7/26/22, 10:49 AM CMA Exam Review - Part 1 - Assessment Review
Question 1
1.B.5.r
tb.ce.cb.017_1809
LOS: 1.B.5.r
Lesson Reference: Capital Expenditures and Cash Budgets
Difficulty: medium
Bloom Code: 4
The POK Company prepares the following budgeted information for 20x8. Based on this information, how much would POK budget for capital
expenditures in 20x8?
Budgeted training spending $300,000
Budgeted manufacturing equipment spending $1,000,000
Budgeted material spending $600,000
Budgeted administrative spending $500,000
Budgeted spending to acquire a business $1,500,000
Budgeted spending to expand into a new product line $2,000,000
Correct
$4,500,000
Your Answer
$5,900,000
$3,500,000
$5,100,000
Rationale
$4,500,000
Correct. A capital expenditure budget focuses on capital projects. Capital projects are projects that are expected to provide benefits in the future
from spending in the current year. Because of that, the evaluation of capital projects involves discounted cash flow analysis. For POK the budgeted
manufacturing equipment spending, budgeted spending to acquire a business, and budgeted spending to expand into a new product line are all
capital projects as the spending in 20x8 is likely to result in benefits in later years. The budgeted training spending, budgeted material spending,
and budgeted administrative spending are all operating projects as the spending in 20x8 is not likely to result in benefits in later years. The sum of
the three capital projects is $4,500,000 ($1,000,000 + $1,500,000 + $2,000,000).
Rationale
$5,900,000
Incorrect. For POK the budgeted manufacturing equipment spending, budgeted spending to acquire a business, and budgeted spending to expand
into a new product line are all capital projects as the spending in 20x8 is likely to result in benefits in later years. The budgeted training spending,
budgeted material spending, and budgeted administrative spending are all operating projects as the spending in 20x8 is not likely to result in
benefits in later years. If the three operating projects are included, the capital spending would be calculated as $5,900,000. However, operating
projects should be excluded from a capital expenditures budget.
Rationale
$3,500,000
Incorrect. For POK the budgeted manufacturing equipment spending, budgeted spending to acquire a business, and budgeted spending to expand
into a new product line are all capital projects as the spending in 20x8 is likely to result in benefits in later years. The budgeted training spending,
budgeted material spending, and budgeted administrative spending are all operating projects as the spending in 20x8 is not likely to result in
benefits in later years. If the budgeted manufacturing equipment purchases is classified as an operating project, then the capital expenditures
budget would only be $3,500,000 ($1,500,000 + $2,000,000). However, it is a capital project, not an operating project.
Rationale
$5,100,000
Incorrect. For POK the budgeted manufacturing equipment spending, budgeted spending to acquire a business, and budgeted spending to expand
into a new product line are all capital projects as the spending in 20x8 is likely to result in benefits in later years. The budgeted training spending,
budgeted material spending, and budgeted administrative spending are all operating projects as the spending in 20x8 is not likely to result in
benefits in later years. If the budgeted material spending is classified as a capital project, then the capital expenditures budget would be $5,100,000
($1,000,000 + $1,500,000 + $2,000,000 + $600,000). However, it is an operating project, not a capital project.
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,7/26/22, 10:49 AM CMA Exam Review - Part 1 - Assessment Review
Question 2
1.B.5.h
tb.pc.bud.052_1809
LOS: 1.B.5.h
Lesson Reference: Budgeting for Production Costs
Difficulty: medium
Bloom Code: 4
All of the following statements concerning a direct materials purchase budget are correct except:
As budgeted production decreases, the amount of materials to purchase decreases.
As desired ending direct materials inventory deceases, the amount of materials to purchase decreases.
Correct
As beginning direct materials inventory decreases, the amount of materials to purchase decreases.
As the amount of direct materials required per unit decreases, the amount of materials to purchase decreases.
Rationale
As budgeted production decreases, the amount of materials to purchase decreases.
Incorrect. As budgeted production decreases, the amount of materials needed for production decreases. As materials needed for production
decreases, the amount of materials to purchase decreases.
Rationale
As desired ending direct materials inventory deceases, the amount of materials to purchase decreases.
Incorrect. As desired ending direct materials inventory decreases, the amount of materials needed for the period decreases. As materials needed for
the period decreases, the amount of materials to purchase decreases.
Rationale
As beginning direct materials inventory decreases, the amount of materials to purchase decreases.
Correct. A direct materials purchases budget is an estimate of the quantity and cost of direct materials to be purchased in a period. The quantity to
be purchased is based on materials needed for production, beginning direct materials inventory, and desired ending direct materials inventory.
Materials needed during a period come from beginning inventory of direct materials and material purchases. As beginning direct materials
inventory decreases, the amount of materials to purchase increases, not decreases.
Rationale
As the amount of direct materials required per unit decreases, the amount of materials to purchase decreases.
Incorrect. As the amount of direct materials required per unit decreases, the amount of materials needed for production decreases. As materials
needed for production decreases, the amount of materials to purchase decreases.
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,7/26/22, 10:49 AM CMA Exam Review - Part 1 - Assessment Review
Question 3
1.B.5.d
tb.sp.bud.006_1805
LOS: 1.B.5.d
Lesson Reference: Sales Budgets and Production Budgets
Difficulty: medium
Bloom Code: 4
If the sales budget increases by 10%, the production budget:
Correct
Is likely to increase by the same number of units as the sales budget
Your Answer
Is not likely to increase by the same number of units as the sales budget
Is not likely to be affected
Is likely to decrease by the same number of units as the sales budget
Rationale
Is likely to increase by the same number of units as the sales budget
The production budget is based on the sales budget (the number of units expected to be sold), expected beginning inventory, and targeted ending
inventory. As the number of units expected to be sold increases, the number of units expected to be produced increases by the same number of
units (assuming expected beginning inventory and targeted ending inventory remain the same). This ensures production will satisfy expected sales.
Therefore, this is the correct answer.
Rationale
Is not likely to increase by the same number of units as the sales budget
The production budget is based on the sales budget (the number of units expected to be sold), expected beginning inventory, and targeted ending
inventory. As the number of units expected to be sold increases, the number of units expected to be produced increases by the same number of
units (assuming expected beginning inventory and targeted ending inventory remain the same). If the increase in production differs from the
increase in units sold, then there may not be enough units produced to cover expected sales or too many units will be produced. Therefore, this is
an incorrect answer.
Rationale
Is not likely to be affected
The production budget is based on the sales budget (the number of units expected to be sold), expected beginning inventory, and targeted ending
inventory. If there is no change in expected units to be produced, then there will not likely be enough units produced to cover expected sales or
targeted ending inventory. Therefore, this is an incorrect answer.
Rationale
Is likely to decrease by the same number of units as the sales budget
The production budget is based on the sales budget (the number of units expected to be sold), expected beginning inventory, and targeted ending
inventory. If the number of units to be sold increases, and the units to be produced decreases, then there will not likely be enough units produced
to cover expected sales or targeted ending inventory. Therefore, this is an incorrect answer.
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, 7/26/22, 10:49 AM CMA Exam Review - Part 1 - Assessment Review
Question 4
1.B.2.g
bud.proc.tb.034_0120
LOS: 1.B.2.g
Lesson Reference: The Budgeting Process
Difficulty: easy
Bloom Code: 1
Controllable costs for responsibility accounting purposes are those costs that are directly influenced by which of the following?
Correct
A specific manager within a specific period of time
Your Answer
A change in activity
Production volume
Sales volume
Rationale
A specific manager within a specific period of time
A responsibility accounting system is designed to facilitate the preparation of performance reports based on the items (cost, revenue, profit, and
investment) that managers are responsible for. A cost is considered controllable for responsibility accounting purposes if the cost can be directly
influenced by a given manager within a given period of time.
Rationale
A change in activity
This answer is incorrect. Costs that are directly influenced by a change in activity are variable costs, not controllable costs for responsibility
accounting purposes.
Rationale
Production volume
This answer is incorrect. Costs that are directly influenced by a change in production volume are variable costs, not controllable costs for
responsibility accounting purposes.
Rationale
Sales volume
This answer is incorrect. Costs that are directly influenced by a change in sales volume are variable costs, not controllable costs for responsibility
accounting purposes.
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Question 1
1.B.5.r
tb.ce.cb.017_1809
LOS: 1.B.5.r
Lesson Reference: Capital Expenditures and Cash Budgets
Difficulty: medium
Bloom Code: 4
The POK Company prepares the following budgeted information for 20x8. Based on this information, how much would POK budget for capital
expenditures in 20x8?
Budgeted training spending $300,000
Budgeted manufacturing equipment spending $1,000,000
Budgeted material spending $600,000
Budgeted administrative spending $500,000
Budgeted spending to acquire a business $1,500,000
Budgeted spending to expand into a new product line $2,000,000
Correct
$4,500,000
Your Answer
$5,900,000
$3,500,000
$5,100,000
Rationale
$4,500,000
Correct. A capital expenditure budget focuses on capital projects. Capital projects are projects that are expected to provide benefits in the future
from spending in the current year. Because of that, the evaluation of capital projects involves discounted cash flow analysis. For POK the budgeted
manufacturing equipment spending, budgeted spending to acquire a business, and budgeted spending to expand into a new product line are all
capital projects as the spending in 20x8 is likely to result in benefits in later years. The budgeted training spending, budgeted material spending,
and budgeted administrative spending are all operating projects as the spending in 20x8 is not likely to result in benefits in later years. The sum of
the three capital projects is $4,500,000 ($1,000,000 + $1,500,000 + $2,000,000).
Rationale
$5,900,000
Incorrect. For POK the budgeted manufacturing equipment spending, budgeted spending to acquire a business, and budgeted spending to expand
into a new product line are all capital projects as the spending in 20x8 is likely to result in benefits in later years. The budgeted training spending,
budgeted material spending, and budgeted administrative spending are all operating projects as the spending in 20x8 is not likely to result in
benefits in later years. If the three operating projects are included, the capital spending would be calculated as $5,900,000. However, operating
projects should be excluded from a capital expenditures budget.
Rationale
$3,500,000
Incorrect. For POK the budgeted manufacturing equipment spending, budgeted spending to acquire a business, and budgeted spending to expand
into a new product line are all capital projects as the spending in 20x8 is likely to result in benefits in later years. The budgeted training spending,
budgeted material spending, and budgeted administrative spending are all operating projects as the spending in 20x8 is not likely to result in
benefits in later years. If the budgeted manufacturing equipment purchases is classified as an operating project, then the capital expenditures
budget would only be $3,500,000 ($1,500,000 + $2,000,000). However, it is a capital project, not an operating project.
Rationale
$5,100,000
Incorrect. For POK the budgeted manufacturing equipment spending, budgeted spending to acquire a business, and budgeted spending to expand
into a new product line are all capital projects as the spending in 20x8 is likely to result in benefits in later years. The budgeted training spending,
budgeted material spending, and budgeted administrative spending are all operating projects as the spending in 20x8 is not likely to result in
benefits in later years. If the budgeted material spending is classified as a capital project, then the capital expenditures budget would be $5,100,000
($1,000,000 + $1,500,000 + $2,000,000 + $600,000). However, it is an operating project, not a capital project.
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,7/26/22, 10:49 AM CMA Exam Review - Part 1 - Assessment Review
Question 2
1.B.5.h
tb.pc.bud.052_1809
LOS: 1.B.5.h
Lesson Reference: Budgeting for Production Costs
Difficulty: medium
Bloom Code: 4
All of the following statements concerning a direct materials purchase budget are correct except:
As budgeted production decreases, the amount of materials to purchase decreases.
As desired ending direct materials inventory deceases, the amount of materials to purchase decreases.
Correct
As beginning direct materials inventory decreases, the amount of materials to purchase decreases.
As the amount of direct materials required per unit decreases, the amount of materials to purchase decreases.
Rationale
As budgeted production decreases, the amount of materials to purchase decreases.
Incorrect. As budgeted production decreases, the amount of materials needed for production decreases. As materials needed for production
decreases, the amount of materials to purchase decreases.
Rationale
As desired ending direct materials inventory deceases, the amount of materials to purchase decreases.
Incorrect. As desired ending direct materials inventory decreases, the amount of materials needed for the period decreases. As materials needed for
the period decreases, the amount of materials to purchase decreases.
Rationale
As beginning direct materials inventory decreases, the amount of materials to purchase decreases.
Correct. A direct materials purchases budget is an estimate of the quantity and cost of direct materials to be purchased in a period. The quantity to
be purchased is based on materials needed for production, beginning direct materials inventory, and desired ending direct materials inventory.
Materials needed during a period come from beginning inventory of direct materials and material purchases. As beginning direct materials
inventory decreases, the amount of materials to purchase increases, not decreases.
Rationale
As the amount of direct materials required per unit decreases, the amount of materials to purchase decreases.
Incorrect. As the amount of direct materials required per unit decreases, the amount of materials needed for production decreases. As materials
needed for production decreases, the amount of materials to purchase decreases.
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,7/26/22, 10:49 AM CMA Exam Review - Part 1 - Assessment Review
Question 3
1.B.5.d
tb.sp.bud.006_1805
LOS: 1.B.5.d
Lesson Reference: Sales Budgets and Production Budgets
Difficulty: medium
Bloom Code: 4
If the sales budget increases by 10%, the production budget:
Correct
Is likely to increase by the same number of units as the sales budget
Your Answer
Is not likely to increase by the same number of units as the sales budget
Is not likely to be affected
Is likely to decrease by the same number of units as the sales budget
Rationale
Is likely to increase by the same number of units as the sales budget
The production budget is based on the sales budget (the number of units expected to be sold), expected beginning inventory, and targeted ending
inventory. As the number of units expected to be sold increases, the number of units expected to be produced increases by the same number of
units (assuming expected beginning inventory and targeted ending inventory remain the same). This ensures production will satisfy expected sales.
Therefore, this is the correct answer.
Rationale
Is not likely to increase by the same number of units as the sales budget
The production budget is based on the sales budget (the number of units expected to be sold), expected beginning inventory, and targeted ending
inventory. As the number of units expected to be sold increases, the number of units expected to be produced increases by the same number of
units (assuming expected beginning inventory and targeted ending inventory remain the same). If the increase in production differs from the
increase in units sold, then there may not be enough units produced to cover expected sales or too many units will be produced. Therefore, this is
an incorrect answer.
Rationale
Is not likely to be affected
The production budget is based on the sales budget (the number of units expected to be sold), expected beginning inventory, and targeted ending
inventory. If there is no change in expected units to be produced, then there will not likely be enough units produced to cover expected sales or
targeted ending inventory. Therefore, this is an incorrect answer.
Rationale
Is likely to decrease by the same number of units as the sales budget
The production budget is based on the sales budget (the number of units expected to be sold), expected beginning inventory, and targeted ending
inventory. If the number of units to be sold increases, and the units to be produced decreases, then there will not likely be enough units produced
to cover expected sales or targeted ending inventory. Therefore, this is an incorrect answer.
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, 7/26/22, 10:49 AM CMA Exam Review - Part 1 - Assessment Review
Question 4
1.B.2.g
bud.proc.tb.034_0120
LOS: 1.B.2.g
Lesson Reference: The Budgeting Process
Difficulty: easy
Bloom Code: 1
Controllable costs for responsibility accounting purposes are those costs that are directly influenced by which of the following?
Correct
A specific manager within a specific period of time
Your Answer
A change in activity
Production volume
Sales volume
Rationale
A specific manager within a specific period of time
A responsibility accounting system is designed to facilitate the preparation of performance reports based on the items (cost, revenue, profit, and
investment) that managers are responsible for. A cost is considered controllable for responsibility accounting purposes if the cost can be directly
influenced by a given manager within a given period of time.
Rationale
A change in activity
This answer is incorrect. Costs that are directly influenced by a change in activity are variable costs, not controllable costs for responsibility
accounting purposes.
Rationale
Production volume
This answer is incorrect. Costs that are directly influenced by a change in production volume are variable costs, not controllable costs for
responsibility accounting purposes.
Rationale
Sales volume
This answer is incorrect. Costs that are directly influenced by a change in sales volume are variable costs, not controllable costs for responsibility
accounting purposes.
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