Certified Management Accountant Certified Management Accountant 5 — Questions and Answers
Question 1: Which variance arises when the actual mix of materials used differs from the standard mix?
- Material price variance
- Material quantity variance
- Material mix variance (Correct answer)
- Material yield variance
Correct answer: Material mix variance
The material mix variance isolates the cost impact of substituting one input material for another relative to the standard blend.
Question 2: Target costing determines a product's allowable cost by:
- Adding a standard markup to manufacturing cost
- Subtracting the desired profit margin from the market price (Correct answer)
- Averaging competitor product costs
- Multiplying variable cost by a capacity utilization factor
Correct answer: Subtracting the desired profit margin from the market price
Target cost = Target selling price − Desired profit; this market-driven approach forces cost reduction to achieve profitability.
Question 3: A project has an NPV of $0 at a 12% discount rate. If the required return rises to 14%, the NPV will:
- Remain at zero because IRR equals the required return
- Become negative (Correct answer)
- Become positive
- Be indeterminate without more data
Correct answer: Become negative
If NPV = 0 at 12%, that is the IRR; a higher discount rate (14%) produces a negative NPV because future cash flows are discounted more heavily.
Question 4: The theory of constraints (TOC) focuses management attention on:
- Eliminating all non-value-added activities simultaneously
- Maximizing throughput by identifying and exploiting the system's bottleneck (Correct answer)
- Reducing direct labor costs across all departments
- Standardizing processes to achieve ISO certification
Correct answer: Maximizing throughput by identifying and exploiting the system's bottleneck
TOC holds that a system's output is limited by its weakest link (constraint), so managers should maximize throughput through that bottleneck.
Question 5: Under a defined benefit pension plan, the pension expense recorded by the employer includes:
- Only the cash contributions made during the year
- Service cost, interest cost, and expected return on plan assets among other components (Correct answer)
- The change in fair value of plan assets only
- Employee contributions and vesting schedules
Correct answer: Service cost, interest cost, and expected return on plan assets among other components
Defined benefit pension expense comprises service cost, interest on the projected benefit obligation, expected return on assets, and amortization of actuarial gains/losses.
Question 6: Which of the following best describes 'throughput contribution' in throughput accounting?
- Sales revenue minus all manufacturing costs
- Sales revenue minus totally variable costs (mainly direct materials) (Correct answer)
- Gross margin after allocating all overhead
- Operating income before depreciation
Correct answer: Sales revenue minus totally variable costs (mainly direct materials)
Throughput contribution = Sales − Totally Variable Costs, where only costs that vary directly with unit output (primarily materials) are deducted.
Question 7: When preparing a cash budget, which item would NOT be included?
- Collection of accounts receivable
- Payment of dividends
- Depreciation expense on equipment (Correct answer)
- Repayment of a bank loan principal
Correct answer: Depreciation expense on equipment
Depreciation is a non-cash expense and therefore excluded from the cash budget, which records only actual cash inflows and outflows.
Certified Management Accountant Certified Management Accountant 5
Which variance arises when the actual mix of materials used differs from the standard mix?