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CMA ACTUAL PRACTICE EXAM
Content: Part 1: Financial Planning, Performance, and Analytics and Part 2: Strategic Financial Management. Time Allocation: While the actual CMA exam has a 4 - hour time limit for each part, the goal here is to provide a robust review. It is recommended to work through this in sections to test your knowledge.
CMA Exam
Part 1: Financial Planning, Performance, and Analytics
(Questions 1-75)
Topic: External Financial Reporting Decisions (15%)
1. A company switched from the straight-line method of depreciation to an accelerated method for newly acquired assets. How should this change be reported in the financial statements? a) As a cumulative effect adjustment to retained earnings b) As a prior period adjustment c) Prospectively, over the remaining useful life of the new assets d) As a change in accounting principle, applied retrospectively Answer: c) Rationale: A change in depreciation method for new assets is considered a change in accounting estimate effected by a change in accounting principle. It is applied prospectively. A change in depreciation method for existing assets would also be prospective. 2. According to IFRS, which of the following is an indicator of a lease being classified as a finance lease?
a) The lease term is for a major part of the asset’s economic life. b) The present value of lease payments equals substantially all of the asset’s fair value. c) The asset is of a specialized nature such that only the lessee can use it without major modification. d) All of the above. Answer: d) Rationale: IFRS 16 uses indicators for a finance lease. All three options are indicators. The "major part" (typically 75%) and "substantially all" (typically 90%) thresholds are common in practice, and specialized nature is a strong indicator.
3. A company has $1,000,000 in revenue, $600,000 in cost of goods sold, and $200, in operating expenses. What is the gross margin? a) $200, b) $400, c) $800, d) $1,000, Answer: b) Rationale: Gross Margin = Revenue - Cost of Goods Sold = $1,000,000 - $600,000 = $400,000. Operating expenses are deducted after gross margin to calculate operating income. 4. Under U.S. GAAP, which of the following is not a required disclosure for a business combination? a) The primary reasons for the acquisition b) The fair value of total consideration transferred c) The amount of goodwill expected to be deductible for tax purposes d) Pro forma results of operations for the current period only Answer: d) Rationale: U.S. GAAP (ASC 805) requires pro forma results of operations for the current period and the prior comparable period as if the acquisition occurred at the beginning of the prior period. 5. Which of the following best describes "comprehensive income"? a) Net income plus other comprehensive income b) Revenue minus expenses c) Operating income plus financing income d) Retained earnings plus paid-in capital Answer: a) Rationale: Comprehensive income is the total change in equity from non- owner sources. It includes net income and other comprehensive income (OCI) items like unrealized gains/losses on available-for-sale securities and foreign currency translation adjustments.
10. A company’s trial balance shows a credit balance in the "cash" account. This is most likely a result of: a) A bank reconciliation error. b) An overdraft, which should be reclassified as a current liability. c) An overstatement of sales. d) A timing difference that will reverse next month. Answer: b) Rationale: A credit balance in cash indicates a bank overdraft. Under U.S. GAAP, overdrafts are generally classified as a current liability (accounts payable) unless there is a right of offset with another account at the same bank.
Topic: Planning, Budgeting, and Forecasting (20%)
11. What is the primary purpose of a rolling (continuous) budget? a) To set fixed annual targets that cannot be changed b) To always have a budget that extends a specific period into the future c) To simplify the budgeting process by using last year’s numbers d) To comply with SEC regulations Answer: b) Rationale: A rolling budget continuously adds a new period (e.g., a month or quarter) as the current period concludes. This ensures management always has a plan for the upcoming 12-24 months. 12. Which of the following is the first step in the activity-based budgeting (ABB) process? a) Determine the budgeted cost driver rates b) Determine the demand for products or services c) Determine the budgeted resource costs d) Determine the activities required to meet the demand Answer: b) Rationale: ABB begins by forecasting the demand for products or services. From there, the organization determines the activities required to meet that demand, then the resources needed for those activities, and finally the costs of those resources. 13. A company expects to sell 10,000 units. Beginning inventory is 1,000 units and desired ending inventory is 1,500 units. How many units must be produced? a) 9, b) 10,
c) 10, d) 11, Answer: c) Rationale: Production = Sales + Desired Ending Inventory - Beginning Inventory = 10,000 + 1,500 - 1,000 = 10,500 units.
14. Which budget provides the necessary data for the cash budget? a) Sales budget b) Production budget c) Capital expenditures budget d) All of the above Answer: d) Rationale: The cash budget is a compilation of all cash inflows and outflows. It uses data from the sales budget (cash collections), production budget (cash payments for materials and labor), and capital expenditures budget (asset purchases). 15. The difference between the static budget and the flexible budget is the: a) Sales volume variance. b) Price variance. c) Efficiency variance. d) Spending variance. Answer: a) Rationale: A static budget is based on planned output. A flexible budget is adjusted to actual output. The difference between them is the sales volume variance (or activity variance). 16. A "participative budget" is one where: a) Top management sets all targets. b) Lower-level managers are involved in setting their own targets. c) It is based on past performance only. d) It is adjusted for inflation. Answer: b) Rationale: Participative (or bottom-up) budgeting involves managers from all levels in the budgeting process. This often leads to greater buy-in but can also result in budgetary slack. 17. A company has a cash balance of $50,000, a required minimum balance of $25,000, and expects cash disbursements to exceed cash receipts by $100,000. How much financing is needed? a) $25, b) $75,
Topic: Performance Management (20%)
21. A favorable direct labor efficiency variance indicates that: a) The actual wage rate was less than the standard wage rate. b) The actual hours worked were less than the standard hours allowed for actual output. c) The actual hours worked were greater than the standard hours allowed. d) The actual wage rate was greater than the standard wage rate. Answer: b) Rationale: The efficiency variance measures the difference between actual hours worked and standard hours allowed, multiplied by the standard rate. Favorable means less time was used than expected. 22. A company has a return on investment (ROI) of 15% and a residual income (RI) of $200,000. If the minimum required rate of return is 10%, what must be the amount of invested capital? a) $1,333, b) $2,000, c) $4,000, d) $20,000, Answer: c) Rationale: RI = Operating Income - (Invested Capital * Minimum Required Rate). ROI = Operating Income / Invested Capital. Let Invested Capital = X. Operating Income = 0.15X. Then $200,000 = 0.15X - 0.10X = 0.05X. Therefore, X = $200,000 / 0. = $4,000,000. 23. Which of the following is a disadvantage of using ROI as a performance measure? a) It encourages managers to focus on short-term profits. b) It cannot be used to compare divisions of different sizes. c) It is difficult to calculate. d) It does not consider the investment base. Answer: a) Rationale: A common disadvantage of ROI is that it can lead to under- investment. Managers may reject projects that have a positive net present value (NPV) but would lower the division’s current ROI. 24. The balanced scorecard translates an organization’s mission and strategy into a set of performance measures that includes which four perspectives? a) Financial, Customer, Internal Business, Learning and Growth b) Financial, Market, Operational, Employee c) Profitability, Quality, Efficiency, Innovation d) Shareholder, Employee, Supplier, Society
Answer: a) Rationale: The four classic perspectives of the balanced scorecard, as defined by Kaplan and Norton, are Financial, Customer, Internal Business Processes, and Learning and Growth.
25. A company had a static budget variance of $10,000 unfavorable and a sales volume variance of $5,000 unfavorable. What is the flexible budget variance? a) $15,000 favorable b) $15,000 unfavorable c) $5,000 unfavorable d) $5,000 favorable Answer: c) Rationale: Static Budget Variance = Flexible Budget Variance + Sales Volume Variance. Therefore, - $10,000 = Flexible Budget Variance + (-$5,000). Solving: Flexible Budget Variance = - $10,000 + $5,000 = - $5,000 (Unfavorable). 26. Which type of responsibility center is evaluated primarily on the difference between revenues and expenses? a) Cost center b) Revenue center c) Profit center d) Investment center Answer: c) Rationale: A profit center manager is responsible for both revenues and costs (and thus profit). An investment center is responsible for profit and the assets invested. 27. In variance analysis, the "purchasing manager" is typically responsible for the: a) Labor efficiency variance. b) Material price variance. c) Sales volume variance. d) Overhead volume variance. Answer: b) Rationale: The purchasing manager is responsible for the price paid for materials. The material price variance is calculated based on the actual purchase price vs. the standard price. 28. Which of the following is a measure of the efficiency of a profit center? a) Residual income b) Return on investment c) Gross margin percentage d) Contribution margin per unit
b) Measure the work done on partially completed units. c) Calculate the standard cost per unit. d) Determine the physical flow of units. Answer: b) Rationale: Equivalent units represent the number of whole units that could have been completed given the amount of work done on partially completed units. This allows for accurate costing in a continuous process environment.
33. Which of the following is not a component of the cost of goods manufactured? a) Direct materials used b) Direct labor c) Sales commissions d) Manufacturing overhead applied Answer: c) Rationale: Sales commissions are a selling expense, not a product cost. They are expensed in the period incurred as part of operating expenses, not included in inventory. 34. A company has a fixed cost of $100,000, a variable cost of $5 per unit, and a selling price of $10 per unit. The breakeven point in units is: a) 10, b) 15, c) 20, d) 25, Answer: c) Rationale: Breakeven in units = Fixed Costs / (Selling Price - Variable Cost) = $100,000 / ($10 - $5) = 20,000 units. 35. In activity-based costing (ABC), a cost driver is: a) A factor that causes a change in the cost of an activity. b) A fixed cost that cannot be traced to a product. c) A type of direct labor. d) The total overhead allocated to a department. Answer: a) Rationale: A cost driver is the root cause of an activity’s cost. Examples include number of setups, machine hours, or number of purchase orders. 36. The main advantage of variable costing over absorption costing is that variable costing: a) Is required for external reporting. b) Results in higher net income.
c) Provides more useful information for internal decision-making (CVP analysis). d) Eliminates the need for overhead allocation. Answer: c) Rationale: Variable costing separates fixed overhead from product costs, making it easier to perform cost-volume-profit (CVP) analysis and understand the impact of changes in volume on profit. Absorption costing is required for external reporting.
37. A company is considering dropping a product line. Which of the following costs is irrelevant to the decision? a) Avoidable fixed costs b) Contribution margin generated by the product c) The salary of the product line manager who will be laid off d) Depreciation on a machine used exclusively for that product line that has no resale value Answer: d) Rationale: Depreciation is a sunk cost. If the machine has no resale value, the depreciation is a past cost that cannot be changed, regardless of the decision. It is irrelevant. 38. Throughput costing (super-variable costing) treats which of the following as a period cost? a) Direct materials b) Direct labor c) Variable manufacturing overhead d) Both b and c Answer: d) Rationale: Throughput costing treats only direct materials as inventoriable. All other costs, including direct labor and variable overhead, are expensed as period costs. 39. In a joint production process, the costs incurred after the split-off point are called: a) Joint costs b) Separable costs c) Sunk costs d) Common costs Answer: b) Rationale: Joint costs are incurred up to the split-off point. Costs incurred after that to further process individual products are separable costs. 40. The method of costing that assigns both variable and fixed manufacturing costs to products is known as: a) Variable costing b) Direct costing
records and the bank’s records. Approvals and locks are preventive; background checks are preventive/deterrent.
44. What is the purpose of a "voucher system"? a) To record sales transactions b) To ensure that every disbursement is properly authorized, supported, and recorded c) To manage employee payroll d) To calculate depreciation expense Answer: b) Rationale: A voucher system is a control mechanism for cash disbursements. It ensures that payments are made only for authorized, documented, and valid obligations. 45. The Sarbanes-Oxley Act (SOX) of 2002 requires management of public companies to: a) Prepare financial statements using IFRS. b) Assess and report on the effectiveness of internal controls over financial reporting. c) Hire an internal auditor. d) Outsource all internal control functions. Answer: b) Rationale: Section 404 of SOX requires management to assess and report on the effectiveness of ICFR. External auditors must also attest to management’s assessment. 46. A company’s firewall was breached, leading to a data leak. This is a failure of which type of control? a) General IT controls b) Application controls c) Physical security d) Detective controls Answer: a) Rationale: Firewalls are a component of general IT controls, specifically related to access and network security. They are preventive controls. 47. Which of the following best describes "tone at the top"? a) The code of conduct provided to employees b) The ethical culture and integrity demonstrated by senior management and the board c) The performance review process d) The strategic planning process Answer: b) Rationale: "Tone at the top" refers to the ethical environment and culture set by the organization’s leadership. It is the foundation of the Control Environment component of COSO.
48. A physical inventory count conducted by an independent team is an example of a: a) Preventive control b) Corrective control c) Detective control d) Compensating control Answer: c) Rationale: A physical inventory count verifies the existence and condition of assets. It detects discrepancies between records and actual assets, making it a detective control. 49. Which of the following is a limitation of internal control? a) Collusion among employees b) Management override c) Human error d) All of the above Answer: d) Rationale: All internal controls are subject to inherent limitations, including human error, collusion, management override, and cost-benefit considerations. No system can provide absolute assurance. 50. In the context of IT controls, "input controls" are designed to: a) Ensure data is processed correctly. b) Ensure that only authorized users can access the system. c) Ensure that data entered into the system is valid, complete, and accurate. d) Ensure that output is distributed only to authorized users. Answer: c) Rationale: Input controls (e.g., check digits, range checks, validation) prevent errors at the point of data entry. Processing controls (e.g., run-to-run totals) ensure processing integrity.
Topic: Technology and Analytics (15%)
51. Which of the following is a characteristic of Big Data? a) Volume b) Velocity c) Variety d) All of the above
Answer: c) Rationale: In regression analysis, the independent variable (X) is the predictor. The dependent variable (Y) is the outcome being predicted (e.g., sales).
56. A blockchain is best described as: a) A type of centralized database. b) A distributed, immutable, and decentralized ledger. c) A data visualization software. d) A cloud storage service. Answer: b) Rationale: Blockchain is a technology that creates a shared, immutable record of transactions across a network of computers. It is decentralized, meaning no single entity controls the data. 57. In cybersecurity, "phishing" is a method of: a) Physically stealing hardware. b) Tricking individuals into revealing sensitive information through fraudulent communications. c) Encrypting data and demanding ransom. d) Installing malware via USB drives. Answer: b) Rationale: Phishing typically involves deceptive emails or messages that appear to be from a legitimate source to trick the recipient into providing credentials, installing malware, or transferring funds. 58. Which type of software is used to manage and analyze large datasets by writing queries (e.g., SELECT * FROM table)? a) Microsoft Excel b) Structured Query Language (SQL) c) Python (general purpose) d) Tableau Answer: b) Rationale: SQL is a programming language specifically designed for managing and querying data held in relational database management systems (RDBMS). 59. The ethical principle of "confidentiality" in the IMA Statement of Ethical Professional Practice requires that management accountants: a) Disclose all relevant information to the public. b) Refrain from using confidential information for unethical or illegal advantage. c) Communicate information fairly and objectively. d) Maintain professional competence.
Answer: b) Rationale: The confidentiality standard prohibits using confidential information for personal gain and requires keeping information confidential unless authorized to disclose or legally obligated.
60. An organization uses an Enterprise Resource Planning (ERP) system. A primary benefit of an ERP is: a) It eliminates the need for internal controls. b) It integrates data from various functional areas (e.g., finance, HR, supply chain) into a single database. c) It is cheaper than using separate systems. d) It is primarily used for external financial reporting. Answer: b) Rationale: ERP systems integrate disparate business processes into a unified system, providing a single source of truth and facilitating real-time data sharing across the organization.
Topic: Cost Management (Additional)
61. A company has sales of $500,000, variable costs of $300,000, and fixed costs of $150,000. What is the degree of operating leverage (DOL)? a) 1. b) 2. c) 4. d) 5. Answer: c) Rationale: Contribution Margin = $500,000 - $300,000 = $200,000. Operating Income = $200,000 - $150,000 = $50,000. DOL = Contribution Margin / Operating Income = $200,000 / $50,000 = 4.0. 62. A company uses the high-low method to estimate costs. At 10,000 units, cost is $50,000. At 20,000 units, cost is $80,000. What is the estimated variable cost per unit? a) $2. b) $3. c) $4. d) $5. Answer: b) Rationale: Variable Cost = (Change in Cost) / (Change in Units) = ($80,000 - $50,000) / (20,000 - 10,000) = $30,000 / 10,000 = $3.00.
Answer: a) Rationale: Compensating controls are alternative controls implemented when a primary control is not feasible. Reviewing work compensates for the lack of proper segregation.
67. Which of the following is a best practice for IT disaster recovery? a) Storing all backup tapes in the same building as the primary servers. b) Relying solely on cloud storage without a secondary plan. c) Maintaining an off-site backup of critical data and systems. d) Testing the disaster recovery plan once every five years. Answer: c) Rationale: Off-site backups are essential to ensure data survivability in case of a physical disaster (fire, flood). Regular testing of the plan is also critical, ideally more frequently than every five years. 68. A company discovers that a fraudulent payment was made to a fake vendor. Which control would have most likely prevented this? a) Bank reconciliation b) Segregation of duties between vendor setup and payment approval c) Internal audit d) Physical security Answer: b) Rationale: If the same person can set up a vendor and approve payments, they could create a fictitious vendor and pay themselves. Segregating these duties is a key preventive control. 69. The audit committee of the board of directors should be composed of: a) Members of management. b) Independent directors only. c) The CEO and CFO. d) The external auditors. Answer: b) Rationale: For effective oversight, the audit committee should consist entirely of independent, non-executive directors. This ensures objectivity in overseeing management and the external auditors. 70. A "whistleblower" hotline is an example of which type of control? a) Preventive b) Detective c) Corrective d) Directive
Answer: b) Rationale: A whistleblower hotline is a detective control. It provides a mechanism for reporting suspected violations, allowing the organization to detect and investigate issues after they have occurred (or while ongoing).
Topic: Technology and Analytics (Additional)
71. In the context of data analytics, "ETL" stands for: a) Evaluate, Transfer, Load b) Extract, Transform, Load c) Edit, Test, Link d) Estimate, Track, Log Answer: b) Rationale: ETL is a process used to move data from source systems to a data warehouse. It involves extracting data, transforming it (cleaning, standardizing), and loading it into the target system. 72. Which of the following is a threat to data integrity? a) Unauthorized access that alters data b) Server downtime c) Lack of network connectivity d) Slow processing speeds Answer: a) Rationale: Data integrity refers to the accuracy, completeness, and consistency of data. Unauthorized alteration of data directly compromises its integrity. Availability issues relate to downtime. 73. Which type of analytics would be used to determine the optimal price for a new product based on competitor data and demand forecasts? a) Descriptive analytics b) Diagnostic analytics c) Predictive analytics d) Prescriptive analytics Answer: d) Rationale: Prescriptive analytics uses optimization and simulation algorithms to recommend the best course of action among various alternatives. 74. A robotic process automation (RPA) bot is most suitable for: a) Making complex strategic judgments. b) Performing repetitive, rule-based tasks (e.g., data entry, reconciliation).
