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. An accountant gathered the following information in order to prepare the statement of cash flows for the current year. Net income of $456,900 includes a deduction of $45,600 for depreciation expense. The company issued $300,000 of dividends this year and purchased one new building for $275,000. The balance sheets from the current period and prior period included the following balances.

       Prior Year      Current Year
 Accounts receivable, net      $ 56,860    $ 45,300
 Accounts payable         12,900    10,745
 Inventory       186,700    194,320

Using the indirect method, what is the amount of cash provided by operating activities?

  1. $202,500.
  2. $405,205.
  3. $504,285.
  4. $521,405.
1. Correct answer: c.  


Net income     $ 456,900
Depreciation on fixed assets       45,600
Decrease in accounts receivable, net    11,560
Increase in inventory    (7,620)
Decrease in accounts payable         (2,155)
Cash provided by operating activities    $ 504,285

2. A company sells a product that is aimed at the broad mass market but is perceived as unique throughout its industry. The company is earning above-average returns on the product. Which one of the following is the most appropriate term for the competitive strategy followed by the company?

  1. Market focus. 
  2. Financial leadership.
  3. Cost focus.
  4. Differentiation.

2. Correct answer: d. The differentiation strategy is aimed at the broad mass market and involves the creation of a product or service that is perceived throughout its industry as unique. Differentiation is a viable strategy for earning above-average returns in a specific business because the resulting brand loyalty lowers customers’ sensitivity to price. Increased costs can usually be passed on to the buyers. 

3. A project manager has been asked to provide an explanation regarding a $2,220 favorable material variance on a playground equipment project. After further analysis, the project manager was able to break down the material variance to an unfavorable price variance of $1,700 and a favorable quantity variance of $3,920. The best explanation of the variances is that the

  1. decision by the purchasing department to use a new supplier resulted in the purchase of the materials for a lower price.
  2. excellent scheduling by the production department enabled the purchasing department to reduce shipping costs.
  3. purchasing department purchased a higher-quality material, resulting in less wasted materials.
  4. human resources department failed to hire adequately trained workers, causing materials to be wasted.
3. Correct answer: c. It would result in an unfavorable price variance and a favorable quantity variance.

CMA Exam Part 2: 

1. The CFO of a machine parts manufacturer is considering splitting the company’s stock, which is currently selling at $80 per share. The stock currently pays a $1 per share dividend. If the split is two-for-one, the CFO may expect the post-split price to be

  1. exactly $40, regardless of dividend policy.
  2. greater than $40, if the dividend is changed to $0.45 per new share.
  3. greater than $40, if the dividend is changed to $0.55 per new share.
  4. less than $40, regardless of dividend policy.
1. Correct answer: c. The post-split price of the stock should be greater than $40 if the dividend changed to $0.55 as the dividend yield will have increased.

2. A company invests in a project with expected cash inflows of $9,000 per year for four years. All cash flows occur at year-end. The required return on investment is 9%. If the project generates a net present value (NPV) of $3,000, what is the amount of the initial investment in the project?

  1. $11,253.
  2. $13,236.
  3. $26,160.
  4. $29,160.
2. Correct answer: c. The company’s initial investment is $26,160 as shown below.

Present value of cash inflows     $9,000 x 3.24      =      $29,160
Initial investment $29,160 - $3,000      =       $26,160

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