Certified Management Accountant Performance Measurement 2 — Questions and Answers
Question 1: A company has a return on investment (ROI) of 18% and a cost of capital of 12%. Which metric best captures the dollar value of value creation?
- Return on equity
- Economic value added (EVA) (Correct answer)
- Gross profit margin
- Operating leverage
Correct answer: Economic value added (EVA)
EVA measures dollar value created by subtracting the cost of capital charge from net operating profit after taxes.
Question 2: When evaluating a manager on residual income, which adjustment is most appropriate to avoid distorting performance due to asset age?
- Use historical cost depreciation
- Replace net book value with gross asset value (Correct answer)
- Exclude intangible assets from the base
- Apply accelerated depreciation only
Correct answer: Replace net book value with gross asset value
Gross asset value removes the distortion caused by accumulated depreciation that artificially inflates ROI on older assets.
Question 3: The balanced scorecard's internal business process perspective primarily focuses on:
- Customer satisfaction scores
- Employee turnover rates
- Cycle time and defect rates (Correct answer)
- Market share growth
Correct answer: Cycle time and defect rates
The internal process perspective measures operational efficiency metrics like cycle time, throughput, and defect rates.
Question 4: Division A has sales of $500,000, variable costs of $300,000, and traceable fixed costs of $80,000. What is Division A's segment margin?
- $200,000
- $120,000 (Correct answer)
- $80,000
- $220,000
Correct answer: $120,000
Segment margin = Sales ($500,000) − Variable costs ($300,000) − Traceable fixed costs ($80,000) = $120,000.
Question 5: In a transfer pricing context, the minimum transfer price a selling division should accept equals:
- Market price minus selling costs
- Variable cost plus opportunity cost (Correct answer)
- Full absorption cost only
- Standard cost plus 10%
Correct answer: Variable cost plus opportunity cost
The floor for a transfer price is variable cost plus any opportunity cost (foregone contribution margin from external sales).
Question 6: A throughput accounting approach to performance measurement focuses on which primary constraint?
- Maximizing labor efficiency
- Maximizing the rate at which the bottleneck generates throughput (Correct answer)
- Minimizing total overhead costs
- Balancing all department capacities equally
Correct answer: Maximizing the rate at which the bottleneck generates throughput
Throughput accounting prioritizes increasing the rate of sales through the system's binding constraint (bottleneck).
Question 7: Which of the following is a leading indicator commonly used in a balanced scorecard?
- Annual net income
- Last quarter's market share
- Employee training hours completed (Correct answer)
- Prior year customer retention rate
Correct answer: Employee training hours completed
Employee training hours are a leading indicator because they predict future capability and performance outcomes.
Certified Management Accountant Performance Measurement 2
A company has a return on investment (ROI) of 18% and a cost of capital of 12%.
Which metric best captures the dollar value of value creation?