Certified Management Accountant Performance Measurement 4 — Questions and Answers
Question 1: A company benchmarks its order fulfillment cycle time against the industry best practice. This type of benchmarking is called:
- Internal benchmarking
- Competitive benchmarking (Correct answer)
- Functional benchmarking
- Generic benchmarking
Correct answer: Competitive benchmarking
Competitive benchmarking compares a company's performance directly against direct competitors in the same industry.
Question 2: In a decentralized organization, which performance measure best aligns divisional manager incentives with overall company goals?
- Divisional gross profit
- Divisional ROI only
- Residual income or EVA (Correct answer)
- Contribution margin ratio
Correct answer: Residual income or EVA
Residual income and EVA encourage managers to accept investments that exceed the cost of capital, aligning with firm-wide value creation.
Question 3: The customer perspective of the balanced scorecard typically includes which key metric?
- Earnings per share
- On-time delivery rate (Correct answer)
- Return on assets
- Number of process improvement projects
Correct answer: On-time delivery rate
On-time delivery rate directly reflects the customer's experience with the company's fulfillment reliability.
Question 4: An investment center manager is evaluating a new project with ROI of 14% when the division's current ROI is 16% and the company's WACC is 11%. Using residual income, the manager should:
- Reject the project because it lowers divisional ROI
- Accept the project because it exceeds WACC (Correct answer)
- Reject the project because residual income is negative
- Accept only if divisional ROI reaches 20%
Correct answer: Accept the project because it exceeds WACC
Residual income is positive (14% > 11% WACC), so the project creates value and should be accepted despite lowering the divisional ROI.
Question 5: Which variance is calculated as (Actual hours worked − Standard hours allowed) × Standard rate?
- Labor rate variance
- Labor efficiency variance (Correct answer)
- Variable overhead spending variance
- Fixed overhead volume variance
Correct answer: Labor efficiency variance
The labor efficiency variance measures whether more or fewer labor hours were used than the standard allowed for actual output.
Question 6: A company uses a negotiated transfer price. This method is most appropriate when:
- An active external market exists for the transferred product
- Both divisions have strong bargaining power and no external market (Correct answer)
- The selling division has excess capacity
- Corporate headquarters sets all pricing centrally
Correct answer: Both divisions have strong bargaining power and no external market
Negotiated transfer pricing works best when divisions have comparable bargaining strength and no clear external market price exists.
Question 7: Activity-based management (ABM) uses ABC data to:
- Allocate overhead costs to products only
- Identify and eliminate non-value-added activities (Correct answer)
- Set GAAP-compliant inventory values
- Replace the balanced scorecard framework
Correct answer: Identify and eliminate non-value-added activities
ABM applies ABC cost information to improve operations by targeting and reducing non-value-added activities.
Certified Management Accountant Performance Measurement 4
A company benchmarks its order fulfillment cycle time against the industry best practice.
This type of benchmarking is called: