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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, below 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.
Curious about how the team at ICMA® (Institute of Certified Management Accountants) creates the content for the CMA exam? This article—which appeared in the June 2022 issue of Strategic Finance and written by IMA Senior Director, Exam Development and Performance Analysis William Cordes, CMA, CFM, CPA, CAE—offers a behind-the-scenes glimpse into the process for selecting questions and topic areas for the exam. The entire issue, in fact, includes stories related to the history of the CMA program, how companies cultivate talent through the CMA certification, and how the exam went digital. Be sure to check it out.
CMA Exam Part 1:
1. Consider the following financial data for a company that is preparing its cash flow statement.
Amortization expense = $150,000
Cash dividends paid to common shareholders = $75,000
Net income = $1,500,000
Work-in-process inventory increase over the prior year = $300,000
Gain on sale of equipment = $50,000
Using the indirect method, cash flow from operating activities would be
a. $1,225,000.
b. $1,300,000.
c. $1,350,000.
d. $1,375,000.
Correct answer b. Net income + Amortization expense - Inventory increase - Gain on sale of equipment $1,500,000 + 150,000 - 300,000 - 50,000 = $1,300,000
2. Highlight Inc. uses a standard cost system and applies factory overhead to products on the basis of direct labor hours. If the company recently reported a favorable direct labor efficiency variance, then the
a. variable overhead spending variance must be favorable.
b. variable overhead efficiency variance must be favorable.
c. fixed overhead volume variance must be unfavorable.
d. direct labor rate variance must be unfavorable.
Correct answer b. If variable overhead is applied on the basis of direct labor hours and the number of direct labor hours used is favorable, then the variable overhead efficiency (usage) variance must also be favorable.
3. After a systems programmer was terminated and passwords were disabled, the company’s server crashed and erased all of its files and software. The terminated employee had installed a virus in the operating system and executed it via a backdoor. Which one of the following measures would most likely have prevented this occurrence?
a. A policy to encrypt all data and files maintained on its server.
b. Daily backup of all data on the server.
c. An intrusion detection system used to create logs of network traffic.
d. An advanced firewall used to detect intrusions.
Correct answer d. An advanced firewall issues warning alerts on suspicious traffic but also automatically takes steps to stop a suspected attack.
CMA Exam Part 2:
4. Which one of the following provides the best measure of interest rate risk for a corporate bond?
a. Duration.
b. Yield to maturity.
c. Bond rating.
d. Maturity.
Correct answer a. Interest rate risk is the variation in the market price of a bond caused by changes in interest rates. The longer the maturity (duration) of the bond, the greater the price fluctuation associated with the given change in market required return.
5. If the demand for a good is elastic, then a(n)
a. decrease in price will increase total revenue.
b. increase in price will increase total revenue.
c. decrease in price will decrease total revenue.
d. increase in price will have no effect on total revenue.
Correct answer a. If the demand for a product is elastic, a percentage change in price results in a larger percentage change in demand. If the product price is decreased, the demand will increase by a larger percentage resulting in an increase in total revenue.
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.
Curious about how the team at ICMA® (Institute of Certified Management Accountants) creates the content for the CMA exam? This article—which appeared in the June 2022 issue of Strategic Finance and written by IMA Senior Director, Exam Development and Performance Analysis William Cordes, CMA, CFM, CPA, CAE—offers a behind-the-scenes glimpse into the process for selecting questions and topic areas for the exam. The entire issue, in fact, includes stories related to the history of the CMA program, how companies cultivate talent through the CMA certification, and how the exam went digital. Be sure to check it out.
CMA Exam Part 1:
1. Consider the following financial data for a company that is preparing its cash flow statement.
Amortization expense = $150,000
Cash dividends paid to common shareholders = $75,000
Net income = $1,500,000
Work-in-process inventory increase over the prior year = $300,000
Gain on sale of equipment = $50,000
Using the indirect method, cash flow from operating activities would be
a. $1,225,000.
b. $1,300,000.
c. $1,350,000.
d. $1,375,000.
Correct answer b. Net income + Amortization expense - Inventory increase - Gain on sale of equipment $1,500,000 + 150,000 - 300,000 - 50,000 = $1,300,000
2. Highlight Inc. uses a standard cost system and applies factory overhead to products on the basis of direct labor hours. If the company recently reported a favorable direct labor efficiency variance, then the
a. variable overhead spending variance must be favorable.
b. variable overhead efficiency variance must be favorable.
c. fixed overhead volume variance must be unfavorable.
d. direct labor rate variance must be unfavorable.
Correct answer b. If variable overhead is applied on the basis of direct labor hours and the number of direct labor hours used is favorable, then the variable overhead efficiency (usage) variance must also be favorable.
3. After a systems programmer was terminated and passwords were disabled, the company’s server crashed and erased all of its files and software. The terminated employee had installed a virus in the operating system and executed it via a backdoor. Which one of the following measures would most likely have prevented this occurrence?
a. A policy to encrypt all data and files maintained on its server.
b. Daily backup of all data on the server.
c. An intrusion detection system used to create logs of network traffic.
d. An advanced firewall used to detect intrusions.
Correct answer d. An advanced firewall issues warning alerts on suspicious traffic but also automatically takes steps to stop a suspected attack.
CMA Exam Part 2:
4. Which one of the following provides the best measure of interest rate risk for a corporate bond?
a. Duration.
b. Yield to maturity.
c. Bond rating.
d. Maturity.
Correct answer a. Interest rate risk is the variation in the market price of a bond caused by changes in interest rates. The longer the maturity (duration) of the bond, the greater the price fluctuation associated with the given change in market required return.
5. If the demand for a good is elastic, then a(n)
a. decrease in price will increase total revenue.
b. increase in price will increase total revenue.
c. decrease in price will decrease total revenue.
d. increase in price will have no effect on total revenue.
Correct answer a. If the demand for a product is elastic, a percentage change in price results in a larger percentage change in demand. If the product price is decreased, the demand will increase by a larger percentage resulting in an increase in total revenue.