Certified Management Accountant Performance Measurement 3

Question 1

A company's ROI is 15% but its hurdle rate is 20%. A divisional manager using ROI will likely:

Accepted Answer

Reject projects that would benefit the company overall

Answer

A manager evaluated on ROI rejects projects that would lower divisional ROI even if those projects exceed the company's required return.

Question 2

Under a cost center structure, management is held responsible for:

Accepted Answer

Costs only

Answer

Cost center managers control only costs; they have no authority over revenue generation or capital investment.

Question 3

Which transfer pricing method uses the external selling price minus a normal profit margin for the buying division?

Accepted Answer

Resale price method

Answer

The resale price method starts with the external resale price and deducts an appropriate gross margin to arrive at the transfer price.

Question 4

Kaplan and Norton's Strategy Map is used in conjunction with the balanced scorecard to show:

Accepted Answer

Cause-and-effect relationships between strategic objectives

Answer

A strategy map visualizes the cause-and-effect linkages between objectives across all four balanced scorecard perspectives.

Question 5

Economic value added (EVA) can be increased by all of the following EXCEPT:

Accepted Answer

Increasing invested capital without changing NOPAT

Answer

Adding invested capital increases the capital charge, which reduces EVA if NOPAT does not increase proportionally.

Certified Management Accountant Practice Test