Certified Management Accountant Certified Management Accountant MCQ 4 — Questions and Answers
Question 1: Which inventory valuation method typically results in the lowest taxable income during a period of rising prices?
- FIFO
- LIFO (Correct answer)
- Weighted average
- Specific identification
Correct answer: LIFO
During rising prices, LIFO assigns the most recent (higher) costs to COGS, reducing taxable income compared to FIFO or weighted average.
Question 2: When evaluating a capital project, the payback period method is criticized primarily because it:
- Ignores cash flows before the payback date
- Ignores cash flows occurring after the payback date and the time value of money (Correct answer)
- Overstates the value of long-lived projects
- Requires a discount rate that is difficult to determine
Correct answer: Ignores cash flows occurring after the payback date and the time value of money
The payback method ignores all cash flows after the payback period is reached and does not adjust for the time value of money.
Question 3: A flexible budget differs from a static budget because it:
- Is prepared once per year and never revised
- Adjusts revenue and cost estimates for the actual level of activity achieved (Correct answer)
- Allocates fixed costs based on planned capacity
- Focuses exclusively on capital expenditures
Correct answer: Adjusts revenue and cost estimates for the actual level of activity achieved
A flexible budget recalculates expected revenues and costs at the actual output level, enabling meaningful variance analysis.
Question 4: The Sarbanes-Oxley Act (SOX) Section 302 requires corporate officers to:
- Establish an internal audit committee composed entirely of outsiders
- Personally certify the accuracy of financial reports and the effectiveness of disclosure controls (Correct answer)
- Rotate external auditors every five years
- Disclose all related-party transactions to the SEC within 48 hours
Correct answer: Personally certify the accuracy of financial reports and the effectiveness of disclosure controls
SOX Section 302 mandates that CEOs and CFOs personally certify the accuracy of financial statements and the design of disclosure controls and procedures.
Question 5: In cost-volume-profit analysis, the margin of safety represents:
- The excess of budgeted sales over break-even sales (Correct answer)
- The difference between variable costs and fixed costs
- The contribution margin per unit divided by selling price
- Fixed costs divided by the contribution margin ratio
Correct answer: The excess of budgeted sales over break-even sales
Margin of safety = Budgeted (or actual) sales − Break-even sales, showing how much sales can decline before a loss occurs.
Question 6: Which type of cost center is held responsible for revenues as well as costs?
- Expense center
- Profit center (Correct answer)
- Investment center
- Revenue center
Correct answer: Profit center
A profit center manager is accountable for both revenues and costs, giving them control over the factors that determine operating profit.
Question 7: A company's debt-to-equity ratio is 1.5. This means that for every dollar of equity, the company has:
- $0.67 in debt
- $1.00 in debt
- $1.50 in debt (Correct answer)
- $2.50 in debt
Correct answer: $1.50 in debt
A debt-to-equity ratio of 1.5 means the company has $1.50 of debt for each $1.00 of equity, indicating moderate financial leverage.
Certified Management Accountant Certified Management Accountant MCQ 4
Which inventory valuation method typically results in the lowest taxable income during a period of rising prices?