Self Assessment Quiz

Prepared by: Sameh.Y.El-lithy. CMA,CIA. 1

 CMA PROGRAM
Examination Questions for Practice
Studying for and passing the CMA Exams is a mission that requires dedication and hard
work.

Avoid studying CMA questions to learn the correct answers. Use questions to help
you learn how to answer CMA questions under exam conditions. Expect the
unexpected and be prepared to deal with the unexpected.
Become an educated guesser when you encounter questions in doubt; you will
outperform the inexperienced exam taker.
FOCUS on why you selected the incorrect answer, NOT the correct answer.
You want to learn from your mistakes during study so you avoid mistakes on the
exam.

Reasons for missing questions include:

1) Misreading the requirement.
2) Not understanding what is required
3) Making a math error.
4) Applying the wrong rule or concept
5) Being distracted by one or more of the answers
6) Incorrectly eliminating answers from consideration
7) Not having any knowledge of the topic tested
8) Employing bad intuition when guessing

Never leave a multiple-choice question unanswered. Make your best educated guess in the
time allowed. Remember that your score is based on the number of correct responses. You
will not be penalized for guessing incorrectly.

For each multiple-choice question,

a. Try to ignore the answer choices. Do not allow the answer choices to affect your reading
of the question.
1) If four answer choices are presented, three of them are incorrect. These choices are
called distractors for good reason. Often, distractors are written to appear correct at first
glance until further analysis.
2) In computational Items-the distractorsare carefully calculated such that they are the result
of making common mistakes. Be careful, and double-check your computations if time
permits.

Prepared by: Sameh.Y.El-lithy. CMA,CIA. 2

 Quick Check IMA Questions
Kallert Manufacturing currently uses the company's budget only as a planning tool.
Management has decided that it would be beneficial to also use budgets for control
purposes. In order to implement this change, the management accountant must
a) develop forecasting procedures
b) synchronize the budgeting and accounting system with the organizational structure.
c) organize a budget committee.
d) appoint a budget director.

The correct answer is: synchronize the budgeting and accounting system with the organizational
structure. Control is the process of monitoring the actions of those responsible for executing the plan,
measuring the actions against the plan, and making the necessary corrections to the actions and/or
the plan. Synchronizing the budgeting and accounting system with the organizational structure would
allow management to use budgets for control purposes.

The major disadvantage of a top-down budgeting process is

a) inconsistencies of goals with strategic plans.
b) lack of buy-in by middle and lower-level management
c) the introduction of budgetary slack.
d) lack of involvement by upper-level management

The correct answer is: lack of buy-in by middle and lower-level management. In a top-down
approach, upper-level management creates the budget and communicates goals to managers at
lower levels. Two advantages of this method are lack of budgetary slack and consistency of goals
with strategic plans. One disadvantage is lack of buy-in from lower-level managers.

The budgeting technique that is most likely to motivate managers is

a) top-down budgeting.
b) zero-base budgeting.
c) bottom-up budgeting.
d) incremental budgeting.

The correct answer is: bottom-up budgeting. Motivation is enhanced by having lower-level managers
involved in the budgeting process. Bottom-up, participative budgeting promotes such involvement.

Which one of the following best describes the role of top management in the
budgeting process? Top management
a) needs to separate the budgeting process and the business planning process into two
separate processes.
b) should only be involved in the approval process.
c) lacks the detailed knowledge of the daily operations and should limit their involvement.
d) needs to be involved, including using the budget process to communicate goals.

The correct answer is: needs to be involved, including using the budget process to communicate
goals. Top management is ultimately responsible for the organization’s budget. To exercise this
responsibility, top managements ensures that all level of management understand and support the
budgeting process and its relationship to control and performance measurement.

Prepared by: Sameh.Y.El-lithy. CMA,CIA. 3

Upper management has a morale problem with middle management. Many middle
managers are getting poor performance appraisals, but these managers don't feel that
they are to blame. Which of the following could best help this company out of their
situation?
a) Separate uncontrollable costs from controllable costs and judge managers only on the
latter.
b) Base the performance appraisals upon only variable costs.
c) Separate product costs from period costs and judge managers only on the former.
d) Replace managers who get poor performance appraisals.

The correct answer is: Separate uncontrollable costs from controllable costs and judge managers
only on the latter. Holding managers accountable for uncontrollable costs can be unmotivating.
Controllable costs, on the other hand, are useful for performance evaluations and budgeting because
managers perceive these as fair. Some fixed costs are controllable costs.

A firm interested in implementing total quality management (TQM) should consider

discontinuing the use of which of the following?
a) Ideal standards
b) Currently attainable standards
c) Controllable/uncontrollable cost segregation
d) Benchmarking

The correct answer is: Currently attainable standards. A currently attainable standard discourages
continuous improvement because the workers are not motivated to perform better than they currently
are performing. Continuous improvement is a key element in TQM.

Prepared by: Sameh.Y.El-lithy. CMA,CIA. 4

 CMA Exam Retired Questions
(1).1. All of the following are advantages of the use of budgets in a management control system
except that budgets
a. force management planning.
b. provide performance criteria.
c. promote communication and coordination within the organization.
d. limit unauthorized expenditures.

(2).3. All of the following are criticisms of the traditional budgeting process except that it
a. makes across-the-board cuts when early budget iterations show that planned expenses are too high.
b. incorporates non-financial measures as well as financial measures into its output.
c. overemphasizes a fixed time horizon such as one year.
d. is not used until the end of the budget period to evaluate performance.

(3).5. The following sequence of steps are employed by a company to develop its annual profit plan.
*Planning guidelines are disseminated downward by top management after receiving input from all levels of
management.
* A sales budget is prepared by individual sales units reflecting the sales targets of the various segments. This
provides the basis for departmental production budgets and other related components by the various operating
units. Communication is primarily lateral with some upward communication possible.
* A profit plan is submitted to top management for coordination and review. Top management's
recommendations and revisions are acted upon by middle management. A revised profit plan is resubmitted for
further review to top management.
* Top management grants final approval and distributes the formal plan downward to the various operating
units.
This outline of steps best describes which one of the following approaches to budget development?
a. Imposed budgeting by top management.
b. Bottom-up approach.
c. Top-down approach.
d. Total justification of all activities by operating units.

(4).6. All of the following are advantages of top-down budgeting as opposed to participatory
budgeting, except that it
a. increases coordination of divisional objectives.
b. reduces the time required for budgeting.
c. may limit the acceptance of proposed goals and objectives.
d. facilitates implementation of strategic plans.

(5).7. In developing the budget for the next year, which one of the following approaches would produce the
greatest amount of positive motivation and goal congruence?
a. Permit the divisional manager to develop the goal for the division that in the manager’s view will generate the
greatest amount of profits.
b. Have senior management develop the overall goals and permit the divisional manager to determine how
these goals will be met.
c. Have the divisional and senior management jointly develop goals and objectives while constructing the
corporation’s overall plan of operation.
d. Have the divisional and senior management jointly develop goals and the divisional manager develop the
implementation plan.

(6).8. Which one of the following is not an advantage of a participatory budgeting process?
a. Coordination between departments.
b. Communication between departments.
c. Enhance employee motivation.
d. Control of uncertainties

Prepared by: Sameh.Y.El-lithy. CMA,CIA. 5

(7).10. Which one of the following statements concerning approaches for the budget development process is
correct?
a. The top-down approach to budgeting will not ensure adherence to strategic organizational goals.
b. To prevent ambiguity, once departmental budgeted goals have been developed, they should remain fixed
even if the sales forecast upon which they are based proves to be wrong in the middle of the fiscal year.
c. With the information technology available, the role of budgets as an organizational communication device has
declined.
d. Since department managers have the most detailed knowledge about organizational operations, they should
use this information as the building blocks of the operating budget

(8).12. Helen Thomas, Amador Corporation’s vice president of planning, has seen and heard it all. She has told
the corporate controller that she is “....very upset with the degree of slack that veteran managers use when
preparing their budgets.” Thomas has considered implementing some of the following activities during the
budgeting process.
1. Develop the budgets by top management and issue them to lower-level operating units.
2. Study the actual revenues and expenses of previous periods in detail.
3. Have the budgets developed by operating units and accept them as submitted by a company-wide budget
committee.
4. Share the budgets with all employees as a means to reach company goals and objectives.
5. Use an iterative budgeting process that has several “rounds” of changes initiated by operating units and/or
senior managers.

Which one of these activities should Amador implement in order to best remedy Thomas’s concerns, help
eliminate the problems experienced by Amador, and motivate personnel?
a. 1 only.
b. 2 and 3.
c. 2 and 4.
d. 2, 4, and 5.

(9).13. Budgeting problems where departmental managers are repeatedly achieving easy goals or failing to
achieve demanding goals can be best minimized by establishing
a. preventive controls.
b. a policy that allows managers to build slack into the budget.
c. participative budgeting where managers pursue objectives consistent with those set by top management.
d. better communication whereby managers discuss budget matters daily with their superiors.

(10).15. Which one of the following items would most likely cause the planning and budgeting
system to fail? The lack of
a. historical financial data.
b. input from several levels of management.
c. top management support.
d. adherence to rigid budgets during the year.

(11).16. All of the following are disadvantages of top-down budgeting as opposed to participatory
budgeting, except that it
a. may result in a budget that is not possible to achieve.
b. may limit the acceptance of proposed goals and objectives.
c. reduces the communication between employees and management.
d. reduces the time required for budgeting.

(12).17. Suboptimal decision making is not likely to occur when

a. there is little congruence among the overall organization goals, the subunit goals,
and the individual goals of decision makers.
b. goals and standards of performance are set by the top-management.
c. guidance is given to subunit managers about how standards and goals affect them.
d. the subunits in the organization compete with each other for the same input factors or for the same
customers.

Prepared by: Sameh.Y.El-lithy. CMA,CIA. 6

(13).18. All of the following statements concerning standard costs are correct except that
a. time and motion studies are often used to determine standard costs.
b. standard costs are usually set for one year.
c. standard costs can be used in costing inventory accounts.
d. standard costs are usually stated in total, while budgeted costs are usually stated
on a per-unit basis.

(14).19. One approach for developing standard costs incorporates communication, bargaining, and interaction
among product line managers; the immediate supervisors for whom the standards are being developed; and the
accountants and engineers before the standards are accepted by top management. This approach would best
be characterized as a(n)
a. imposed approach.
b. centralized top-down approach.
c. engineering approach.
d. team development approach.

(15).20. When compared with ideal standards, practical standards

a. produce lower per-unit product costs.
b. result in a less desirable basis for the development of budgets.
c. incorporate very generous allowances for spoilage and worker inefficiencies.
d. serve as a better motivating target for manufacturing personnel.

(16).21. Diana Stinson, Cherry Valley Inc.’s factory manager, had lost her patience. Six months ago, she had
appointed a team from the production and service departments to finalize the allocation of costs and setting of
standard costs. They were still feuding, and so she had hired Brennan and Rose, a large consulting firm, to
resolve the matter. All of the following are potential consequences of having the standards set by Brennan
and Rose except that

a. Brennan and Rose may not fully understand Cherry Valley’s manufacturing process, resulting in suboptimal
performance.
b. employees could react negatively since they did not participate in setting the standards.
c. there could be dissatisfaction if the standards contain costs which are not controllable by the unit held
responsible.
d. the standards may appear to lack management support.

(17).22. Jura Corporation is developing standards for the next year. Currently XZ-26, one of the
material components, is being purchased for $36.45 per unit. It is expected that the component’s cost will
increase by approximately 10% next year and the price could range from $38.75 to $44.18 per unit depending
on the quantity purchased. The appropriate standard for XZ-26 for next year should be set at the

a. current actual cost plus the forecasted 10% price increase.

b. lowest purchase price in the anticipated range to keep pressure on purchasing to
always buy in the lowest price range.
c. highest price in the anticipated range to insure that there are only favorable purchase price variances.
d. price agreed upon by the purchasing manager and the appropriate level of company management.

(18).23. Which one of the following will allow a better use of standard costs and variance analysis to help
improve managerial decision-making?
a. Company A does not differentiate between variable and fixed overhead in calculating its overhead variances.
b. Company B uses the prior year’s average actual cost as the current year’s standard.
c. Company C investigates only negative variances.
d. Company D constantly revises standards to reflect learning curves.

Prepared by: Sameh.Y.El-lithy. CMA,CIA. 7

(19).24. After performing a thorough study of Michigan Company’s operations, an independent consultant
determined that the firm’s labor standards were probably too tight. Which one of the following facts would be
inconsistent with the consultant’s conclusion?
a. A review of performance reports revealed the presence of many unfavorable efficiency variances.
b. Michigan’s budgeting process was well-defined and based on a bottom-up philosophy.
c. Management noted that minimal incentive bonuses have been paid in recent periods.
d. Production supervisors found several significant fluctuations in manufacturing volume, with short-term
increases on output being followed by rapid, sustained declines

(20).25. All of the following are examples of benchmarking standards except

a. the performance of the unit during the previous year.
b. the best performance of the unit in comparable past periods.
c. a comparison with a similar unit within the same company.
d. the best performance of a competitor with a similar operation.

Prepared by: Sameh.Y.El-lithy. CMA,CIA. 8

 Answers CMA Exam Retired Questions
1. D
3. B
5. B
6. C
7. D
8. D
10. D
12. D
13. C
15. C
16. D
17. C
18. D
19. D
20. D
21. D
22. D
23. D
24. B
25. A

Prepared by: Sameh.Y.El-lithy. CMA,CIA. 9