CMA Part 1 practice questions with explained answers

1. 01

   Performance management

   Question 1. When a selling division operates with excess capacity and transfers a customized intermediate product with no external market, which transfer pricing method best achieves goal congruence?

   Answer to question 1

   AA. External market price to ensure competitive objectivityBB. Full absorption cost to guarantee fixed cost recoveryCC. Variable cost to reflect relevant incremental production costsDD. Negotiated price to preserve complete divisional autonomy

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2. 02

   Cost management

   Question 2. In activity-based management, when an internal cost report classifies an operation as a value-added activity, what reporting treatment should be applied to support performance improvement?

   Answer to question 2

   AA. Allocate its expenses across all related product outputs to enforce equal gross margin percentages across joint operations.BB. Exclude its accumulated overhead from inventoriable product costs and immediately expense all expenditures as period items.CC. Classify its incurred costs as non-controllable common fixed overhead to prevent standard variance analysis across departments.DD. Compare its actual costs against target efficiency benchmarks to highlight opportunities for continuous process optimization.

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3. 03

   Internal controls

   Question 3. The divisional manager at Dunmore Works aims to manage internal control risk arising from recent operational changes in dispatching cartons shipped. Which approach best serves this objective?

   Answer to question 3

   AA. Assessing how process changes impact risk points and updating control activities to maintain effective risk mitigation.BB. Mandating compliance with statutory internal control laws to guarantee absolute prevention of transaction fraud.CC. Delegating internal control risk evaluation entirely to external auditors during their year-end financial audits.DD. Replacing specific operational control activities with broad policy statements regarding management ethical values.

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4. 04

   Planning and budgeting

   Question 4. Larkspur Partners, a regional trucking operator, is updating its quarterly operating budget. The initial budget included fixed costs of $180,000 and variable costs of $1.50 per delivery mile. During a budget review, the divisional manager proposed expanding route coverage, resulting in an incremental cost increase of $45,000 and bringing the revised total operating budget to $375,000. Fixed costs remained unchanged. What was Larkspur Partners' initial budgeted activity level in delivery miles?

   Answer to question 4

   AA. 30,000 delivery milesBB. 100,000 delivery milesCC. 130,000 delivery milesDD. 220,000 delivery miles

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5. 05

   External financial reporting

   Question 5. According to the International Integrated Reporting Framework, which statement best describes the relationship among integrated thinking, integrated reporting, and the integrated report?

   Answer to question 5

   AA. The integrated report harmonizes financial accounting under U.S. GAAP and IFRS by reconciling LIFO reserves with inventory write-down reversals.BB. Integrated reporting functions as a compliance checklist used strictly to audit nonfinancial environmental metrics against statutory disclosure mandates.CC. The integrated report eliminates traditional financial statements by replacing historical cost balance sheets with nonfinancial capital evaluations.DD. Integrated thinking steers organizational reporting practices, yielding a periodic integrated report that continually reinforces holistic decision-making.

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Questions from the MiloPrep question bank. Independently authored practice, not official exam items. This short set is for learning and does not predict an exam score.