Advanced Certified Management Accountant
(CMA) Multiple Choice Questions (MCQs)
with Answers and Explanations for CMA
Exam Preparation and Professional
Management Accounting Certification
1. A manufacturing company is evaluating two mutually exclusive capital investment
projects. Project A has a higher Internal Rate of Return (IRR), while Project B has a
higher Net Present Value (NPV). Assuming both projects have similar risk profiles and
sufficient financing is available, which project should management generally select?
A. Project A because IRR always provides the best investment decision.
B. Project B because NPV directly measures the increase in shareholder value.
C. Reject both projects because conflicting rankings invalidate both methods.
D. Select the project with the shorter payback period.
Explanation: NPV is generally the preferred capital budgeting criterion because it measures the
absolute increase in firm value. Conflicts between NPV and IRR often arise due to differences in
project scale or timing of cash flows.
2. A company budgets fixed manufacturing overhead of $1,200,000 based on 60,000
machine hours. Actual fixed overhead is $1,260,000, and actual machine hours are
63,000. What is the fixed overhead spending variance?
A. $60,000 Favorable
B. $60,000 Unfavorable
C. $63,000 Favorable
D. $63,000 Unfavorable
Explanation: The fixed overhead spending variance equals Actual Fixed Overhead − Budgeted
Fixed Overhead = $1,260,000 − $1,200,000 = $60,000 Unfavorable.
3. Which costing system is most appropriate for a manufacturer producing highly
customized industrial equipment?
, A. Process costing
B. Job order costing
C. Activity-based costing only
D. Standard costing exclusively
Explanation: Job order costing accumulates costs for individual jobs or contracts, making it
appropriate for customized products with unique specifications.
4. A company experiences declining operating income despite increasing sales revenue.
Which ratio would most directly help management determine whether production costs
are increasing disproportionately?
A. Current ratio
B. Debt-to-equity ratio
C. Gross profit margin
D. Accounts receivable turnover
Explanation: Gross profit margin measures the relationship between sales and cost of goods
sold, helping management identify changes in production cost efficiency.
5. Which of the following costs is relevant when deciding whether to accept a special order
that will not affect normal sales?
A. Sunk manufacturing costs
B. Historical depreciation expense
C. Incremental variable production costs
D. Allocated corporate headquarters costs
Explanation: Only future costs that change because of the decision are relevant. Incremental
variable costs are directly attributable to fulfilling the special order.
6. Under Activity-Based Costing (ABC), cost drivers should ideally have which
characteristic?
A. Be easy to calculate regardless of causality.
B. Remain constant across all products.
(CMA) Multiple Choice Questions (MCQs)
with Answers and Explanations for CMA
Exam Preparation and Professional
Management Accounting Certification
1. A manufacturing company is evaluating two mutually exclusive capital investment
projects. Project A has a higher Internal Rate of Return (IRR), while Project B has a
higher Net Present Value (NPV). Assuming both projects have similar risk profiles and
sufficient financing is available, which project should management generally select?
A. Project A because IRR always provides the best investment decision.
B. Project B because NPV directly measures the increase in shareholder value.
C. Reject both projects because conflicting rankings invalidate both methods.
D. Select the project with the shorter payback period.
Explanation: NPV is generally the preferred capital budgeting criterion because it measures the
absolute increase in firm value. Conflicts between NPV and IRR often arise due to differences in
project scale or timing of cash flows.
2. A company budgets fixed manufacturing overhead of $1,200,000 based on 60,000
machine hours. Actual fixed overhead is $1,260,000, and actual machine hours are
63,000. What is the fixed overhead spending variance?
A. $60,000 Favorable
B. $60,000 Unfavorable
C. $63,000 Favorable
D. $63,000 Unfavorable
Explanation: The fixed overhead spending variance equals Actual Fixed Overhead − Budgeted
Fixed Overhead = $1,260,000 − $1,200,000 = $60,000 Unfavorable.
3. Which costing system is most appropriate for a manufacturer producing highly
customized industrial equipment?
, A. Process costing
B. Job order costing
C. Activity-based costing only
D. Standard costing exclusively
Explanation: Job order costing accumulates costs for individual jobs or contracts, making it
appropriate for customized products with unique specifications.
4. A company experiences declining operating income despite increasing sales revenue.
Which ratio would most directly help management determine whether production costs
are increasing disproportionately?
A. Current ratio
B. Debt-to-equity ratio
C. Gross profit margin
D. Accounts receivable turnover
Explanation: Gross profit margin measures the relationship between sales and cost of goods
sold, helping management identify changes in production cost efficiency.
5. Which of the following costs is relevant when deciding whether to accept a special order
that will not affect normal sales?
A. Sunk manufacturing costs
B. Historical depreciation expense
C. Incremental variable production costs
D. Allocated corporate headquarters costs
Explanation: Only future costs that change because of the decision are relevant. Incremental
variable costs are directly attributable to fulfilling the special order.
6. Under Activity-Based Costing (ABC), cost drivers should ideally have which
characteristic?
A. Be easy to calculate regardless of causality.
B. Remain constant across all products.
