Test Your Knowledge with These Practice Questions

Wondering what the CMA^® (Certified Management Accountant) exam is like? The following five sample questions offer a quick preview, along with correct answers and helpful explanations to guide your study.

You can also check out these additional practice multiple-choice and essay questions (in PDF format) and try the interactive practice quiz, available on the IMA^® (Institute of Management Accountants) website, to test your skills and expertise. You can also take this free CMA Simulation Exam, available through Prometric.

CMA Exam Part 1:

1.  Which one of the following statements concerning approaches for the budget development process is correct?

1. The authoritative approach to budgeting discourages strict adherence to strategic organizational goals.
2. Once departmental budgeted goals have been developed, they should remain fixed even if the underlying sales forecast proves to be wrong in the middle of the fiscal year.
3. With the information technology available, the role of budgets as an organizational communication device has declined.
4. Since department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget.

• Correct answer d. Those closest to operations should participate in budget development as they are most knowledgeable and can supply reliable information on which to base the budget.

2.  A manufacturing company uses machine hours as the only overhead cost allocation base. The accounting records contain the following information:

Using actual costing, the amount of manufacturing overhead costs allocated to jobs is

1. $300,000.
2. $250,000.
3. $240,000.
4. $200,000.

• Correct answer c.
  50,000 MH × $240,000 / 50,000 MH allocation rate = $240,000

CMA Exam Part 2:

3.  A degree of operating leverage of 3 means that a

1. 3% change in earnings before interest and taxes will cause a 3% change in sales.
2. 3% change in sales will cause a 3% change in earnings before interest and taxes.
3. 1% change in sales will cause a 3% change in earnings before interest and taxes.
4. 1% change in earnings before interest and taxes will cause a 3% change in sales.

• Correct answer c. The degree of operating leverage measures the percent change in EBIT caused by a percent change in sales. Therefore, a degree of operating leverage of 3 indicates that a 1% change in sales will cause a 3% change in EBIT.

4.  Which one of the following is a debt instrument that generally has a maturity of ten years or more?

1. A bond.
2. A note.
3. A chattel mortgage.
4. A financial lease.

• Correct answer a. A bond is a long-term debt instrument with a final maturity generally being 10 years or more. If the security has a final maturity shorter than 10 years, it is generally called a note.

5.  The management of a utility company is considering making a series of investments over the next five years to construct a new energy plant. Rather than commit to the full five-year investment schedule on day one, management wants to retain the flexibility in the timing and amount of each investment in order to take into consideration future business conditions at each stage of construction. Based on this information, which one of the following real options is the most appropriate for this situation?

1. Abandon.
2. Delay.
3. Expand.
4. Scale back.

• Correct answer b. A delay would be the most appropriate in this situation as it is the option to wait and learn before investing (some refer to this as an investment-timing option). A delay option allows the staging of investments as a series of outlays (i.e. the construction stages of the new energy plant) creating the option to abandon the project in midstream if new information is unfavorable. Each investment stage (for instance, for the energy plant the stages might be demolition, excavation, construction and fit-out) can be viewed as an option on the value of subsequent stages and valued as a compound option.