CMA (Certified Management Accountant) Practice Questions — All Questions

A flexible budget differs from a static budget because it:

• a.Never changes
• b.Adjusts budgeted amounts for the actual level of activity✓
• c.Ignores variable costs
• d.Is prepared only after the year ends

A flexible budget flexes budgeted costs to the actual activity level.

The starting point for most operating budgets is usually the:

• a.Sales (revenue) budget✓
• b.Cash budget
• c.Capital budget
• d.Balance sheet

The sales budget typically drives the rest of the operating budgets.

A budget prepared assuming no prior-year baseline, justifying every expense, is:

• a.Incremental budgeting
• b.Flexible budgeting
• c.Zero-based budgeting✓
• d.Capital budgeting

Zero-based budgeting justifies all expenses from a zero base.

A master budget is:

• a.Only the cash forecast
• b.Only the sales plan
• c.A single department's budget
• d.The comprehensive set of an organization's budgets✓

The master budget aggregates operating and financial budgets.

A favorable variance generally means actual results were:

• a.Worse than budget
• b.Better than the budgeted/standard amount✓
• c.Exactly on budget
• d.Not measurable

A favorable variance means performance beat the standard or budget.

A balanced scorecard evaluates performance using:

• a.Financial and non-financial perspectives✓
• b.Only net income
• c.Only stock price
• d.Only the cash balance

The balanced scorecard adds customer, internal-process, and learning perspectives to financials.

Return on investment (ROI) for a division is generally:

• a.Sales minus expenses
• b.Total assets only
• c.Operating income divided by invested capital✓
• d.Cash divided by liabilities

ROI relates a division's income to the capital invested to earn it.

Residual income is operating income minus:

• a.Depreciation
• b.Taxes only
• c.Cost of goods sold
• d.A capital charge on invested capital✓

Residual income subtracts a required return (capital charge) from operating income.

Contribution margin equals sales revenue minus:

• a.All fixed costs
• b.Variable costs✓
• c.Taxes
• d.Depreciation

Contribution margin is sales minus variable costs; it covers fixed costs and profit.

At the break-even point:

• a.Total revenue equals total costs (zero profit)✓
• b.Profit is maximized
• c.Fixed costs are zero
• d.Variable costs are zero

Break-even is where total revenue exactly covers total costs.

A cost that stays constant in total as activity changes (within a range) is a:

• a.Variable cost
• b.Marginal cost
• c.Fixed cost✓
• d.Opportunity cost

Fixed costs remain constant in total over the relevant range.

Activity-based costing (ABC) assigns overhead based on:

• a.Direct labor hours only
• b.A single plant-wide rate always
• c.Sales revenue
• d.Cost drivers that cause the activities✓

ABC traces overhead using activities and their cost drivers for more accuracy.

Segregation of duties is an internal control that:

• a.Speeds up all transactions
• b.Prevents one person from controlling all parts of a transaction✓
• c.Eliminates the need for audits
• d.Increases fraud risk

Separating authorization, recording, and custody reduces fraud and error risk.

The primary purpose of internal controls is to:

• a.Provide reasonable assurance about reliable reporting and asset safeguarding✓
• b.Guarantee zero fraud
• c.Maximize revenue
• d.Replace management judgment

Internal controls give reasonable (not absolute) assurance over reporting and assets.

A preventive control is designed to:

• a.Detect errors after they occur
• b.Correct past errors
• c.Stop errors or fraud before they happen✓
• d.Report to regulators

Preventive controls aim to stop problems before they occur.

Requiring a manager's approval before large purchases is an example of:

• a.A detective control
• b.A corrective control
• c.A compensating control
• d.An authorization (preventive) control✓

Approval requirements are preventive authorization controls.

The current ratio measures:

• a.Profitability
• b.Short-term liquidity (current assets to current liabilities)✓
• c.Long-term leverage
• d.Market value

Current ratio = current assets / current liabilities, a liquidity measure.

A higher debt-to-equity ratio indicates:

• a.Greater financial leverage and risk✓
• b.Lower risk always
• c.More cash
• d.Higher liquidity

More debt relative to equity means higher leverage and financial risk.

Gross profit margin equals gross profit divided by:

• a.Total assets
• b.Net income
• c.Sales revenue✓
• d.Equity

Gross margin = gross profit / sales.

Inventory turnover measures:

• a.Profit per unit
• b.Cash on hand
• c.Debt levels
• d.How many times inventory is sold and replaced in a period✓

Inventory turnover = COGS / average inventory, showing how fast inventory sells.