Certified Management Accountant Performance Measurement 2

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?

Accepted Answer

Economic value added (EVA)

Answer

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?

Accepted Answer

Replace net book value with gross asset value

Answer

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:

Accepted Answer

Cycle time and defect rates

Answer

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?

Accepted Answer

$120,000

Answer

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:

Accepted Answer

Variable cost plus opportunity cost

Answer

The floor for a transfer price is variable cost plus any opportunity cost (foregone contribution margin from external sales).

Certified Management Accountant Practice Test