Certified Management Accountant Certified Management Accountant 2 — Questions and Answers
Question 1: Which costing method assigns overhead based on activities that drive costs rather than a single plant-wide rate?
- Job order costing
- Activity-based costing (Correct answer)
- Process costing
- Standard costing
Correct answer: Activity-based costing
Activity-based costing (ABC) identifies cost drivers for each activity and assigns overhead accordingly, providing more accurate product costs.
Question 2: A company has fixed costs of $120,000, a selling price of $40 per unit, and variable costs of $25 per unit. What is the breakeven point in units?
- 3,000 units
- 4,800 units
- 8,000 units (Correct answer)
- 6,000 units
Correct answer: 8,000 units
Breakeven = Fixed Costs ÷ Contribution Margin per unit = $120,000 ÷ ($40 − $25) = 8,000 units.
Question 3: Under the weighted-average method of process costing, equivalent units are calculated by:
- Adding beginning WIP units to units started and completed
- Combining beginning WIP work already done with current period work (Correct answer)
- Counting only units completed and transferred out
- Subtracting ending WIP from units started
Correct answer: Combining beginning WIP work already done with current period work
The weighted-average method merges prior-period work in beginning WIP with current-period work, so EUP = units completed + (ending WIP × % complete).
Question 4: Which financial ratio best measures a company's ability to meet short-term obligations using only its most liquid assets?
- Current ratio
- Quick ratio
- Cash ratio (Correct answer)
- Debt-to-equity ratio
Correct answer: Cash ratio
The cash ratio (cash + cash equivalents ÷ current liabilities) uses only the most liquid assets and is the most conservative short-term liquidity measure.
Question 5: In a standard cost system, an unfavorable labor efficiency variance means:
- Workers were paid a higher wage rate than standard
- More labor hours were used than the standard hours allowed (Correct answer)
- Fewer units were produced than budgeted
- Overhead was under-applied during the period
Correct answer: More labor hours were used than the standard hours allowed
Labor efficiency variance = (Actual hours − Standard hours allowed) × Standard rate; it is unfavorable when actual hours exceed standard hours.
Question 6: The concept of 'relevant range' in cost behavior refers to:
- The range of selling prices that maximize profit
- The output range over which cost behavior assumptions hold (Correct answer)
- The period during which fixed costs remain sunk
- The geographic area where the company operates
Correct answer: The output range over which cost behavior assumptions hold
The relevant range is the span of activity within which the assumed fixed and variable cost relationships remain valid.
Question 7: Which transfer pricing method sets the internal price equal to the cost the selling division would have incurred plus a markup?
- Market-based transfer price
- Negotiated transfer price
- Cost-based transfer price (Correct answer)
- Dual transfer price
Correct answer: Cost-based transfer price
Cost-based transfer pricing uses actual or standard cost (sometimes plus a markup) as the internal charge between divisions.
Certified Management Accountant Certified Management Accountant 2
Which costing method assigns overhead based on activities that drive costs rather than a single plant-wide rate?