Certified Management Accountant Certified Management Accountant 4

Question 1

Which inventory valuation method will produce the highest net income during a period of rising prices?

Accepted Answer

FIFO

Answer

FIFO assigns older (lower-cost) inventory to COGS during inflation, resulting in lower COGS and higher net income compared to LIFO.

Question 2

A flexible budget differs from a static budget in that it:

Accepted Answer

Adjusts revenues and costs to the actual activity level achieved

Answer

A flexible budget recalculates expected revenues and costs at the actual volume, making variance analysis more meaningful.

Question 3

Economic Value Added (EVA) is calculated as:

Accepted Answer

NOPAT minus (WACC × invested capital)

Answer

EVA = Net Operating Profit After Tax − (Weighted Average Cost of Capital × Invested Capital), measuring true economic profit above the cost of all capital.

Question 4

Which type of cost is always irrelevant to a short-term special-order decision when excess capacity exists?

Accepted Answer

Unavoidable fixed costs

Answer

Unavoidable (sunk or non-escapable) fixed costs do not change whether the special order is accepted, so they are irrelevant.

Question 5

Under IFRS, development costs meeting certain criteria must be:

Accepted Answer

Capitalized and amortized over the asset's useful life

Answer

IFRS (IAS 38) requires capitalization of development costs once technical and commercial feasibility are established, unlike US GAAP which expenses them.

Certified Management Accountant Practice Test

Certified Management Accountant Practice Test

Certified Management Accountant Certified Management Accountant 4