CERTIFIED MANAGEMENT ACCOUNTANT
(CMA) CERTIFICATION: COMPLETE PRACTICE
EXAM WITH ANSWERS AND RATIONALES
(QUESTIONS 1-100)
1. Which of the following is a primary difference between financial accounting and management
accounting?
A) Financial accounting is forward-looking; management accounting is historical
B) Financial accounting is primarily for internal users; management accounting is for external users
C) Financial accounting follows GAAP; management accounting is not bound by GAAP
D) Financial accounting is optional; management accounting is required by law
Answer: C
Rationale: Financial accounting must follow GAAP or IFRS for external reporting, while management
accounting is designed for internal decision-making and is not constrained by these rules .
2. A company's contribution margin is defined as:
A) Sales revenue minus fixed costs
B) Sales revenue minus variable costs
C) Sales revenue minus total costs
D) Variable costs minus fixed costs
Answer: B
Rationale: Contribution margin is calculated as sales revenue less variable costs. It represents the
amount available to cover fixed costs and contribute to profit .
3. Which cost classification changes in total in direct proportion to changes in activity level?
A) Fixed cost
B) Variable cost
C) Mixed cost
,D) Step cost
Answer: B
Rationale: Variable costs change in total proportionally to changes in activity level, while fixed costs
remain constant in total regardless of activity changes .
4. A company produces a product with a selling price of $50, variable cost per unit of $30, and fixed
costs of $100,000. What is the break-even point in units?
A) 2,000 units
B) 3,333 units
C) 5,000 units
D) 10,000 units
Answer: C
Rationale: Break-even in units = Fixed costs / (Price - Variable cost per unit) = $100,000 / ($50 - $30) =
5,000 units .
5. If a company's sales volume increases by 10% and its operating leverage is 2.5, what is the expected
percentage change in operating income?
A) 10%
B) 15%
C) 25%
D) 250%
Answer: C
Rationale: The percentage change in operating income equals operating leverage times the percentage
change in sales volume: 2.5 × 10% = 25% .
6. Which of the following is a characteristic of a relevant cost?
A) It is a sunk cost
B) It differs between alternatives
C) It is always fixed
D) It is always variable
,Answer: B
Rationale: Relevant costs are future costs that differ between decision alternatives. Sunk costs are never
relevant .
7. What is the primary purpose of a master budget?
A) To prepare financial statements
B) To coordinate all of the organization's budgeting activities
C) To determine the break-even point
D) To analyze cost variances
Answer: B
Rationale: The master budget integrates all individual budgets (sales, production, etc.) into a
comprehensive plan for the organization .
8. Which variance measures the difference between actual variable overhead and standard variable
overhead based on actual hours?
A) Variable overhead spending variance
B) Variable overhead efficiency variance
C) Fixed overhead budget variance
D) Volume variance
Answer: B
Rationale: The variable overhead efficiency variance compares actual hours to standard hours allowed,
valued at the standard variable overhead rate .
9. A favorable direct materials price variance occurs when:
A) Actual price is greater than standard price
B) Actual price is less than standard price
C) Actual quantity is greater than standard quantity
D) Actual quantity is less than standard quantity
Answer: B
, Rationale: A favorable price variance means the actual price paid was less than the standard price
expected .
10. Which of the following is NOT a benefit of budgeting?
A) Promotes coordination and communication
B) Provides a framework for performance evaluation
C) Guarantees profitability
D) Forces managers to plan
Answer: C
Rationale: Budgeting is a planning and control tool, but it does not guarantee profitability—it helps
increase the likelihood of achieving financial goals .
11. The internal rate of return (IRR) is the discount rate that makes:
A) The net present value equal to zero
B) The payback period equal to the project life
C) The profitability index equal to one
D) The accounting rate of return equal to the cost of capital
Answer: A
Rationale: IRR is the discount rate at which the present value of future cash flows equals the initial
investment, resulting in a net present value of zero .
12. If a project has a positive net present value (NPV), the IRR will be:
A) Equal to the cost of capital
B) Less than the cost of capital
C) Greater than the cost of capital
D) Cannot be determined without more information
Answer: C
Rationale: A positive NPV indicates the project's return exceeds the required rate of return, so the IRR
must be greater than the cost of capital .
(CMA) CERTIFICATION: COMPLETE PRACTICE
EXAM WITH ANSWERS AND RATIONALES
(QUESTIONS 1-100)
1. Which of the following is a primary difference between financial accounting and management
accounting?
A) Financial accounting is forward-looking; management accounting is historical
B) Financial accounting is primarily for internal users; management accounting is for external users
C) Financial accounting follows GAAP; management accounting is not bound by GAAP
D) Financial accounting is optional; management accounting is required by law
Answer: C
Rationale: Financial accounting must follow GAAP or IFRS for external reporting, while management
accounting is designed for internal decision-making and is not constrained by these rules .
2. A company's contribution margin is defined as:
A) Sales revenue minus fixed costs
B) Sales revenue minus variable costs
C) Sales revenue minus total costs
D) Variable costs minus fixed costs
Answer: B
Rationale: Contribution margin is calculated as sales revenue less variable costs. It represents the
amount available to cover fixed costs and contribute to profit .
3. Which cost classification changes in total in direct proportion to changes in activity level?
A) Fixed cost
B) Variable cost
C) Mixed cost
,D) Step cost
Answer: B
Rationale: Variable costs change in total proportionally to changes in activity level, while fixed costs
remain constant in total regardless of activity changes .
4. A company produces a product with a selling price of $50, variable cost per unit of $30, and fixed
costs of $100,000. What is the break-even point in units?
A) 2,000 units
B) 3,333 units
C) 5,000 units
D) 10,000 units
Answer: C
Rationale: Break-even in units = Fixed costs / (Price - Variable cost per unit) = $100,000 / ($50 - $30) =
5,000 units .
5. If a company's sales volume increases by 10% and its operating leverage is 2.5, what is the expected
percentage change in operating income?
A) 10%
B) 15%
C) 25%
D) 250%
Answer: C
Rationale: The percentage change in operating income equals operating leverage times the percentage
change in sales volume: 2.5 × 10% = 25% .
6. Which of the following is a characteristic of a relevant cost?
A) It is a sunk cost
B) It differs between alternatives
C) It is always fixed
D) It is always variable
,Answer: B
Rationale: Relevant costs are future costs that differ between decision alternatives. Sunk costs are never
relevant .
7. What is the primary purpose of a master budget?
A) To prepare financial statements
B) To coordinate all of the organization's budgeting activities
C) To determine the break-even point
D) To analyze cost variances
Answer: B
Rationale: The master budget integrates all individual budgets (sales, production, etc.) into a
comprehensive plan for the organization .
8. Which variance measures the difference between actual variable overhead and standard variable
overhead based on actual hours?
A) Variable overhead spending variance
B) Variable overhead efficiency variance
C) Fixed overhead budget variance
D) Volume variance
Answer: B
Rationale: The variable overhead efficiency variance compares actual hours to standard hours allowed,
valued at the standard variable overhead rate .
9. A favorable direct materials price variance occurs when:
A) Actual price is greater than standard price
B) Actual price is less than standard price
C) Actual quantity is greater than standard quantity
D) Actual quantity is less than standard quantity
Answer: B
, Rationale: A favorable price variance means the actual price paid was less than the standard price
expected .
10. Which of the following is NOT a benefit of budgeting?
A) Promotes coordination and communication
B) Provides a framework for performance evaluation
C) Guarantees profitability
D) Forces managers to plan
Answer: C
Rationale: Budgeting is a planning and control tool, but it does not guarantee profitability—it helps
increase the likelihood of achieving financial goals .
11. The internal rate of return (IRR) is the discount rate that makes:
A) The net present value equal to zero
B) The payback period equal to the project life
C) The profitability index equal to one
D) The accounting rate of return equal to the cost of capital
Answer: A
Rationale: IRR is the discount rate at which the present value of future cash flows equals the initial
investment, resulting in a net present value of zero .
12. If a project has a positive net present value (NPV), the IRR will be:
A) Equal to the cost of capital
B) Less than the cost of capital
C) Greater than the cost of capital
D) Cannot be determined without more information
Answer: C
Rationale: A positive NPV indicates the project's return exceeds the required rate of return, so the IRR
must be greater than the cost of capital .
