual bonus, Jones erroneously
multiplied the gross pay by 26 to find annual earnings. Jones was amazed that his
supervisor appeared to earn more than twice the local average for employees in an
accounting supervisory position. Jones discussed this situation with a friend, a recently
terminated employee of the company who now worked for a local newspaper. As a result
of this discussion, the supervisor’s “outrageous” salary was made public.
Which one of the standards of IMA’s Statement of Ethical Professional Practice, did
Jones’ actions violate?
a. Competence.
b. Confidentiality.
c. Integrity.
d. Credibility.

Answers – CMA Part 1 Practice Questions
1. c 31. b 61. b
2. c 32. a 62. b
3. c 33. a 63. d
4. a 34. b 64. b
5. c 35. c 65. a
6. c 36. b 66. c
7. b 37. c 67. b
8. c 38. b 68. b
9. b 39. a 69. d
10. d 40. a 70. d
11. c 41. c 71. d
12. b 42. a 72. b
13. a 43. a 73. c
14. c 44. a 74. a
15. d 45. d 75. a
16. b 46. b 76. c
17. c 47. b 77. a
18. a 48. d 78. d
19. b 49. a 79. a
20. c 50. c 80. b
21. b 51. c
22. a 52. c
23. d 53. b
24. d 54. b
25. b 55. a
26. b 56. c
27. b 57. b
28. b 58. c
29. d 59. b
30. c 60. b

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CMA Part 1 – Financial Planning, Performance, & Control

Examination Practice Questions

© Copyright 2013 Institute of Certified Management Accountants

a. 0.75 machine hours per unit.

© Copyright 2013 Institute of Certified Management Accountants

a. Time series analysis.

a. the zero level of output is outside of the relevant range.

a. A learning curve is a linear cost behavior influenced by learning.

Year 1 Year 2 Year 3

© Copyright 2013 Institute of Certified Management Accountants

a. a rolling budget since they want information for multiple periods.

© Copyright 2013 Institute of Certified Management Accountants

a. Sales credit policies, purchasing terms, and planned capital acquisition.

January February March

OneCo finds that it collects cash from credit customers as follows:

Within the first ten days after the month of sale,

What will be OneCo’s cash receipts for the month of March?

a. The budgeted balance sheet only.

© Copyright 2013 Institute of Certified Management Accountants

a. Pre-tax cost of capital projects.

27. Robinson Corporation’s most recent performance report indicated:

Actual Results Flexible Budget Static Budget

Robinson’s sales-volume variance for operating income is

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a. The number of units produced was more than 300,000.

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Material A: 4 ounces @ $1.50/ounce

© Copyright 2013 Institute of Certified Management Accountants

a. decreasing the prices of goods transferred into divisions in these countries.

a. Hybrid transfer pricing.

a. incremental cost method and allocate $10,000 to the Finance Department.

The company's operating profit last year was

© Copyright 2013 Institute of Certified Management Accountants

Assets 2,500 15,000 8,000 25,000

Which division has the highest return on investment?

Customer A Customer B Customer C Customer D

Sales $100,000 $150,000 $200,000 $250,000

© Copyright 2013 Institute of Certified Management Accountants

Current assets $ 120,000

© Copyright 2013 Institute of Certified Management Accountants

© Copyright 2013 Institute of Certified Management Accountants

48. Consider the cost of goods sold calculation shown below.

Beginning inventory $ 100,000

This is an example of which cost measurement technique?

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Year 0 Year 1 Year 2 Year 3

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58. A capital-intensive manufacturer of large construction equipment has a manufacturing

© Copyright 2013 Institute of Certified Management Accountants

© Copyright 2013 Institute of Certified Management Accountants

Classify the four activities as value-added and nonvalue-added.

© Copyright 2013 Institute of Certified Management Accountants

a. Benchmarking should be performed with companies of similar size and sales.

Equipment maintenance $ 5,000

What is the total cost related to prevention?

© Copyright 2013 Institute of Certified Management Accountants

© Copyright 2013 Institute of Certified Management Accountants

a. It is unlawful to bribe foreign government officials to obtain or retain business.

a. It serves third parties who need reliable financial information.