Certified Management Accountant (CMA) Practice Exam
2 Questions and correct Answers (Verified Answers)
with Rationales 2025
1. Which of the following is a limitation of using a static budget?
A. It cannot be used to compare actual performance
B. It does not adjust for changes in activity levels
C. It is too complex for small organizations
D. It incorporates flexible forecasting
Rationale: A static budget is based on a single level of activity and does not
change, making it less useful for performance evaluation when activity levels
vary.
2. What is the primary purpose of variance analysis in standard costing?
A. To determine the optimal pricing strategy
B. To evaluate external financial reporting
C. To identify and explain differences between expected and actual results
D. To calculate tax liabilities
Rationale: Variance analysis highlights discrepancies between standard costs
and actual performance, aiding in cost control and performance evaluation.
,3. Which of the following ratios is most useful in evaluating a company’s
liquidity?
A. Return on equity
B. Current ratio
C. Inventory turnover
D. Gross margin
Rationale: The current ratio (current assets / current liabilities) measures a
company's ability to pay short-term obligations.
4. In capital budgeting, the internal rate of return (IRR) is the discount rate that
makes:
A. The net present value equal to the project's initial cost
B. The payback period zero
C. The net present value equal to zero
D. The accounting rate of return equal to the cost of capital
Rationale: IRR is the rate at which the present value of future cash flows equals
the initial investment, resulting in an NPV of zero.
5. Which financial statement provides a snapshot of a company’s financial
position at a specific point in time?
A. Income statement
B. Balance sheet
C. Statement of cash flows
D. Retained earnings statement
, Rationale: The balance sheet reports the company's assets, liabilities, and equity
as of a specific date.
6. A company with high operating leverage is more sensitive to changes in:
A. Sales volume
B. Interest rates
C. Dividend policy
D. Income tax rates
Rationale: Companies with high fixed costs (high operating leverage) experience
greater profit fluctuations with sales changes.
7. What is the primary difference between absorption costing and variable
costing?
A. Only absorption costing includes overhead in product cost
B. Absorption costing includes fixed manufacturing overhead in inventory
C. Variable costing excludes variable overhead
D. Absorption costing uses standard costs
Rationale: Absorption costing treats fixed manufacturing overhead as part of
product costs; variable costing expenses it as incurred.
8. What is the best method to evaluate mutually exclusive projects with
unequal lives?
A. Payback period
2 Questions and correct Answers (Verified Answers)
with Rationales 2025
1. Which of the following is a limitation of using a static budget?
A. It cannot be used to compare actual performance
B. It does not adjust for changes in activity levels
C. It is too complex for small organizations
D. It incorporates flexible forecasting
Rationale: A static budget is based on a single level of activity and does not
change, making it less useful for performance evaluation when activity levels
vary.
2. What is the primary purpose of variance analysis in standard costing?
A. To determine the optimal pricing strategy
B. To evaluate external financial reporting
C. To identify and explain differences between expected and actual results
D. To calculate tax liabilities
Rationale: Variance analysis highlights discrepancies between standard costs
and actual performance, aiding in cost control and performance evaluation.
,3. Which of the following ratios is most useful in evaluating a company’s
liquidity?
A. Return on equity
B. Current ratio
C. Inventory turnover
D. Gross margin
Rationale: The current ratio (current assets / current liabilities) measures a
company's ability to pay short-term obligations.
4. In capital budgeting, the internal rate of return (IRR) is the discount rate that
makes:
A. The net present value equal to the project's initial cost
B. The payback period zero
C. The net present value equal to zero
D. The accounting rate of return equal to the cost of capital
Rationale: IRR is the rate at which the present value of future cash flows equals
the initial investment, resulting in an NPV of zero.
5. Which financial statement provides a snapshot of a company’s financial
position at a specific point in time?
A. Income statement
B. Balance sheet
C. Statement of cash flows
D. Retained earnings statement
, Rationale: The balance sheet reports the company's assets, liabilities, and equity
as of a specific date.
6. A company with high operating leverage is more sensitive to changes in:
A. Sales volume
B. Interest rates
C. Dividend policy
D. Income tax rates
Rationale: Companies with high fixed costs (high operating leverage) experience
greater profit fluctuations with sales changes.
7. What is the primary difference between absorption costing and variable
costing?
A. Only absorption costing includes overhead in product cost
B. Absorption costing includes fixed manufacturing overhead in inventory
C. Variable costing excludes variable overhead
D. Absorption costing uses standard costs
Rationale: Absorption costing treats fixed manufacturing overhead as part of
product costs; variable costing expenses it as incurred.
8. What is the best method to evaluate mutually exclusive projects with
unequal lives?
A. Payback period
