CERTIFIED MANAGEMENT ACCOUNTANT
FINAL PAPER 2026 COMPLETE ANSWERS
VERIFIED
●● TC=(VCs x Qa) + FCs. Answer: Flexible Budget uses actual quantity
●● ROA. Answer: ROA =Profit Margin x Asset Turnover
Income/Assets = Income/Sales x Sales/Total Assets
●● ROA numerator issues. Answer: There are two major issues for
measurement of income in the numerator: (a) income taxes, and (b)
GAAP.
●● ROA Denominator issues. Answer: Denominator Issues
It is in this figure that there are a wide variety of possibilities. The two
issues are (a) which assets to use and (b) how to value the assets.
●● Cash Flow Return on Investment (CFROI). Answer: To avoid
possible accrual accounting manipulation of performance measures and
to increase focus on cash flows, managers may be evaluated using a cash
flow return on investment (CFROI). CFROI, developed by Boston
Consulting Group and Holt Value Associates, can be calculated by
dividing operating inflation- adjusted cash flow by gross assets.
, Sometimes the denominator is calculated using the market value of
equity; however, this measure is often unavailable for responsibility
centers.
●● Economic Value Added (EVA). Answer: Many large companies in
the United States have begun to use this performance measure. It is a
type of residual income calculation that takes into account (1) the after-
tax operating income, (2) a required rate of return equal to the weighted-
average cost of capital, and (3) investment measured as total assets less
current liabilities..
Computation It is computed as after-tax operating income minus [the
weighted-average cost of capital x (total assets less current liabilities)].
3. Underlying Assumption
The assumption underlying the use of this performance measure is that
value is created only if the after-tax operating income exceeds the cost of
investing the capital. The measure can be improved by earning more
income from the same level of capital, by using less capital, or by
investing in higher-return projects.
●● Residual Income. Answer: Investment base
Net income
Cost of capital - at 10% Residual income
ROIDivision A $100,000
$20,000 10,000 $10,000
20%
FINAL PAPER 2026 COMPLETE ANSWERS
VERIFIED
●● TC=(VCs x Qa) + FCs. Answer: Flexible Budget uses actual quantity
●● ROA. Answer: ROA =Profit Margin x Asset Turnover
Income/Assets = Income/Sales x Sales/Total Assets
●● ROA numerator issues. Answer: There are two major issues for
measurement of income in the numerator: (a) income taxes, and (b)
GAAP.
●● ROA Denominator issues. Answer: Denominator Issues
It is in this figure that there are a wide variety of possibilities. The two
issues are (a) which assets to use and (b) how to value the assets.
●● Cash Flow Return on Investment (CFROI). Answer: To avoid
possible accrual accounting manipulation of performance measures and
to increase focus on cash flows, managers may be evaluated using a cash
flow return on investment (CFROI). CFROI, developed by Boston
Consulting Group and Holt Value Associates, can be calculated by
dividing operating inflation- adjusted cash flow by gross assets.
, Sometimes the denominator is calculated using the market value of
equity; however, this measure is often unavailable for responsibility
centers.
●● Economic Value Added (EVA). Answer: Many large companies in
the United States have begun to use this performance measure. It is a
type of residual income calculation that takes into account (1) the after-
tax operating income, (2) a required rate of return equal to the weighted-
average cost of capital, and (3) investment measured as total assets less
current liabilities..
Computation It is computed as after-tax operating income minus [the
weighted-average cost of capital x (total assets less current liabilities)].
3. Underlying Assumption
The assumption underlying the use of this performance measure is that
value is created only if the after-tax operating income exceeds the cost of
investing the capital. The measure can be improved by earning more
income from the same level of capital, by using less capital, or by
investing in higher-return projects.
●● Residual Income. Answer: Investment base
Net income
Cost of capital - at 10% Residual income
ROIDivision A $100,000
$20,000 10,000 $10,000
20%
