Test Your Knowledge with These Practice Questions

To provide candidates with a brief view of some of the types of questions on the CMA® (Certified Management Accountant) exam, below are five practice 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 interactive practice quiz, available on the IMA® (Institute of Management Accountants) website, to test your skills and expertise.

 

CMA Exam Part 1:

1.   An advantage of using a flexible budget compared to a static budget is that in a flexible budget,

  1. shortfalls in planned production are clearly presented.
  2. standards can easily be changed to adjust to changing circumstances.
  3. fixed cost variances are more clearly presented.
  4. budgeted costs for a given output level can be compared with actual costs for the same level of output.
  • Correct answer d. A static budget is based on projected output while a flexible budget is based on actual output. As a result, the actual cost of the actual output can be compared to the budgeted cost for the actual output.

2.    When identifying fixed and variable costs, which one of the following is a typical assumption concerning cost behavior?

  1. General and administrative costs are assumed to be variable costs.
  2. Cost behavior is assumed to be realistic for all levels of activity from zero to maximum capacity.
  3. Total costs are assumed to be linear when plotted on a graph.
  4. The relevant time period is assumed to be five years.
  • Correct answer c. One of the basic assumptions of cost behavior is that a cost can be approximated by a linear cost function within the relevant range. A linear cost function is one in which the graph of total costs versus the level of activity is a straight line.

3.    The systems development life cycle approach is best suited for projects that are

  1. large and unstructured.
  2. large and structured.
  3. complex and small.
  4. expensive and customized.
  • Correct answer b. The life cycle approach is best employed when systems are large and highly structured. For this reason, having a systems development plan is critical to the smooth running of the project.

 

CMA Exam Part 2:

4.    A requirement specified in an indenture agreement which states that a company cannot acquire or sell major assets without prior creditor approval is known as a

  1. protective covenant.
  2. call provision.
  3. warrant.
  4. put option.
  • Correct answer a. Protective clauses or restrictions in bond indentures and loan agreements are known as covenants and can include items such as working capital requirements and capital expenditure limitations.

5.    Recently, Fan Club Inc. submitted a budget for the coming year to management. Included in the budget were the plans for a new product, a rechargeable fan. The new fan will not only last longer than the competitor’s product but is also quieter. While not yet approved, the budget called for aggressive advertising to support its sales targets, as the business community was not yet aware that Fan Club was close to production of a new fan. A member of the management accounting staff “shared” the budget with a distributor. In accordance with IMA’s Statement of Ethical Professional Practice, which one of the following would best represent an ethical conflict in this situation?

  1. The budget has not been approved and therefore is not for publication.
  2. The price has not been established, so expectations must be managed.
  3. The staff member exposed the company to a potential lawsuit.
  4. The employee should refrain from disclosing confidential information.
  • Correct answer d. In accordance with IMA’s Statement of Ethical Professional Practice, a member’s failure to comply with the standards of competence, confidentiality, integrity, and credibility may result in disciplinary action. Disclosing the company’s internal budget to an outside party is a breach of the ethical standard of confidentiality.