To provide candidates with a brief view of some of the types of questions on the CMA® (Certified Management Accountant) exam, here are five questions – with correct answers and explanations for each.

After each answer, you’ll see the corresponding portion of the Content Specifications Outline (CSO) and Learning Outcome Statements (LOS) that each question corresponds to.

CMA Exam Part 1:

1. The financial statements included in the annual report to the shareholders are least useful to which one of the following?

a. Stockbrokers
b. Bankers preparing to lend money
c. Competing businesses
d. Managers in charge of operating activities

The correct answer is (d). The annual report to shareholders is prepared in accordance with generally accepted accounting principles and is designed to provide information that is pertinent to investors and other external users. Managers responsible for operating activities use internal reports designed to provide information about various aspects of internal functions that measure the effectiveness and efficiency of operations.

(CSO: 1A1a; LOS: 1A1a)

2. A company isolates its raw material price variance in order to provide the earliest possible information to the manager responsible for the variance. The budgeted amount of material usage for the year was computed as follows:

150,000 units of finished goods x 3 pounds/unit x $2.00/pound = $900,000.

Actual results for the year were the following:

Finished goods produced   160,000 units
Raw materials purchased   500,000 pounds
Raw materials used   490,000 pounds
Cost per pound   $2.02

The raw material price variance for the year was

a. $9,600 unfavorable.
b. $9,800 unfavorable.
c. $10,000 unfavorable.
d. $20,000 unfavorable.

The correct answer is (c). The raw material price variance (purchase price variance) is $10,000 U as shown below.

Price variance    =    (Actual price – Standard price) x Actual quantity 
   =    ($2.02 - $2.00) x 500,000
    $10,000 U

(CSO: 1C1e; LOS: 1C1k)

3. In a production process where joint products are produced, the primary factor that will distinguish a joint product from a by-product is the

a. relative total sales value of the products.
b. relative total volume of the products.
c. relative ease of selling the products.
d. accounting method used to allocate joint costs.

The correct answer is (a). Joint products generally have a higher sales value than by-products.

(CSO: 1D1f; LOS: 1D1j)

CMA Exam Part 2:

4. A financial analyst calculated a company's degree of financial leverage as 1.5. If net income before interest increases by 5%, earnings to shareholders will increase by

a. 1.50%.
b. 3.33%.
c. 5.00%.
d. 7.50%.

The correct answer is (d). Earnings to shareholders will increase by 7.5% as shown below:

Degree of financial leverage  
 =    % change in net income ÷ % change in EBIT 
 1.5    =    X ÷ 5%
 X     =    7.5% 

(CSO: 2A2b; LOS: 2A2f)

5. The net present value of an investment project represents the

a. total actual cash inflows minus the total actual cash outflows.
b. excess of the discounted cash inflows over the discounted cash outflows.
c. total after-tax cash flow including the tax shield from depreciation.
d. cumulative accounting profit over the life of the project.

The correct answer is (b). The net present value method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time.

(CSO: 2E2a; LOS: 2E2a)

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