Certified Management Accountant Certified Management Accountant MCQ 5 — Questions and Answers
Question 1: Which of the following best describes throughput in the Theory of Constraints (TOC)?
- Total units produced per shift
- Sales revenue minus totally variable costs (Correct answer)
- Gross profit margin before fixed overhead
- Net income after all operating expenses
Correct answer: Sales revenue minus totally variable costs
In TOC, throughput is defined as sales revenue minus totally variable costs (primarily direct materials), representing money generated through sales.
Question 2: Under IFRS, development costs are capitalized when:
- The project enters the research phase
- Specific feasibility and intention-to-complete criteria are met (Correct answer)
- Management approves the project budget
- Any expenditure is incurred on the project
Correct answer: Specific feasibility and intention-to-complete criteria are met
IFRS requires capitalization of development costs only when technical feasibility, intention to complete, ability to use or sell, and other criteria are all demonstrated.
Question 3: A company's quick ratio is 0.8. This suggests the company:
- Can easily cover all current liabilities with liquid assets
- May struggle to meet short-term obligations without selling inventory (Correct answer)
- Has more long-term assets than current liabilities
- Is financially stronger than a firm with a quick ratio of 1.2
Correct answer: May struggle to meet short-term obligations without selling inventory
A quick ratio below 1.0 indicates that liquid assets (cash, receivables, marketable securities) are insufficient to cover all current liabilities without liquidating inventory.
Question 4: Which variance arises when actual sales mix differs from the budgeted sales mix in a multi-product firm?
- Sales price variance
- Sales volume variance
- Sales mix variance (Correct answer)
- Market share variance
Correct answer: Sales mix variance
The sales mix variance isolates the profit impact of selling a different proportion of products than planned, separate from overall volume changes.
Question 5: Just-in-time (JIT) manufacturing primarily aims to reduce:
- Direct labor rates through automation
- Inventory levels and associated carrying costs (Correct answer)
- Product variety to simplify production runs
- Quality inspection costs through sampling
Correct answer: Inventory levels and associated carrying costs
JIT systems synchronize production with demand to minimize inventory on hand, reducing carrying costs, waste, and the risk of obsolescence.
Question 6: What does the internal rate of return (IRR) represent?
- The required rate of return set by management
- The discount rate at which a project's NPV equals zero (Correct answer)
- The average accounting return on book value of assets
- The ratio of total cash inflows to initial investment
Correct answer: The discount rate at which a project's NPV equals zero
IRR is the discount rate that makes the net present value of all project cash flows equal to zero, representing the project's true expected return.
Question 7: Which of the following is a characteristic of a relevant cost in managerial decision-making?
- It has already been incurred and appears on historical financial statements
- It is a future cost that differs between the decision alternatives being considered (Correct answer)
- It is a fixed cost allocated equally across all products
- It is recorded under GAAP as a period expense
Correct answer: It is a future cost that differs between the decision alternatives being considered
Relevant costs are future-oriented and differ between alternatives; sunk costs and costs identical across alternatives are irrelevant to the decision.
Certified Management Accountant Certified Management Accountant MCQ 5
Which of the following best describes throughput in the Theory of Constraints (TOC)?