CMA Exam Study Tip #3: Preparing for Part 2 – and Dealing With Difficult Questions The longest, most time-consuming section of the CMA® exam, Part 2, is a four-hour test with 140 multiple-choice questions on management accounting and reporting. Like Parts 1 and 3, each question in Part 2 has four possible answer choices, but only one answer is correct. Also like Parts 1 and 3, questions are presented as either: (1) a complete sentence that concludes with a question mark; (2) an incomplete sentence, with the options representing conclusions to that sentence; (3) in the "except" or "not" format; or (4) in the "most/least/best" format. To perform well on Part 2, a candidate needs extensive knowledge of concepts relating to management accounting and external financial reporting. Questions on this part of the CMA exam cover the following topics: Budget Preparation (15% of questions; Difficulty Level C*), including budgeting concepts; annual profit plans and supporting schedules; and types of budgets, including activity-based budgeting, kaizen budgeting, project budgeting, and flexible budgeting. Look for questions such as: In preparing a corporate master budget, which one of the following is most likely to be prepared last? Sales budget. Cash budget. Production budget. Cost of Goods Sold budget (The answer is "B." The pro forma statement of cash flows is usually one of the last steps in preparing a master budget. The process of creating a master budget usually has the following sequence: sales budget, production budget, selling and administrative expenses budget, cash budget, and pro forma financial statements.) *Each topic is assigned a difficulty level of either A, B, or C. Level A topics require the skills of knowledge and comprehension; Level B topics require knowledge, comprehension, application, and analysis; Level C topics require knowledge, comprehension, application, analysis, synthesis, and evaluation. Also, topics assigned Level C may include Level A, B, or C questions, but a topic assigned Level B will not include Level C questions. Cost Management (25% of questions, Difficulty Level C), including cost concepts, flows, and terminology; cost measurement concepts; cost accumulation systems, including job order costing, process costing, and activity-based costing. For example: Breegle Company produces three products (B-40, J-60, and H-102) from a single process. Breegle uses the physical volume method to allocate joint costs of $22,500 per batch to the products. Based on the following information, which product(s) should Breegle sell at the splitoff point in order to maximize profit? B-40 J-60 H-102 Physical units produced per batch 1,500 2,000 3,200 Sales value per unit at splitoff $10.00 $4.00 $7.25 Cost per unit of further processing after splitoff 3.05 1.00 2.50 Sales value per unit after further processing 12.25 5.70 9.75 H-102 only. J-60 only. B-40 and H-102 only. J-60 and H-102 only. (The answer is "B." The units should be processed after the splitoff point only if the additional cost is less than the additional revenue. Only J-60 units warrant further processing: B-40 J-60 H-102 Additional revenue $2.25 $1.70 $2.50 Additional cost $3.05 $1.00 $2.50 Information Management (15% of questions, Difficulty Level A), including systems development and design; networks and client/server systems; ERP systems; and electronic commerce. Look for questions such as: Replication processes are needed in e-commerce to ensure that key support functions (e.g., inventory levels, pricing, and discounts) available to customers are in synch with the company’s master system. These processes include all of the following except: Frequent updates for each online process. Customer access to real-time inventory levels. Pricing strategies and equations used to develop prices. Customer access to real-time backorder status. (The answer is "C." In e-commerce systems, data can be portioned – split into pieces and stored on various computers – and replicated, copied with parts stored on two or more computers. Pricing strategies and equations used to develop prices are not part of the replication process; instead, these functions are typically centralized.) Performance Measurement (20% of questions, Difficulty Level C), including factors to be analyzed for control and performance evaluation including revenues, costs, profits and investment in assets; variance analysis based on flexible budgets and standard costs; balanced scorecard; and quality considerations. You’ll find questions like: Lee Manufacturing uses a standard cost system with overhead applied based upon direct labor hours. The manufacturing budget for the production of 5,000 units for the month of May included the following information:    Direct labor (10,000 hours @ $15 per hour) $ 150,000    Variable overhead 30,000    Fixed overhead 80,000 During May, 6,000 units were produced and the fixed overhead budget variance was $2,000 favorable. Fixed overhead during May was:    a. Underapplied by $2,000.    b. Underapplied by $16,000.    c. Overapplied by $16,000.    d. Overapplied by $18,000. (The answer is "D." Applied fixed overhead: ($80,000/10,000 hours) x (6,000 units x 2 direct labor hours per unit) = $96,000. Since the fixed overhead was $2,000 less than budgeted, fixed overhead was overapplied by $18,000, namely ($80,000 -$2,000) - $96,000.) External Financial Reporting (25% of questions, Difficulty Level B), including principal financial statements and their purposes; asset and liability recognition and measurement; equity recognition and measurement; the SEC and its reporting requirements; and the annual report. For example:   A statement concerning the accounting principles employed by a firm in the preparation of its publicly issued financial statements    a. may be disclosed in the notes to the financial statements or on the face of the income statement.    b. must be shown on the face of the income statement.    c. should be disclosed in the notes to the financial statements.    d. should be disclosed in the management’s discussion and analysis. (The answer is "C." According to APB Opinion No. 22, significant accounting principles and methods should be disclosed in the notes to the financial statements or a separate Summary of Significant Accounting Policies section.) Study Tip: Dealing With Difficult Questions For some candidates, answering the above sample questions may be difficult or impossible. In fact, when you take any part of the CMA exam, you will no doubt encounter questions that you cannot answer. What should you do? First, be sure to answer every question, even if the best you can do is guess. You have nothing to lose and everything to gain by at least attempting to answer a question rather than leaving it unanswered. Guesses need not be random, though. Look for any reason to eliminate any obviously wrong answer choices, and you will greatly improve your odds of guessing correctly. Finally, remember that the biggest risk of working on a puzzling question is not that you might answer the question incorrectly – it is letting that one question rob you of valuable time that you could be spending answering several other "easy" questions correctly. So know when it’s time to take your best stab at an answer and move on. Similarly, there is no advantage to ending the test early. Make the most of any remaining time by reviewing your work, making corrections, or going back to more difficult questions. It is possible that during this review time, you will recall some fact or information that you may have previously overlooked on one or more questions. To learn more about the content of the CMA exam, visit CMA Exam Content Specifications and CMA Exam Learning Outcome Statements In the next issue: An Overview of Part 3 – and Advice About Answer Changing