Certified Management Accountant Examination
(CMA)
Full Professional Practice Examination
1. A company uses standard costing. The standard material cost to produce one unit is based on 5
pounds of material at $4 per pound. During the month, 2,000 pounds of material were
purchased at $4.20 per pound, and 350 units were produced using 1,900 pounds of material.
What is the direct material price variance?
A. $380 favorable B. $400 unfavorable C. $420 unfavorable D. $500 favorable
Rationale: The direct material price variance equals Actual Quantity Purchased × (Actual Price −
Standard Price). The company purchased 2,000 pounds at $4.20 instead of the standard $4.00.
Therefore, the variance is 2,000 × ($4.20 − $4.00) = $400 unfavorable. A price variance is unfavorable
when actual cost exceeds standard cost.
1. Which of the following best describes the primary objective of managerial accounting?
A. Reporting financial information to external stakeholders B. Preparing tax returns for government
agencies C. Providing information to managers for planning, control, and decision-making D.
Auditing financial statements for compliance
Rationale: Managerial accounting focuses on providing relevant and timely information to internal
users, especially managers, to support planning, controlling operations, and decision-making. Unlike
financial accounting, managerial accounting is not primarily designed for external reporting or
regulatory compliance.
1. A company has sales revenue of $800,000, variable costs of $480,000, and fixed costs of
$200,000. What is the contribution margin ratio?
A. 25% B. 35% C. 40% D. 60%
Rationale: Contribution margin ratio equals Contribution Margin ÷ Sales Revenue. Contribution margin
is sales minus variable costs: $800,000 − $480,000 = $320,000. Therefore, the ratio is $320,000 ÷
$800,000 = 40%. This ratio indicates the percentage of each sales dollar available to cover fixed costs
and profit.
1. Which inventory costing method generally results in the highest ending inventory during periods
of rising prices?
A. LIFO B. Weighted average C. Specific identification D. FIFO
1
,Rationale: During periods of rising prices, FIFO assigns older, lower costs to cost of goods sold while
newer, higher costs remain in ending inventory. As a result, ending inventory reflects more recent and
higher prices, producing the highest ending inventory value among common inventory methods.
1. A company’s current assets total $450,000 and current liabilities total $300,000. What is the
current ratio?
A. 0.67 B. 1.00 C. 1.50 D. 2.00
Rationale: The current ratio equals Current Assets ÷ Current Liabilities. Using the provided data:
$450,000 ÷ $300,000 = 1.50. This liquidity ratio measures the company’s ability to meet short-term
obligations using short-term assets.
1. Which budgeting approach requires managers to justify all expenses from scratch each period?
A. Flexible budgeting B. Incremental budgeting C. Capital budgeting D. Zero-based budgeting
Rationale: Zero-based budgeting requires every budget item to be justified anew during each budget
cycle, regardless of prior-period spending. Unlike incremental budgeting, no automatic assumption is
made that previous spending levels are appropriate.
1. A project requires an initial investment of $100,000 and is expected to generate annual cash
inflows of $25,000 for five years. What is the payback period?
A. 2 years B. 3 years C. 4 years D. 5 years
Rationale: Payback period equals Initial Investment ÷ Annual Cash Inflow when cash inflows are even.
The calculation is $100,000 ÷ $25,000 = 4 years. The payback method measures how quickly an
investment recovers its original cost.
1. Which of the following costs is most likely a variable cost?
A. Factory rent B. Depreciation using straight-line method C. Supervisor salary D. Direct materials
Rationale: Variable costs change directly and proportionately with production volume. Direct materials
increase as more units are produced, making them a classic example of a variable cost. Fixed costs
such as rent and salaries remain constant within the relevant range.
1. What is the primary purpose of a cash budget?
A. To estimate product demand B. To calculate depreciation expense C. To forecast cash inflows and
outflows D. To determine product quality standards
Rationale: A cash budget projects future cash receipts and cash disbursements in order to help
management maintain adequate liquidity and plan financing needs. It is an essential tool for short-
term financial planning and cash management.
1. Which transfer pricing method is based on prices charged in external markets?
A. Cost-plus pricing B. Negotiated pricing C. Variable-cost pricing D. Market-based pricing
2
, Rationale: Market-based transfer pricing uses external market prices as the basis for transactions
between divisions. This approach promotes goal congruence because divisions are evaluated using
prices comparable to arm’s-length market transactions.
1. A company has fixed costs of $120,000, a selling price per unit of $50, and variable cost per unit
of $30. What is the break-even point in units?
A. 4,000 units B. 5,000 units C. 6,000 units D. 7,000 units
Rationale: Break-even point in units equals Fixed Costs ÷ Contribution Margin per Unit. Contribution
margin per unit is $50 − $30 = $20. Therefore, break-even units equal $120,000 ÷ $20 = 6,000 units. At
this level, total revenue equals total costs.
1. Which financial statement reports a company’s financial position at a specific point in time?
A. Income statement B. Statement of cash flows C. Statement of retained earnings D. Balance sheet
Rationale: The balance sheet presents assets, liabilities, and equity at a specific date, showing the
company’s financial position. Unlike the income statement, which covers a period of time, the balance
sheet is a snapshot at one moment.
1. Which of the following is a disadvantage of decentralized organizations?
A. Faster decision-making B. Increased management development C. Greater responsiveness to local
conditions D. Potential lack of goal congruence
Rationale: Decentralized organizations may face situations where divisional managers pursue
objectives that benefit their divisions but not the company as a whole. This lack of goal congruence is
a common challenge in decentralized structures.
1. What is the net present value of a project that requires an investment of $50,000 and generates
discounted future cash inflows totaling $62,000?
A. $12,000 unfavorable B. $12,000 favorable C. $50,000 favorable D. $62,000 favorable
Rationale: Net present value equals Present Value of Future Cash Inflows minus Initial Investment. The
calculation is $62,000 − $50,000 = $12,000 favorable. A positive NPV indicates the project is expected to
increase shareholder value.
1. Which variance measures the efficiency of labor usage?
A. Labor price variance B. Material quantity variance C. Labor efficiency variance D. Sales volume
variance
Rationale: Labor efficiency variance measures whether actual labor hours used differ from standard
hours allowed for actual production. It evaluates how efficiently labor time was utilized during
production operations.
1. Which of the following best describes relevant costs?
A. Costs that cannot be changed B. Historical costs already incurred C. Costs that differ among
alternatives D. Costs required by GAAP
3
(CMA)
Full Professional Practice Examination
1. A company uses standard costing. The standard material cost to produce one unit is based on 5
pounds of material at $4 per pound. During the month, 2,000 pounds of material were
purchased at $4.20 per pound, and 350 units were produced using 1,900 pounds of material.
What is the direct material price variance?
A. $380 favorable B. $400 unfavorable C. $420 unfavorable D. $500 favorable
Rationale: The direct material price variance equals Actual Quantity Purchased × (Actual Price −
Standard Price). The company purchased 2,000 pounds at $4.20 instead of the standard $4.00.
Therefore, the variance is 2,000 × ($4.20 − $4.00) = $400 unfavorable. A price variance is unfavorable
when actual cost exceeds standard cost.
1. Which of the following best describes the primary objective of managerial accounting?
A. Reporting financial information to external stakeholders B. Preparing tax returns for government
agencies C. Providing information to managers for planning, control, and decision-making D.
Auditing financial statements for compliance
Rationale: Managerial accounting focuses on providing relevant and timely information to internal
users, especially managers, to support planning, controlling operations, and decision-making. Unlike
financial accounting, managerial accounting is not primarily designed for external reporting or
regulatory compliance.
1. A company has sales revenue of $800,000, variable costs of $480,000, and fixed costs of
$200,000. What is the contribution margin ratio?
A. 25% B. 35% C. 40% D. 60%
Rationale: Contribution margin ratio equals Contribution Margin ÷ Sales Revenue. Contribution margin
is sales minus variable costs: $800,000 − $480,000 = $320,000. Therefore, the ratio is $320,000 ÷
$800,000 = 40%. This ratio indicates the percentage of each sales dollar available to cover fixed costs
and profit.
1. Which inventory costing method generally results in the highest ending inventory during periods
of rising prices?
A. LIFO B. Weighted average C. Specific identification D. FIFO
1
,Rationale: During periods of rising prices, FIFO assigns older, lower costs to cost of goods sold while
newer, higher costs remain in ending inventory. As a result, ending inventory reflects more recent and
higher prices, producing the highest ending inventory value among common inventory methods.
1. A company’s current assets total $450,000 and current liabilities total $300,000. What is the
current ratio?
A. 0.67 B. 1.00 C. 1.50 D. 2.00
Rationale: The current ratio equals Current Assets ÷ Current Liabilities. Using the provided data:
$450,000 ÷ $300,000 = 1.50. This liquidity ratio measures the company’s ability to meet short-term
obligations using short-term assets.
1. Which budgeting approach requires managers to justify all expenses from scratch each period?
A. Flexible budgeting B. Incremental budgeting C. Capital budgeting D. Zero-based budgeting
Rationale: Zero-based budgeting requires every budget item to be justified anew during each budget
cycle, regardless of prior-period spending. Unlike incremental budgeting, no automatic assumption is
made that previous spending levels are appropriate.
1. A project requires an initial investment of $100,000 and is expected to generate annual cash
inflows of $25,000 for five years. What is the payback period?
A. 2 years B. 3 years C. 4 years D. 5 years
Rationale: Payback period equals Initial Investment ÷ Annual Cash Inflow when cash inflows are even.
The calculation is $100,000 ÷ $25,000 = 4 years. The payback method measures how quickly an
investment recovers its original cost.
1. Which of the following costs is most likely a variable cost?
A. Factory rent B. Depreciation using straight-line method C. Supervisor salary D. Direct materials
Rationale: Variable costs change directly and proportionately with production volume. Direct materials
increase as more units are produced, making them a classic example of a variable cost. Fixed costs
such as rent and salaries remain constant within the relevant range.
1. What is the primary purpose of a cash budget?
A. To estimate product demand B. To calculate depreciation expense C. To forecast cash inflows and
outflows D. To determine product quality standards
Rationale: A cash budget projects future cash receipts and cash disbursements in order to help
management maintain adequate liquidity and plan financing needs. It is an essential tool for short-
term financial planning and cash management.
1. Which transfer pricing method is based on prices charged in external markets?
A. Cost-plus pricing B. Negotiated pricing C. Variable-cost pricing D. Market-based pricing
2
, Rationale: Market-based transfer pricing uses external market prices as the basis for transactions
between divisions. This approach promotes goal congruence because divisions are evaluated using
prices comparable to arm’s-length market transactions.
1. A company has fixed costs of $120,000, a selling price per unit of $50, and variable cost per unit
of $30. What is the break-even point in units?
A. 4,000 units B. 5,000 units C. 6,000 units D. 7,000 units
Rationale: Break-even point in units equals Fixed Costs ÷ Contribution Margin per Unit. Contribution
margin per unit is $50 − $30 = $20. Therefore, break-even units equal $120,000 ÷ $20 = 6,000 units. At
this level, total revenue equals total costs.
1. Which financial statement reports a company’s financial position at a specific point in time?
A. Income statement B. Statement of cash flows C. Statement of retained earnings D. Balance sheet
Rationale: The balance sheet presents assets, liabilities, and equity at a specific date, showing the
company’s financial position. Unlike the income statement, which covers a period of time, the balance
sheet is a snapshot at one moment.
1. Which of the following is a disadvantage of decentralized organizations?
A. Faster decision-making B. Increased management development C. Greater responsiveness to local
conditions D. Potential lack of goal congruence
Rationale: Decentralized organizations may face situations where divisional managers pursue
objectives that benefit their divisions but not the company as a whole. This lack of goal congruence is
a common challenge in decentralized structures.
1. What is the net present value of a project that requires an investment of $50,000 and generates
discounted future cash inflows totaling $62,000?
A. $12,000 unfavorable B. $12,000 favorable C. $50,000 favorable D. $62,000 favorable
Rationale: Net present value equals Present Value of Future Cash Inflows minus Initial Investment. The
calculation is $62,000 − $50,000 = $12,000 favorable. A positive NPV indicates the project is expected to
increase shareholder value.
1. Which variance measures the efficiency of labor usage?
A. Labor price variance B. Material quantity variance C. Labor efficiency variance D. Sales volume
variance
Rationale: Labor efficiency variance measures whether actual labor hours used differ from standard
hours allowed for actual production. It evaluates how efficiently labor time was utilized during
production operations.
1. Which of the following best describes relevant costs?
A. Costs that cannot be changed B. Historical costs already incurred C. Costs that differ among
alternatives D. Costs required by GAAP
3
