To provide candidates with a brief view of some of the types of questions on the CMA® (Certified Management Accountant) exam, following are five questions – with correct answers and explanations for each.
You can also check out these additional practice multiple-choice and essay questions to test your CMA knowledge.
CMA Exam Part 1:
1. On July 15, a company entered into a three-month agreement to rent a machine the company needed to complete a special order. The machine would be delivered on August 1, and rental payments are due on the first day of each rental month. The effect this event would have on the company’s July 31 financial statements would be to
- cause no change in assets, liabilities, or income.
- increase both assets and income.
- increase both assets and liabilities.
- increase liabilities and decrease income.
Correct answer a.
Cash has not yet been paid and no expense was incurred before the machine arrived. A recordable transaction has therefore not yet occurred.
2. With respect to the internal control provisions of the U.S. Foreign Corrupt Practices Act (FCPA), all of the following statements are true except that
- the FCPA prescribes a particular set of internal controls that companies are required to develop and implement.
- internal controls are used by companies to help provide reasonable assurance regarding reliability of financial reporting.
- access to company assets are permitted in accordance with management’s general and specific authorization.
- good internal controls can help prevent not only FCPA violations, but also other illegal or unethical conduct.
Correct answer a.
The FCPA does not specify the particular set of controls a company must implement. It gives companies flexibility to develop and maintain its set of internal controls that is appropriate to its nature, needs, and circumstances.
CMA Exam Part 2:
3. An investor is evaluating the common stock of a technology company that has a beta of 1.8. The expected return for the securities market as a whole is 8%. The investor could receive a risk-free return of 2% on a U.S. Treasury bill. Based on the capital asset pricing model (CAPM), what is the expected risk adjusted return of the technology company’s common stock?
- 10.8%.
- 12.8%.
- 16.4%.
- 20.0%.
Correct answer b.
Expected return = risk free return + beta of security * (expected market return – risk free return)
Expected return = 2% + 1.8 * (8% - 2%) = 12.8%
4. Projected sales for a tent manufacturer are $510,000. Each tent sells for $850 and requires $350 of variable costs to produce. The tent manufacturer’s total fixed costs are $145,000. The tent manufacturer’s margin of safety is
- 310 units.
- 710 units.
- 730 units.
- 1,310 units.
Breakeven unit sales = fixed costs / (selling price – variable costs) = $145,000 / ($850 - $350) = 290
Projected unit sales = $510,000 / $850 = 600
Margin of safety = projected unit sales – breakeven unit sales = 600 - 290 = 310
5. After a competitive bidding process, a company’s purchasing director awarded a contract to the lowest bidder, an organization in which she had a personal interest. Since the winning bidder had the lowest price, she did not disclose her relationship with the entity. In fact, she frequently highlighted the fact that the winning bidder had the most experience servicing contracts of this nature. Which one of the values of ethical decision making did the purchasing director violate?
- None, because a competitive bidding process was utilized.
- Fairness, because she did not tell the truth about her relationship with the vendor.
- Integrity, because her relationship with the bidder could have impaired her judgment.
- Honesty, because she was not being truthful about the experience of the bidder.
Integrity refers to being whole, sound, and in an unimpaired condition. It relates to open communication, transparency, and relationships. The purchasing director’s relationship with the winning bidder could have impaired her judgment and her lack of transparency implies that she knew such behavior was inappropriate.