CERTIFIED MANAGEMENT ACCOUNTANT
EXAM COMPLETE QUESTIONS WITH 100%
VERIFIED ANSWERS MANAGEMENT
ACCOUNTING, FINANCIAL PLANNING, ANALYSIS,
CONTROL, DECISION SUPPORT, AND PROFESSIONAL
ETHICS
Question 1
A company has a current ratio of 2.0, quick ratio of 1.2, and working capital of
$500,000. What are its current liabilities?
A) $250,000
B) $500,000
C) $1,000,000
D) $1,200,000
Correct Answer: B
Rationale: Working capital = Current assets (CA) − Current liabilities (CL) =
$500,000. Current ratio = CA / CL = 2.0 → CA = 2×CL. Substitute: 2CL − CL =
$500,000 → CL = $500,000. Quick ratio info is extra.
Question 2
In a residual income calculation, if a division’s operating income is $800,000,
invested capital is $5,000,000, and required rate of return is 12%, residual income
is:
A) $200,000
,B) $96,000
C) $560,000
D) $0
Correct Answer: A
Rationale: Residual income = Operating income − (Invested capital × required
return) = $800,000 − ($5,000,000 × 0.12) = $800,000 − $600,000 = $200,000.
Question 3
Which of the following costs is NOT relevant in a make-or-buy decision?
A) Direct materials for the part
B) Variable overhead that changes with production
C) Depreciation on existing factory equipment that will continue regardless
D) Purchase price from supplier
Correct Answer: C
Rationale: Irrelevant costs do not differ between alternatives. Depreciation on
existing equipment is a sunk cost if it continues irrespective of the decision.
Question 4
A project requires an initial investment of $2 million and generates cash flows of
$600,000 annually for 5 years. Discount rate = 10%. Net present value (NPV) is
closest to: (PV annuity factor for 5 years at 10% = 3.7908)
A) $274,480
B) $300,000
C) $1,274,480
D) ($274,480)
Correct Answer: A
Rationale: PV of inflows = $600,000 × 3.7908 = $2,274,480. NPV = $2,274,480 −
$2,000,000 = $274,480.
,Question 5
Under IFRS 15, revenue from a contract with a customer is recognized when:
A) The contract is signed
B) Cash is collected
C) Performance obligations are satisfied
D) Goods are produced
Correct Answer: C
Rationale: Revenue is recognized when (or as) the entity satisfies a performance
obligation by transferring a promised good or service to a customer.
Question 6
A company’s cost of equity is 15%, cost of debt is 7% (before tax), tax rate = 30%,
debt-to-equity ratio = 0.5 (market values). Weighted average cost of capital
(WACC) is:
A) 10.5%
B) 11.8%
C) 12.1%
D) 9.4%
Correct Answer: B
Rationale: D/E = 0.5 → D = 0.5E, V = D+E = 1.5E, weights: D/V = (0.5E)/(1.5E) = 1/3,
E/V = 2/3. WACC = (2/3 × 15%) + (1/3 × 7% × (1−0.30)) = 10% + 1.63% = 11.63% ≈
11.8%.
Question 7
Which variance measures the difference between actual fixed overhead and
budgeted fixed overhead?
A) Fixed overhead spending variance
B) Fixed overhead efficiency variance
C) Fixed overhead volume variance
D) Variable overhead efficiency variance
, Correct Answer: A
Rationale: Spending variance (sometimes called budget variance) = Actual fixed
overhead − Budgeted fixed overhead.
Question 8
If a company has a high degree of operating leverage, a 10% increase in sales will
result in:
A) A less than 10% increase in operating income
B) A greater than 10% increase in operating income
C) A 10% increase in operating income
D) No change in operating income
Correct Answer: B
Rationale: High operating leverage means high fixed costs relative to variable
costs; contribution margin is large, so % change in operating income = % change in
sales × degree of operating leverage (>1).
Question 9
In activity-based costing (ABC), which is a batch-level activity?
A) Setting up a production run
B) Designing a product
C) Painting a unit
D) Factory rent
Correct Answer: A
Rationale: Batch-level activities are performed each time a batch is produced (e.g.,
machine setup, quality inspection per batch).
Question 10
A company buys a machine for $100,000 with useful life 5 years, salvage $20,000,
uses double-declining balance. Depreciation expense in year 2 is:
EXAM COMPLETE QUESTIONS WITH 100%
VERIFIED ANSWERS MANAGEMENT
ACCOUNTING, FINANCIAL PLANNING, ANALYSIS,
CONTROL, DECISION SUPPORT, AND PROFESSIONAL
ETHICS
Question 1
A company has a current ratio of 2.0, quick ratio of 1.2, and working capital of
$500,000. What are its current liabilities?
A) $250,000
B) $500,000
C) $1,000,000
D) $1,200,000
Correct Answer: B
Rationale: Working capital = Current assets (CA) − Current liabilities (CL) =
$500,000. Current ratio = CA / CL = 2.0 → CA = 2×CL. Substitute: 2CL − CL =
$500,000 → CL = $500,000. Quick ratio info is extra.
Question 2
In a residual income calculation, if a division’s operating income is $800,000,
invested capital is $5,000,000, and required rate of return is 12%, residual income
is:
A) $200,000
,B) $96,000
C) $560,000
D) $0
Correct Answer: A
Rationale: Residual income = Operating income − (Invested capital × required
return) = $800,000 − ($5,000,000 × 0.12) = $800,000 − $600,000 = $200,000.
Question 3
Which of the following costs is NOT relevant in a make-or-buy decision?
A) Direct materials for the part
B) Variable overhead that changes with production
C) Depreciation on existing factory equipment that will continue regardless
D) Purchase price from supplier
Correct Answer: C
Rationale: Irrelevant costs do not differ between alternatives. Depreciation on
existing equipment is a sunk cost if it continues irrespective of the decision.
Question 4
A project requires an initial investment of $2 million and generates cash flows of
$600,000 annually for 5 years. Discount rate = 10%. Net present value (NPV) is
closest to: (PV annuity factor for 5 years at 10% = 3.7908)
A) $274,480
B) $300,000
C) $1,274,480
D) ($274,480)
Correct Answer: A
Rationale: PV of inflows = $600,000 × 3.7908 = $2,274,480. NPV = $2,274,480 −
$2,000,000 = $274,480.
,Question 5
Under IFRS 15, revenue from a contract with a customer is recognized when:
A) The contract is signed
B) Cash is collected
C) Performance obligations are satisfied
D) Goods are produced
Correct Answer: C
Rationale: Revenue is recognized when (or as) the entity satisfies a performance
obligation by transferring a promised good or service to a customer.
Question 6
A company’s cost of equity is 15%, cost of debt is 7% (before tax), tax rate = 30%,
debt-to-equity ratio = 0.5 (market values). Weighted average cost of capital
(WACC) is:
A) 10.5%
B) 11.8%
C) 12.1%
D) 9.4%
Correct Answer: B
Rationale: D/E = 0.5 → D = 0.5E, V = D+E = 1.5E, weights: D/V = (0.5E)/(1.5E) = 1/3,
E/V = 2/3. WACC = (2/3 × 15%) + (1/3 × 7% × (1−0.30)) = 10% + 1.63% = 11.63% ≈
11.8%.
Question 7
Which variance measures the difference between actual fixed overhead and
budgeted fixed overhead?
A) Fixed overhead spending variance
B) Fixed overhead efficiency variance
C) Fixed overhead volume variance
D) Variable overhead efficiency variance
, Correct Answer: A
Rationale: Spending variance (sometimes called budget variance) = Actual fixed
overhead − Budgeted fixed overhead.
Question 8
If a company has a high degree of operating leverage, a 10% increase in sales will
result in:
A) A less than 10% increase in operating income
B) A greater than 10% increase in operating income
C) A 10% increase in operating income
D) No change in operating income
Correct Answer: B
Rationale: High operating leverage means high fixed costs relative to variable
costs; contribution margin is large, so % change in operating income = % change in
sales × degree of operating leverage (>1).
Question 9
In activity-based costing (ABC), which is a batch-level activity?
A) Setting up a production run
B) Designing a product
C) Painting a unit
D) Factory rent
Correct Answer: A
Rationale: Batch-level activities are performed each time a batch is produced (e.g.,
machine setup, quality inspection per batch).
Question 10
A company buys a machine for $100,000 with useful life 5 years, salvage $20,000,
uses double-declining balance. Depreciation expense in year 2 is:
