Certified Management Accountant Trivia 5 — Questions and Answers
Question 1: Which of the following is an example of a non-financial performance measure that might appear on a balanced scorecard?
- Return on investment
- Earnings per share
- Customer satisfaction score (Correct answer)
- Net present value
Correct answer: Customer satisfaction score
Customer satisfaction scores are non-financial metrics used in the customer perspective of the balanced scorecard to track performance beyond accounting numbers.
Question 2: The Sarbanes-Oxley Act of 2002 was primarily enacted in response to:
- The 2001 dot-com bubble burst
- Major corporate accounting scandals such as Enron and WorldCom (Correct answer)
- International trade imbalances
- Rising federal budget deficits
Correct answer: Major corporate accounting scandals such as Enron and WorldCom
SOX was passed in 2002 following major accounting fraud scandals at Enron, WorldCom, and others, to strengthen corporate governance and financial reporting.
Question 3: Net present value (NPV) is defined as:
- Total cash inflows minus total cash outflows without discounting
- The present value of future cash inflows minus the initial investment (Correct answer)
- Internal rate of return minus the cost of capital
- Payback period multiplied by annual cash flows
Correct answer: The present value of future cash inflows minus the initial investment
NPV equals the sum of discounted future cash inflows less the initial investment outlay; a positive NPV indicates value creation.
Question 4: Which pricing strategy sets price based on the target cost derived from a competitive market price minus a desired profit margin?
- Cost-plus pricing
- Target costing (Correct answer)
- Penetration pricing
- Skimming pricing
Correct answer: Target costing
Target costing starts with the market price and subtracts the desired profit to determine the maximum allowable cost, driving cost reduction efforts.
Question 5: Return on Investment (ROI) for a business segment is calculated as:
- Net income divided by total equity
- Operating income divided by average invested assets (Correct answer)
- Sales divided by total liabilities
- Gross profit divided by net sales
Correct answer: Operating income divided by average invested assets
Segment ROI = Operating income ÷ Average invested assets, measuring how effectively a division uses its asset base to generate profit.
Question 6: Which budgeting approach requires managers to justify all expenditures from scratch rather than incrementing the prior year's budget?
- Rolling budget
- Kaizen budgeting
- Zero-based budgeting (Correct answer)
- Activity-based budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting starts from zero each period, requiring justification of every expense rather than simply adjusting prior-year figures.
Question 7: Which of the following statements about the internal rate of return (IRR) is CORRECT?
- IRR is the discount rate that maximizes NPV
- IRR is the discount rate at which NPV equals zero (Correct answer)
- IRR always leads to the same decision as NPV for mutually exclusive projects
- IRR cannot be used for projects with uneven cash flows
Correct answer: IRR is the discount rate at which NPV equals zero
The IRR is the discount rate that makes the net present value of a project's cash flows equal to zero; projects are accepted when IRR exceeds the hurdle rate.
Certified Management Accountant Trivia 5
Which of the following is an example of a non-financial performance measure that might appear on a balanced scorecard?