Certified Management Accountant Performance Measurement 5 — Questions and Answers
Question 1: The fixed overhead volume variance arises because:
- Actual fixed costs differ from budgeted fixed costs
- Actual production volume differs from budgeted volume (Correct answer)
- Actual variable costs exceed standard variable costs
- Direct labor hours differ from machine hours
Correct answer: Actual production volume differs from budgeted volume
The volume variance measures the difference between applied fixed overhead (based on actual output) and budgeted fixed overhead.
Question 2: Tier-one suppliers of a manufacturer want to know the company's financial health. Which non-financial metric would be most relevant to supply chain performance?
- Earnings before interest and taxes (EBIT)
- Perfect order fulfillment rate (Correct answer)
- Weighted average cost of capital
- Price-to-earnings ratio
Correct answer: Perfect order fulfillment rate
Perfect order fulfillment rate measures delivery accuracy, timing, and completeness, directly reflecting supply chain effectiveness.
Question 3: A profit center manager is best evaluated using:
- Total company net income
- Controllable margin (segment's revenues minus controllable costs) (Correct answer)
- Return on total company assets
- Gross profit only
Correct answer: Controllable margin (segment's revenues minus controllable costs)
Profit center managers should be evaluated on revenues and costs they can directly control, not allocated corporate overhead.
Question 4: Under the theory of constraints, which of the following actions best improves throughput?
- Reduce direct labor costs across all departments
- Maximize production efficiency at non-bottleneck workstations
- Increase capacity or improve efficiency at the bottleneck (Correct answer)
- Implement activity-based costing system-wide
Correct answer: Increase capacity or improve efficiency at the bottleneck
Only improving the bottleneck's capacity or efficiency increases total system throughput; gains at non-bottlenecks merely build inventory.
Question 5: When comparing two investment centers with identical ROI, an analyst should consider residual income because:
- ROI ignores fixed costs entirely
- Residual income accounts for differences in the absolute size of invested capital (Correct answer)
- ROI cannot be computed for service businesses
- Residual income uses market values rather than book values
Correct answer: Residual income accounts for differences in the absolute size of invested capital
Two centers with identical ROI can generate very different dollar amounts of value depending on the size of their capital base.
Question 6: Which of the following best describes a 'lag indicator' in a balanced scorecard context?
- Number of new product development projects started
- Employee skills training completion rate
- Annual revenue growth percentage (Correct answer)
- Number of customer complaints filed this month
Correct answer: Annual revenue growth percentage
Annual revenue growth is a lagging indicator because it reports the outcome of past decisions and activities already completed.
Question 7: A responsibility accounting system is effective only when:
- All costs are allocated to every department equally
- Managers are evaluated solely on costs they control (Correct answer)
- Financial and non-financial metrics are both excluded
- Corporate overhead is fully recharged to divisions
Correct answer: Managers are evaluated solely on costs they control
Responsibility accounting links accountability to controllability; managers should only be judged on costs and revenues within their authority.
Certified Management Accountant Performance Measurement 5
The fixed overhead volume variance arises because: