Certified Management Accountant Certified Management Accountant MCQ 3 — Questions and Answers
Question 1: Return on investment (ROI) for a business segment is best calculated as:
- Net income divided by total assets
- Operating income divided by average invested assets (Correct answer)
- Gross profit divided by net sales
- EBITDA divided by equity
Correct answer: Operating income divided by average invested assets
Segment ROI = Operating income / Average invested assets, measuring how efficiently the segment uses its asset base to generate profit.
Question 2: Residual income is calculated as operating income minus:
- Interest expense on long-term debt
- A minimum required return on invested assets (Correct answer)
- Depreciation on capital equipment
- Income taxes at the marginal rate
Correct answer: A minimum required return on invested assets
Residual income = Operating income − (Required rate of return × Invested assets), measuring earnings in excess of the minimum acceptable return.
Question 3: Which of the following best describes a sunk cost?
- A cost that varies with production volume
- A future cost that differs between alternatives
- A past cost that cannot be recovered regardless of the decision made (Correct answer)
- A cost avoidable if an activity is discontinued
Correct answer: A past cost that cannot be recovered regardless of the decision made
Sunk costs are historical costs already incurred and irrelevant to future decisions because they cannot be changed by any current or future action.
Question 4: A company uses activity-based costing. Which step comes immediately after identifying activities in the ABC implementation process?
- Assigning overhead costs to cost objects
- Assigning costs to activity cost pools (Correct answer)
- Selecting cost drivers for each activity
- Computing product cost per unit
Correct answer: Assigning costs to activity cost pools
After identifying activities, the next step is to assign (accumulate) overhead costs into activity cost pools before selecting cost drivers.
Question 5: A company is deciding whether to make or buy a component. Which cost is most relevant to this decision?
- Allocated fixed overhead that will continue regardless
- Variable production cost of making the component (Correct answer)
- Historical cost of machinery already purchased
- Corporate overhead apportioned to the division
Correct answer: Variable production cost of making the component
Variable production costs are avoidable if the component is outsourced, making them the most relevant incremental cost for a make-or-buy decision.
Question 6: Under the net present value (NPV) method, a project should be accepted when:
- NPV equals zero
- NPV is positive (Correct answer)
- NPV is negative
- Internal rate of return exceeds NPV
Correct answer: NPV is positive
A positive NPV means the present value of cash inflows exceeds the present value of cash outflows, indicating the project creates shareholder value.
Question 7: Which performance measurement system links financial and non-financial measures across four perspectives: financial, customer, internal process, and learning & growth?
- Economic Value Added (EVA)
- Balanced Scorecard (Correct answer)
- Key Performance Indicator dashboard
- Activity-Based Management
Correct answer: Balanced Scorecard
The Balanced Scorecard, developed by Kaplan and Norton, integrates financial and non-financial metrics across four strategic perspectives.
Certified Management Accountant Certified Management Accountant MCQ 3
Return on investment (ROI) for a business segment is best calculated as: