Mark Anthony Pusing
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Financial Planning, Performance and Control Examination Practice Questions

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Mark Anthony Pusing
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CMA Part 1 – Financial Planning, Performance and Control Examination Practice Questions

Question 1 of 20

1

Cerawell Products Company is a ceramics manufacturer that is facing several challenges in its operations due to economic and industry conditions. The company is currently preparing its annual plan and budget. Which one of the following is subject to the least control by the management of Cerawell in the current fiscal year?

Select one of the following:

  • A new machine that was purchased this year has not helped reduce Cerawell’s unfavorable labor efficiency variances.

  • A competitor has achieved an unexpected technological breakthrough that has given them a significant quality advantage, and has caused Cerawell to lose market share.

  • Vendors have asked that the contract price for the goods they supply to Cerawell be renegotiated and adjusted for inflation.

  • Experienced employees have decided to terminate their employment with Cerawell and go to work for the competition.

Explanation

Question 2 of 20

1

All of the following are advantages of the use of budgets in a management control system except that budgets

Select one of the following:

  • force management planning.

  • provide performance criteria.

  • promote communication and coordination within the organization.

  • limit unauthorized expenditures.

Explanation

Question 3 of 20

1

In developing the budget for the next year, which one of the following approaches would most likely result in a successful budget with the greatest amount of positive motivation and goal congruence?

Select one of the following:

  • Permit the divisional manager to develop the goal for the division that in the manager’s view will generate the greatest amount of profits.

  • Have senior management develop the overall goals and permit the divisional manager to determine how these goals will be met.

  • Have the divisional and senior management jointly develop goals and objectives while constructing the corporation’s overall plan of operation.

  • Have the divisional and senior management jointly develop goals and the divisional manager develop the implementation plan.

Explanation

Question 4 of 20

1

Which one of the following statements concerning approaches for the budget development process is correct?

Select one of the following:

  • The authoritative approach to budgeting discourages strict adherence to strategic organizational goals.

  • To prevent ambiguity, once departmental budgeted goals have been developed, they should remain fixed even if the sales forecast upon which they are based proves to be wrong in the middle of the fiscal year

  • With the information technology available, the role of budgets as an organizational communication device has declined.

  • Since department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget.

Explanation

Question 5 of 20

1

Which one of the following items would most likely cause the planning and budgeting system to fail? The lack of

Select one of the following:

  • historical financial data.

  • input from several levels of management.

  • top management support.

  • adherence to rigid budgets during the year.

Explanation

Question 6 of 20

1

All of the following are disadvantages of authoritative budgeting as opposed to participatory budgeting, except that it

Select one of the following:

  • may result in a budget that is not possible to achieve.

  • may limit the acceptance of proposed goals and objectives.

  • reduces the communication between employees and management.

  • reduces the time required for budgeting.

Explanation

Question 7 of 20

1

All of the following statements concerning standard costs are correct except that

Select one of the following:

  • time and motion studies are often used to determine standard costs.

  • standard costs are usually set for one year.

  • standard costs can be used in costing inventory accounts.

  • standard costs are usually stated in total, while budgeted costs are usually stated on a per-unit basis.

Explanation

Question 8 of 20

1

One approach for developing standard costs incorporates communication, bargaining, and interaction among product line managers; the immediate supervisors for whom the standards are being developed; and the accountants and engineers before the standards are accepted by top management. This approach would best be characterized as a(n)

Select one of the following:

  • imposed approach.

  • authoritative approach.

  • engineering approach.

  • participative approach.

Explanation

Question 9 of 20

1

When compared with ideal standards, practical standards

Select one of the following:

  • produce lower per-unit product costs.

  • result in a less desirable basis for the development of budgets.

  • incorporate very generous allowances for spoilage and worker inefficiencies.

  • serve as a better motivating target for manufacturing personnel.

Explanation

Question 10 of 20

1

Jura Corporation is developing standards for the next year. Currently XZ-26, one of the material components, is being purchased for $36.45 per unit. It is expected that the component’s cost will increase by approximately 10% next year and the price could range from $38.75 to $44.18 per unit depending on the quantity purchased. The appropriate standard for XZ-26 for next year should be set at the

Select one of the following:

  • current actual cost plus the forecasted 10% price increase.

  • lowest purchase price in the anticipated range to keep pressure on purchasing to always buy in the lowest price range.

  • highest price in the anticipated range to insure that there are only favorable purchase price variances.

  • price agreed upon by the purchasing manager and the appropriate level of company management

Explanation

Question 11 of 20

1

Which one of the following will allow a better use of standard costs and variance analysis to help improve managerial decision-making?

Select one of the following:

  • Company A does not differentiate between variable and fixed overhead in calculating its overhead variances.

  • Company B uses the prior year’s average actual cost as the current year’s standard.

  • Company C investigates only negative variances.

  • Company D constantly revises standards to reflect learning curves.

Explanation

Question 12 of 20

1

After performing a thorough study of Michigan Company’s operations, an independent consultant determined that the firm’s labor standards were probably too tight. Which one of the following facts would be inconsistent with the consultant’s conclusion?

Select one of the following:

  • A review of performance reports revealed the presence of many unfavorable efficiency variances.

  • Michigan’s budgeting process was well-defined and based on a bottom-up philosophy.

  • Management noted that minimal incentive bonuses have been paid in recent periods.

  • Production supervisors found several significant fluctuations in manufacturing volume, with short-term increases on output being followed by rapid, sustained declines.

Explanation

Question 13 of 20

1

For cost estimation simple regression differs from multiple regression in that simple regression uses only

Select one of the following:

  • one dependent variable, while multiple regression uses all available data to estimate the cost function.

  • dependent variables, while multiple regression can use both dependent and independent variables.

  • one independent variable, while multiple regression uses more than one independent variable.

  • one dependent variable, while multiple regression uses more than one dependent variable.

Explanation

Question 14 of 20

1

A company has accumulated data for the last 24 months in order to determine if there is an independent variable that could be used to estimate shipping costs. Three possible independent variables being considered are packages shipped, miles shipped, and pounds shipped. The quantitative technique that should be used to determine whether any of these independent variables might provide a good estimate for shipping costs is

Select one of the following:

  • flexible budgeting.

  • linear programming.

  • linear regression.

  • variable costing.

Explanation

Question 15 of 20

1

Dawson Manufacturing developed the following multiple regression equation, utilizing many years of data, and uses it to model, or estimate, the cost of its product.
Cost = FC + a*L + b*M
Where: FC = fixed costs
L = labor rate per hour
M = material cost per pound
Which one of the following changes would have the greatest impact on invalidating the results of this model?

Select one of the following:

  • A significant reduction in factory overheads, which are a component of fixed costs.

  • Renegotiation of the union contract calling for much higher wage rates.

  • A large drop in material costs, as a result of purchasing the material from a foreign source.

  • A significant change in labor productivity.

Explanation

Question 16 of 20

1

In order to analyze sales as a function of advertising expenses, the sales manager of Smith Company developed a simple regression model. The model included the following equation, which was based on 32 monthly observations of sales and advertising expenses with a related coefficient of determination of .90.
S = $10,000 + $2.50A
S = sales
A = advertising expenses
If Smith Company’s advertising expenses in one month amounted to $1,000, the related point estimate of sales would be

Select one of the following:

  • $2,500.

  • $11,250.

  • $12,250.

  • $12,500.

Explanation

Question 17 of 20

1

The results of regressing Y against X are as follows.
Coefficient
Intercept 5.23
Slope 1.54
When the value of X is 10, the estimated value of Y is

Select one of the following:

  • 6.78.

  • 8.05.

  • 20.63.

  • 53.84.

Explanation

Question 18 of 20

1

Which one of the following techniques would most likely be used to analyze reductions in the time required to perform a task as experience with that task increases?

Select one of the following:

  • Regression analysis.

  • Learning curve analysis.

  • Sensitivity analysis.

  • Normal probability analysis.

Explanation

Question 19 of 20

1

Aerosub Inc. has developed a new product for spacecraft that includes the manufacturing of a complex part. The manufacturing of this part requires a high degree of technical skill. Management believes there is a good opportunity for its technical force to learn and improve as they become accustomed to the production process. The production of the first unit requires 10,000 direct labor hours. If an 80% learning curve is used and eight units are produced, the cumulative average direct labor hours required per unit of the product will be

Select one of the following:

  • 5,120 hours.

  • 6,400 hours.

  • 8,000 hours.

  • 10,000 hours.

Explanation

Question 20 of 20

1

A manufacturing firm plans to bid on a special order of 80 units that will be manufactured in lots of 10 units each. The production manager estimates that the direct labor hours per unit will decline by a constant percentage each time the cumulative quantity of units produced doubles. The quantitative technique used to capture this phenomenon and estimate the direct labor hours required for the special order is

Select one of the following:

  • cost-profit-volume analysis.

  • the Markov process.

  • linear programming analysis.

  • learning curve analysis.

Explanation

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