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.
CMA Exam Part 1:
1. A manufacturing company has the opportunity to submit a bid for 20 units of a product on which it has already produced two 10-unit lots. The production manager believes that the learning experience observed on the first two lots will continue for at least the next two lots. The direct labor required on the first two lots was as follows:
- 5,000 direct labor hours for the first lot of 10 units
- 3,000 additional direct labor hours for the second lot of 10 units
The learning rate experienced by the company on the first two lots of this product is
a. 40.0%.
b. 60.0%.
c. 62.5%.
d. 80.0%.
The correct answer is d. Average hours for 20 units = (5,000 + 3,000) ÷ 20 units = 400 hours
Average hours for 10 units = 5,000 ÷ 10 units = 500 hours
= 400 hours ÷ 500 hours
= 80% learning rate
2. Lee Manufacturing uses a standard cost system with overhead applied based on 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 at $15 per hour) | $150,000 |
| Variable overhead | 30,000 |
| Fixed overhead | 80,000 |
During May, 6,000 units were produced, and the direct labor efficiency variance was $1,500 unfavorable. Based on this information, the actual number of direct labor hours used in May was
b. 10,100 hours.
c. 11,900 hours.
d. 12,100 hours.
The correct answer is d. The actual direct labor hours used by Lee Manufacturing is 12,100 calculated as follows.
| Standard quantity | = 6,000 units x 2 hours per unit | |||
| = 12,000 hours | ||||
| Actual hours: | (X-12,000) x $15 | = | $1,500 | |
| X – 12,000 | = | 100 | ||
| X | = | 12,100 | ||
a. Average cost per unit.
b. Variable cost per unit.
c. Unit fixed cost.
d. Total variable cost.
The correct answer is b. The variable cost per unit would remain the same as the volume decreases. All other costs listed would change with a change in volume.
CMA Exam Part 2:
4. Frasier Products has been growing at a rate of 10% per year and expects this growth to continue and produce earnings per share of $4.00 next year. The firm has a dividend payout ratio of 35% and a beta value of 1.25. If the risk-free rate is 7% and the return on the market is 15%, what is the expected current market value of Frasier’s common stock?
a. $14.00.
b. $16.00.
c. $20.00.
d. $28.00.
The correct answer is c. The expected current value of Frasier’s common stock in $20 as shown below.
| Dividend | = | Payout ratio x Earnings per share |
| = | .35 x $4.00 | |
| = | $1.40 | |
| Required return | = | Risk-free rate + Beta (Market rate – Risk-free rate) |
| = | .07 + 1.25 (.15 - .07) | |
| = | .17 | |
| Value of stock | = | Dividend ÷ (Required return – Dividend growth rate) |
| = | $1.40 ÷ (.17 - .10) | |
| = | $20.00 |
5. Zipper Company invested $300,000 in a new machine to produce cones for the textile industry. Zipper’s variable costs are 30% of the selling price, and its fixed costs are $600,000. Zipper has an effective income tax rate of 40%. The amount of sales required to earn an 8% after-tax return on its investment would be
a. $891,429.
b. $914,286.
c. $2,080,000.
d. $2,133,333.
The correct answer is b. To earn an 8% after-tax return on the $300,000 investment, Zipper Company would require sales totaling $914,286 as shown below.
| Contribution – Fixed costs | = | 8% of investment ÷ (1 – tax rate) |
| .7A - $600,000 | = | (.08 x $300,000) ÷ ( 1 - .4) |
| .7A - $600,000 | = | $24,000 ÷ .6 |
| .7A | = | $600,000 + $40,000 |
| A | = | $914,286 |
For more information about taking the CMA exam, please visit this link.