Certified Management Accountant Certified Management Accountant 3

Question 1

Which capital budgeting technique accounts for the time value of money and expresses results as a percentage return?

Accepted Answer

Internal rate of return

Answer

IRR is the discount rate that makes NPV equal to zero, expressed as a percentage, and explicitly incorporates the time value of money.

Question 2

Under responsibility accounting, a cost center manager is evaluated primarily on:

Accepted Answer

Controllable costs incurred

Answer

Cost center managers control only costs, so they are held accountable for keeping costs within budgeted or standard amounts.

Question 3

A firm's Days Sales Outstanding (DSO) increased from 30 to 45 days. This most likely indicates:

Accepted Answer

Customers are taking longer to pay

Answer

Rising DSO means receivables are outstanding longer, signaling that customers are slower to pay or credit terms have loosened.

Question 4

Which budgeting approach requires managers to justify every dollar of expenditure from zero each period?

Accepted Answer

Zero-based budgeting

Answer

Zero-based budgeting starts from a base of zero and requires justification for all planned expenses, eliminating automatic carry-forward of prior budgets.

Question 5

Residual income is best defined as:

Accepted Answer

Operating income minus a required return on invested capital

Answer

Residual income = Operating income − (Required rate of return × Invested capital), measuring value created above the minimum required return.

Certified Management Accountant Practice Test

Certified Management Accountant Practice Test

Certified Management Accountant Certified Management Accountant 3