Certified Management Accountant Trivia 3 — Questions and Answers
Question 1: Transfer pricing is BEST described as:
- The price charged to external customers for finished goods
- The price set for goods or services exchanged between divisions of the same company (Correct answer)
- A method for allocating joint costs
- The cost assigned to defective units
Correct answer: The price set for goods or services exchanged between divisions of the same company
Transfer pricing refers to the prices charged when one segment of a company sells goods or services to another segment within the same organization.
Question 2: Which of the following is NOT a perspective included in the traditional balanced scorecard?
- Financial
- Customer
- Supplier (Correct answer)
- Learning and Growth
Correct answer: Supplier
The four traditional balanced scorecard perspectives are Financial, Customer, Internal Business Processes, and Learning and Growth; there is no Supplier perspective.
Question 3: Economic Value Added (EVA) is calculated as:
- Net operating profit after tax minus a charge for invested capital (Correct answer)
- Gross profit minus operating expenses
- EBITDA divided by total assets
- Net income plus depreciation
Correct answer: Net operating profit after tax minus a charge for invested capital
EVA = NOPAT − (WACC × Invested Capital), measuring whether a business earns more than its cost of capital.
Question 4: The concept of 'relevant costs' in decision-making refers to costs that are:
- Historical and sunk
- Future and differential between alternatives (Correct answer)
- Fixed and unavoidable
- Allocated from the corporate office
Correct answer: Future and differential between alternatives
Relevant costs are future costs that differ between decision alternatives; sunk costs are irrelevant because they cannot be changed.
Question 5: Under the perpetual inventory system, the Cost of Goods Sold account is updated:
- Only at the end of each fiscal year
- Only at the end of each quarter
- Each time a sale is made (Correct answer)
- When a physical count is completed
Correct answer: Each time a sale is made
In a perpetual system, inventory records and COGS are updated continuously with each transaction, unlike the periodic system.
Question 6: Which ratio measures a company's ability to pay short-term obligations without relying on inventory?
- Current ratio
- Quick ratio (Correct answer)
- Debt-to-equity ratio
- Inventory turnover ratio
Correct answer: Quick ratio
The quick ratio (acid-test ratio) excludes inventory from current assets, providing a more stringent liquidity measure than the current ratio.
Question 7: The payback period method of capital budgeting is criticized primarily because it:
- Requires complex calculations
- Ignores the time value of money and cash flows after the payback period (Correct answer)
- Overstates the net present value of projects
- Only applies to manufacturing companies
Correct answer: Ignores the time value of money and cash flows after the payback period
The payback period ignores both the time value of money and any cash flows that occur after the payback cutoff, potentially favoring short-term projects over more profitable long-term ones.
Certified Management Accountant Trivia 3
Transfer pricing is BEST described as: