Practice questions · Finance & Accounting
CMA (IMA): Practice Questions
Original concept-check questions for the CMA (Certified Management Accountant), covering planning and budgeting, performance, cost management and financial decision-making. Each answer is explained, including why the others are wrong. Filter by domain or difficulty. These are concept checks - not real exam questions.
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The CMA focuses primarily on:
Correct answer: B. The CMA centers on management accounting and corporate finance for internal decisions. Audit is the CPA's domain, investments are the CFA's, and tax prep is a different specialism. -
A flexible budget:
Correct answer: C. A flexible budget recalculates budgeted revenues and costs at the actual activity level, so variances reflect efficiency rather than volume. Preparing figures after closing describes after-the-fact reporting, not a flexible budget; ignoring variable costs would defeat its purpose; and a budget that stays fixed regardless of activity is a static budget. -
A cost variance is:
Correct answer: B. A cost variance is the gap between standard (or budgeted) cost and actual cost, used to flag over- or under-spending. The total of all costs is just aggregate cost, the selling price is a revenue figure, and a fixed cost is a cost-behaviour category - none of these is a variance. -
Contribution margin equals:
Correct answer: C. Contribution margin is sales revenue minus variable costs, the amount left to cover fixed costs and profit. Net profit plus tax works back toward pre-tax profit, revenue minus depreciation removes only one expense, and sales minus fixed costs wrongly subtracts fixed instead of variable costs. -
When evaluating a project, the NPV rule says to accept it if:
Correct answer: A. A positive NPV means the project adds value at the required return. Negative NPV destroys value; payback and a single positive inflow are weaker criteria. -
A sunk cost is:
Correct answer: C. Sunk costs are already incurred and irrelevant to a decision. Relevant costs are future and differential; the others are unrelated. -
The main purpose of internal controls is to:
Correct answer: D. Internal controls protect assets, support accurate reporting and compliance. They do not directly drive sales or taxes, and do not replace the external audit. -
Segregation of duties helps prevent fraud by:
Correct answer: A. Separating authorization, recording and custody so no one controls an entire transaction reduces fraud risk. The other options weaken control. -
Return on investment (ROI) is generally:
Correct answer: A. ROI is operating income divided by average operating assets, linking profit to the assets used to earn it. Sales minus expenses is just profit, cash divided by liabilities is a liquidity measure, and equity times revenue is not a meaningful ratio. -
The cost of capital is best described as:
Correct answer: B. The cost of capital is the required rate of return used as a hurdle for investments. The depreciation charge is an allocation of asset cost, the selling price is a revenue figure, and the total of fixed costs is an operating cost - none represents a required return. -
A just-in-time (JIT) approach aims to:
Correct answer: A. JIT minimizes inventory by receiving goods only as needed, cutting carrying costs. Holding maximum inventory and increasing work-in-progress are the opposite of JIT, and eliminating suppliers is impossible since JIT depends on reliable, frequent supplier deliveries. -
Standard costing is most useful for:
Correct answer: A. Standard costing sets expected costs and analyses variances for control. Tax, audit and portfolio valuation are different disciplines. -
The CMA (Certified Management Accountant) credential is offered by:
Correct answer: B. The IMA administers the CMA. The AICPA runs the CPA, CFA Institute the CFA, and PMI the PMP. -
The CMA exam consists of:
Correct answer: C. The CMA exam has two parts: Part 1 (financial planning, performance and analytics) and Part 2 (strategic financial management). One, three and four parts simply state the wrong number of sections. -
A master budget is:
Correct answer: C. A master budget is a comprehensive set of interlinked operating and financial budgets covering the whole organization. A variance report compares actual to budget after the fact, a single cash forecast is just the cash budget (one component), and a tax return is an external filing. -
Zero-based budgeting means:
Correct answer: A. Zero-based budgeting starts each cycle from zero and requires every expense to be justified afresh. Last year's budget plus inflation is incremental budgeting, no budget at all is the absence of budgeting, and budgeting only fixed costs ignores the variable costs a budget must include. -
A cash budget primarily helps a company:
Correct answer: B. A cash budget forecasts cash inflows and outflows so a company can anticipate surpluses to invest and shortfalls to fund. Filing taxes, designing products and calculating depreciation are separate activities a cash budget does not perform. -
Direct costs are costs that:
Correct answer: B. Direct costs are traceable to a cost object. They may be variable or fixed and include materials and labour. -
Activity-based costing (ABC) allocates overhead based on:
Correct answer: D. ABC allocates overhead using the activities (cost drivers) that actually cause costs, improving accuracy. Headcount alone and a single plant-wide rate are the simpler, less accurate methods ABC replaces, and total revenue is not a cost driver. -
Under absorption costing (unlike variable costing), fixed manufacturing overhead is:
Correct answer: A. Absorption costing capitalises fixed overhead into inventory; variable costing expenses it as a period cost. -
The high-low method is used to:
Correct answer: B. The high-low method splits a mixed cost into fixed and variable parts using the highest and lowest activity levels. Forecasting sales, valuing inventory and setting the selling price are unrelated tasks that the high-low method does not address. -
Residual income is:
Correct answer: D. Residual income is operating income minus a charge for the capital invested (the required return on assets used). Total revenue is the top line, gross margin is sales minus cost of goods sold, and net cash flow tracks cash - none deducts a capital charge. -
A responsibility centre whose manager controls both costs and revenues is a:
Correct answer: D. A profit centre is accountable for both revenue and costs. A cost or revenue centre controls only one side. -
DuPont analysis breaks return on investment into:
Correct answer: B. DuPont analysis decomposes ROI into profit margin multiplied by asset turnover, showing whether returns come from margins or asset efficiency. Price and volume, debt and equity, and cash and accruals are not the components of the DuPont ROI formula. -
The internal rate of return (IRR) is:
Correct answer: B. IRR is the discount rate at which a project's NPV equals zero. The payback period measures time to recover the outlay, the cost of debt is the interest rate on borrowing, and the tax rate is unrelated to a project's return. -
The payback period measures:
Correct answer: A. The payback period is the time taken to recover the initial investment from cash inflows, and it ignores the time value of money. Total lifetime profit, the discount rate and the tax shield are different concepts it does not measure. -
Working capital is:
Correct answer: D. Working capital is current assets minus current liabilities, a measure of short-term liquidity. Total assets, long-term debt and shareholders' equity are different balance-sheet totals that do not net short-term items. -
Other things equal, increasing financial leverage:
Correct answer: A. More financial leverage raises both potential returns to equity and financial risk, because fixed interest magnifies gains and losses. It does not remove interest cost (it adds it), and it neither leaves returns unaffected nor lowers all risk. -
The COSO framework is a widely used model for:
Correct answer: A. COSO provides a widely used framework for designing and evaluating internal control. Tax filing, marketing strategy and inventory shipping are operational areas the COSO control framework does not define. -
A preventive control (such as requiring approval before a payment) aims to:
Correct answer: C. A preventive control stops errors or fraud before they occur, such as requiring approval before a payment. Reporting results to investors is communication, detecting problems after the fact is a detective control, and recovering lost data is a corrective control. -
The current ratio is calculated as:
Correct answer: A. The current ratio divides current assets by current liabilities to gauge short-term liquidity. Total assets over total liabilities is a solvency measure, cash over sales is unrelated, and net income over equity is return on equity. -
The quick (acid-test) ratio differs from the current ratio mainly because it:
Correct answer: C. The quick ratio excludes inventory (and other less-liquid current assets) to give a stricter liquidity test. It does not include long-term debt, does not rely on net income, and does not add fixed assets, which are not current. -
The inventory turnover ratio measures:
Correct answer: B. Inventory turnover (cost of goods sold divided by average inventory) shows how many times inventory is sold and replaced in a period. It is not a profit-per-product measure, not a selling price, and not a financing figure. -
A high days-sales-outstanding (DSO) figure generally indicates that a company is:
Correct answer: D. A high DSO means receivables are taking longer to collect, which can strain cash flow. It is the opposite of quick collection, does not mean zero receivables, and says nothing direct about profitability. -
Gross profit margin is calculated as:
Correct answer: A. Gross profit margin is gross profit (sales minus cost of goods sold) divided by sales. Net income over assets is return on assets, operating income over sales is operating margin, and sales over equity is not a margin. -
The times-interest-earned (interest coverage) ratio assesses a company's ability to:
Correct answer: C. Times interest earned (EBIT divided by interest expense) measures how comfortably operating earnings cover interest. It is not about paying dividends, selling inventory, or changing the tax rate. -
Vertical (common-size) analysis of an income statement expresses each line item as a:
Correct answer: B. Common-size income statement analysis states each line as a percentage of sales, aiding comparison. A dollar change year over year is horizontal analysis, a ratio to assets applies to the balance sheet, and a multiple of net income is not common-size analysis. -
The weighted average cost of capital (WACC) blends the costs of:
Correct answer: D. WACC weights the after-tax cost of debt and the cost of equity by their share of total capital. It is not equity alone, not short-term debt alone, and inventory and receivables are assets, not sources of long-term capital. -
Other things equal, the after-tax cost of debt is lower than the pre-tax cost because:
Correct answer: A. Interest expense is generally tax-deductible, so the after-tax cost of debt is the pre-tax rate times one minus the tax rate. Debt is not risk-free, dividends are not deductible, and lenders do charge interest. -
A company's optimal capital structure is the mix of debt and equity that:
Correct answer: C. The optimal capital structure balances the tax benefit of debt against financial-distress costs to minimise WACC and maximise firm value. All-equity or all-debt structures are extremes, and no realistic structure eliminates all financial risk. -
The dividend payout ratio is the proportion of:
Correct answer: B. The payout ratio is dividends divided by net income, the share of earnings returned to shareholders. It is not based on sales, not a distribution to creditors, and not a debt-to-equity conversion. -
Commercial paper is best described as:
Correct answer: D. Commercial paper is a short-term, unsecured promissory note used by large, creditworthy firms to fund working capital. It is not a long-term bond, not equity, and not a tax form. -
An increase in a company's days-payable-outstanding, all else equal, tends to:
Correct answer: A. Stretching payables (within terms) conserves cash by delaying supplier payments. It does not use cash sooner, does not generate interest income, and does not directly reduce sales. -
In a make-or-buy decision, the costs that are relevant are the:
Correct answer: C. Relevant costs are the future costs that differ between the alternatives. Sunk costs, historical depreciation, and unavoidable allocated costs do not change with the decision and are therefore irrelevant. -
An opportunity cost is:
Correct answer: B. Opportunity cost is the value of the next best alternative given up when a choice is made. It is not a past cash payment, not necessarily a recorded expense, and not always zero. -
When a company has a constrained resource, products should generally be prioritised by:
Correct answer: D. With a binding constraint, ranking by contribution margin per unit of the scarce resource maximises total contribution. Highest price ignores costs and resource use, lowest variable cost alone is incomplete, and alphabetical order is arbitrary. -
In deciding whether to accept a special order at a price below normal, a company should accept it if:
Correct answer: A. A special order can be worthwhile if its price covers the incremental (relevant) costs and there is spare capacity without damaging regular sales. Requiring full absorption cost can wrongly reject profitable orders, blanket rejection is too rigid, and the customer's identity is not the deciding factor. -
Whether to process a joint product further should be based on:
Correct answer: C. The sell-or-process-further decision compares the incremental revenue from further processing with the incremental cost; joint costs before split-off are sunk and irrelevant. Product weight and original raw-material cost do not drive the decision. -
Enterprise risk management (ERM) is best described as:
Correct answer: B. ERM is a firm-wide process to identify, assess and manage risks in line with objectives and risk appetite. It does not eliminate all risk, is not a single insurance policy, and is not an inventory accounting standard. -
Hedging with a forward contract is an example of which risk response?
Correct answer: D. Using a forward to lock in a price transfers or mitigates the exposure to adverse price moves. It is not simply accepting the risk, not ignoring it, and not increasing it. -
A company exposed to a foreign currency receivable can reduce exchange-rate risk by:
Correct answer: A. Selling the foreign currency forward locks in a rate and hedges the receivable's value. Doing nothing leaves the exposure, speculative buying adds risk, and ignoring it does not manage the exposure. -
The expected monetary value of a risky outcome is calculated as:
Correct answer: C. Expected monetary value sums each outcome multiplied by its probability. The largest payoff or smallest loss ignores probabilities, and averaging only best and worst case omits the other outcomes and their likelihoods. -
When ranking mutually exclusive projects of similar scale, the preferred decision rule is generally:
Correct answer: B. For mutually exclusive projects, NPV is the preferred rule because it measures the dollar value added, and IRR can mislead with scale or timing differences. The other options are arbitrary and unrelated to value. -
Depreciation affects a capital budgeting analysis primarily through its:
Correct answer: D. Depreciation is a non-cash expense, but it creates a tax shield that lowers taxes and raises after-tax cash flow. It is not itself a cash outflow, and it does not set the selling price or the marketing budget. -
In capital budgeting, the discount rate used to evaluate a project should reflect the:
Correct answer: A. The discount rate should reflect the project's risk and the firm's cost of capital, so riskier projects are discounted more. The company's age, headcount, and product color are irrelevant to the appropriate rate. -
The profitability index is most useful for:
Correct answer: C. The profitability index (present value of inflows divided by initial investment) ranks projects by value per dollar invested, helpful when capital is limited. It does not measure satisfaction, set taxes, or compute depreciation. -
A key drawback of using the simple payback period to evaluate projects is that it:
Correct answer: B. Simple payback ignores the time value of money and any cash flows occurring after the payback point. It is easy to calculate, does not use a discount rate, and tends to favor shorter, not longer, projects. -
Under IMA's Statement of Ethical Professional Practice, when a member faces an unresolved ethical conflict, an appropriate early step is usually to:
Correct answer: D. IMA guidance suggests first discussing an unresolved ethical issue with the immediate supervisor, escalating higher if the supervisor is involved. Resigning without raising it, publicising it, or ignoring it are not the recommended first responses. -
The IMA ethics principle of 'confidentiality' requires a management accountant to:
Correct answer: A. Confidentiality requires keeping information private unless disclosure is authorised or legally required. Sharing everything, selling data, or concealing information from a lawful subpoena would all violate the standard. -
The IMA overarching ethical principles include honesty, fairness, objectivity and:
Correct answer: C. IMA's overarching principles are honesty, fairness, objectivity and responsibility. Profit maximisation, secrecy and speed are not among the ethical principles. -
If following an organisation's internal ethics policy fails to resolve a serious ethical conflict, IMA guidance suggests a member may:
Correct answer: B. When internal channels fail, IMA guidance notes a member may consult their own attorney about legal rights and obligations. Falsifying records breaches ethics, going to the press is not the prescribed step, and abandoning the issue ignores the responsibility to act. -
Predictive analytics in management accounting is mainly used to:
Correct answer: D. Predictive analytics applies data and statistical or machine-learning models to forecast future outcomes such as demand or churn. It is not historical journal recording, does not replace the ledger, and is not a prior-year audit. -
A data visualisation such as a dashboard primarily helps managers by:
Correct answer: A. Dashboards and visualisations present key metrics clearly so managers can spot trends and exceptions quickly. They do not encrypt data, do not remove the need for data, and do not eliminate business risk. -
In data analytics, 'structured data' refers to data that is:
Correct answer: C. Structured data is organised in a defined format, such as relational database tables with rows and columns. It is not handwritten by definition, is readily analysable, and images and video are examples of unstructured data. -
The main risk that strong internal data governance addresses is:
Correct answer: B. Data governance addresses the risk of poor-quality, inconsistent and unreliable data that can mislead decisions. Profit, morale and utility bills are not the risks that governance of data is designed to manage. -
A rolling forecast differs from a traditional annual budget because it:
Correct answer: D. A rolling forecast is continuously updated so it always projects a constant horizon (for example, the next 12 months). It is not limited to a month, is by definition revised, and it incorporates actual results as they come in. -
A static budget variance compares actual results to:
Correct answer: A. A static budget variance compares actual results to the original budget set at the planned activity level. Comparing to the budget flexed to actual activity is a flexible-budget variance, and next year's forecast or a competitor's results are not the static budget benchmark. -
In standard costing, a favorable direct materials price variance means the company:
Correct answer: C. A favorable materials price variance arises when the actual price paid per unit of material is below standard. Paying more is unfavorable, using more material is a quantity (usage) variance, and selling more units is a sales matter, not a materials price variance. -
A direct labor efficiency variance measures the difference between:
Correct answer: B. The labor efficiency variance compares standard hours allowed for actual output with actual hours worked, valued at the standard rate. The wage-rate difference is the labor rate variance, material price and quantity relate to materials, and sales differences are not a labor variance. -
A balanced scorecard evaluates performance across financial measures plus:
Correct answer: D. The balanced scorecard adds customer, internal business process, and learning and growth perspectives to the financial view. Share price, headcount or tax payments alone do not capture the scorecard's multi-perspective approach. -
Economic value added (EVA) is essentially:
Correct answer: A. EVA is after-tax operating profit (NOPAT) less a capital charge (capital employed times the cost of capital), measuring value created above the cost of capital. Revenue minus cost of goods sold is gross profit, assets minus liabilities is equity, and cash collected is a cash-flow figure. -
Transfer pricing concerns the price charged when:
Correct answer: C. Transfer pricing sets the price for transactions between divisions of the same company, affecting divisional performance and sometimes taxes. Paying income tax, bank lending, and issuing shares are different activities. -
Target costing starts from the:
Correct answer: B. Target costing begins with the market-driven price and the desired profit, then works back to the allowable cost the product must meet. It does not start from actual cost, a competitor's profit, or last year's historical cost. -
A cost driver in activity-based costing is:
Correct answer: D. A cost driver is a factor, such as machine setups or orders processed, that causes an activity's cost to change and is used to allocate overhead. Total profit, the selling price and an executive's salary are not cost drivers in this sense. -
Conversion costs consist of:
Correct answer: C. Conversion costs are direct labor plus manufacturing overhead, the costs of converting materials into finished goods. Direct materials with labor is prime cost, selling and admin costs are period costs, and materials alone is not conversion cost. -
Prime costs are defined as:
Correct answer: B. Prime costs are direct materials plus direct labor, the costs directly traceable to production. Overhead with selling costs, fixed costs alone, and interest and taxes are not prime costs. -
Under variable (direct) costing, fixed manufacturing overhead is treated as:
Correct answer: D. Variable costing treats fixed manufacturing overhead as a period cost expensed in the period incurred, while absorption costing capitalises it into inventory. It is not revenue and not a permanent asset. -
The contribution margin ratio is used to estimate how much of each additional sales dollar contributes to:
Correct answer: C. The contribution margin ratio shows the fraction of each sales dollar available to cover fixed costs and then add to profit. It is not the portion going to cost of goods sold, income tax, or accounts payable. -
Operating leverage is high when a company has:
Correct answer: D. High operating leverage comes from a large proportion of fixed costs, which magnifies the effect of sales changes on operating income. Mostly variable costs give low operating leverage, and 'no costs' or 'only marketing costs' are not realistic cost structures. -
A detective control, in contrast to a preventive control, is designed to:
Correct answer: C. A detective control, such as a reconciliation, identifies errors or irregularities after they occur, whereas a preventive control stops them beforehand. It does not replace the external audit or drive sales. -
Within the COSO internal control framework, the component that sets the tone and ethical culture is the:
Correct answer: D. The control environment is the COSO component that sets the organisation's tone, ethics and structure, underpinning the other components. An inventory ledger, sales forecast and tax return are documents, not the control-environment component. -
Requiring two signatures on large checks is an example of a control that supports:
Correct answer: C. Dual signatures on large checks reinforce authorisation and segregate duties so no single person can disburse significant funds alone. The control does not relate to marketing, product design, or shipping speed. -
The Sarbanes-Oxley Act notably increased management's responsibility for:
Correct answer: D. Sarbanes-Oxley made management responsible for establishing and assessing internal control over financial reporting, with related certifications. It did not govern product pricing, marketing hires, or office locations.
Practice questions FAQ
- Are these real CMA exam questions?
- No. These are original study questions written to test understanding. They are not real exam questions, exam dumps, or copied from any provider.
- How should I use these practice questions?
- Answer each one, read the explanation (including why the wrong options are wrong), and use the per-domain score below to focus your revision on weak areas. Revisit before exam day.
- How many questions should I do before the exam?
- Enough to score consistently across every domain, alongside full-length practice from official or reputable providers. Understanding why each answer is right matters more than raw volume.
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- A good signal is consistently scoring around 80% or higher across all domains on questions you have not seen before, and being able to explain why the wrong options are wrong.
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- No. Dumps (real or leaked questions) breach provider policy, can void your certification, and do not build the understanding the exam actually tests.