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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 (in PDF format) and try the new interactive practice quiz, available on the IMA® (Institute of Management Accountants) website, to test your skills and expertise.
CMA Exam Part 1:
1. Which one of the following items could be identified on the cash flow statement prepared using the indirect method?
a. The payment of interest expense of $200,000.
b. A change in unrealized holding gains of $50,000.
c. A settlement of a lawsuit that was previously accrued.
d. Depreciation related to buildings and equipment.
Correct answer d.
Depreciation is shown on both the income statement and the statement of cash flows. A and C would be shown in the income statement, and B is not shown in either of these statements as it is unrealized.
2. Manchester Airlines is in the process of preparing a contribution margin income statement that will allow a detailed look at its variable costs and profitability of operations. Which one of the following cost combinations should be used to evaluate the variable cost per flight of the company’s Boston-to-Las Vegas flights?
a. Flight crew salary, fuel, and engine maintenance.
b. Fuel, food service, and airport landing fees.
c. Airplane depreciation, baggage handling, and airline marketing.
d. Communication system operation, food service, and ramp personnel.
Correct answer b.
The variable costs per flight would include fuel, food service, and landing fees. Other costs mentioned, such as salaries, depreciation, marketing, and communications, would not vary with individual flights.
CMA Exam Part 2:
3. Breeze Company has a contribution margin of $4,000 and fixed costs of $1,000. If the total contribution margin increases by $1,000, operating profit would
a. decrease by $1,000.
b. increase by more than $1,000.
c. increase by $1,000.
d. remain unchanged.
Correct answer c.
Breeze’s operating profit would increase by $1,000. Operating profit equals contribution minus fixed costs. If contribution increases while fixed costs remain the same, operating profit will increase by the same amount.
4. A rice farmer has decided to protect against possible price fluctuations at the time of harvest by purchasing some rice options. What type of risk response strategy has the rice farmer engaged in?
a. Avoidance.
b. Reduction.
c. Sharing.
d. Acceptance.
Correct answer c.
In a financial transaction, the purchasing of options to cover price movement fluctuations is considered a risk transfer or risk-sharing strategy.
5. All of the following would increase the present value of the incremental tax savings associated with the depreciation of an asset except a decrease in the
a. useful life of the asset.
b. marginal income tax rate.
c. discount rate.
d. salvage value of the asset.
Correct answer b.
A decrease in the marginal tax rate will lead to a decrease in the present value of the tax-deductible amount due to depreciation. Recall that the tax shield amount is calculated as depreciation times tax rate.
You can also check out these additional practice multiple-choice and essay questions (in PDF format) and try the new interactive practice quiz, available on the IMA® (Institute of Management Accountants) website, to test your skills and expertise.
CMA Exam Part 1:
1. Which one of the following items could be identified on the cash flow statement prepared using the indirect method?
a. The payment of interest expense of $200,000.
b. A change in unrealized holding gains of $50,000.
c. A settlement of a lawsuit that was previously accrued.
d. Depreciation related to buildings and equipment.
Correct answer d.
Depreciation is shown on both the income statement and the statement of cash flows. A and C would be shown in the income statement, and B is not shown in either of these statements as it is unrealized.
2. Manchester Airlines is in the process of preparing a contribution margin income statement that will allow a detailed look at its variable costs and profitability of operations. Which one of the following cost combinations should be used to evaluate the variable cost per flight of the company’s Boston-to-Las Vegas flights?
a. Flight crew salary, fuel, and engine maintenance.
b. Fuel, food service, and airport landing fees.
c. Airplane depreciation, baggage handling, and airline marketing.
d. Communication system operation, food service, and ramp personnel.
Correct answer b.
The variable costs per flight would include fuel, food service, and landing fees. Other costs mentioned, such as salaries, depreciation, marketing, and communications, would not vary with individual flights.
CMA Exam Part 2:
3. Breeze Company has a contribution margin of $4,000 and fixed costs of $1,000. If the total contribution margin increases by $1,000, operating profit would
a. decrease by $1,000.
b. increase by more than $1,000.
c. increase by $1,000.
d. remain unchanged.
Correct answer c.
Breeze’s operating profit would increase by $1,000. Operating profit equals contribution minus fixed costs. If contribution increases while fixed costs remain the same, operating profit will increase by the same amount.
4. A rice farmer has decided to protect against possible price fluctuations at the time of harvest by purchasing some rice options. What type of risk response strategy has the rice farmer engaged in?
a. Avoidance.
b. Reduction.
c. Sharing.
d. Acceptance.
Correct answer c.
In a financial transaction, the purchasing of options to cover price movement fluctuations is considered a risk transfer or risk-sharing strategy.
5. All of the following would increase the present value of the incremental tax savings associated with the depreciation of an asset except a decrease in the
a. useful life of the asset.
b. marginal income tax rate.
c. discount rate.
d. salvage value of the asset.
Correct answer b.
A decrease in the marginal tax rate will lead to a decrease in the present value of the tax-deductible amount due to depreciation. Recall that the tax shield amount is calculated as depreciation times tax rate.