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The Institute of Certified Management Accountants (ICMA) published a set of practice questions and answers in 2008 to help candidates prepare for essay exam questions. These are actual “retired” ques-tions from the computer-based CMA exam, and are used here with permission from the ICMA.

These practice questions will help you test your understanding of the concepts, theories and formulas that you have studied in Part 1 by requiring you to apply what you have learned to unique and varying situations. You will encounter different scenarios and applications on your actual exam than presented here, so it is essential that you understand the underlying concepts. In general, it will not be helpful to memorize questions and answers.

In order to simulate the actual Prometric testing environment, we have formatted the Practice Questions so that they can be viewed on one-half of the computer screen. Size the Adobe Reader window so that it is as long as your monitor and fills the left half of your screen. Then, open Notepad or any similar basic text editor (not a full word processor like Microsoft Word) and position the Notepad window beside the window containing the questions. Size the Notepad win-dow so that it is as long as your monitor and fills the right half of your screen. With the Adobe Reader question window on the left and the Notepad answer window on the right, compose your answers to the questions directly into the Notepad window as you read the questions in Adobe Reader.

We are not able to calculate a score for your answer. However, by comparing your answer with the suggested answer, you should be able to get a good idea of whether you know enough about the topic. The real value in this exercise is in learning what kind of ques-tions you might face and becoming comfortable with reading a long question on the screen and composing your answer directly on the computer.

The ICMA has provided one sample question with a grading guide, which you can also download from My Studies. This should help you get a feel for how the written answers are graded.

We encourage you to use these problems as prescribed in the CMA Part 1 Study Plan, which you can download from the HOCK interna-tional web site. If you have any questions while studying for the CMA Part 1 Exam, please contact us and we will guide you.

Revised February 2010

2010 CMA Part 1 Practice Question #1

Cash Budgeting

Matchpoint Racquet Club (MRC) is a sports facility that offers tennis, racquetball and other physical fitness facilities to its members. MRC owns and operates a large club with 2,000 members in a metropoli-tan area. The club has experienced cash flow problems over the last five years, especially during the summer months when both court use and new membership sales are low. Temporary bank loans have been obtained to cover the summer shortages.

The owners have decided to take action to improve MRC’s net cash flow position. They have asked the club’s financial manager to pre-pare a projected cash budget based on a proposed revised fee struc-ture. The proposal would increase membership fees and replace the hourly tennis and racquetball court fees with a quarterly charge that would allow unlimited usage of the courts. The new rates would remain competitive when compared to the rates of other clubs in the area. Although there will be some members who do not renew be-cause of the increase in price, management believes that the offer of unlimited court time will increase membership by 10%.

The proposed fee structure is shown below, along with the current membership distribution. The membership distribution is assumed to remain unchanged. All members would be required to pay the quar-terly court charges.

Proposed Fee Structure

Membership Category Annual Membership Fees Quarterly Court Charges

Individual $300 $50 Student $180 $40 Family $600 $90

Membership Distribution

Individual 60% Student 10% Family 30%

Projected Membership Payment Activity

Court Time in Hours Quarter New Renewed Prime Regular 1 100 700 5,000 7,000 2 70 330 2,000 4,000 3 50 150 1,000 2,000 4 200 600 5,000 7,000 The average membership during the third quarter is projected to be 2,200 people. Fixed costs are $157,500 per quarter, including a quarterly depreciation charge of $24,500. Variable costs are esti-mated at $15 per hour of total court usage time.

2010 CMA Part 1 Practice Question #1

Cash Budgeting

Required: A. Prepare MRC’s cash budget for the third quarter. Assume the

opening cash balance is $186,000, that membership at the be-ginning of the quarter is 2,000, and that the change to the new pricing structure will be implemented. Include supporting calcu-lations where appropriate.

B. Identify at least four factors that MRC should consider before

implementing this decision.

2010 CMA Part 1 Practice Question #2 Performance Report

WoodCrafts Inc. is a manufacturer of furniture for specialty shops throughout the northeast and has an annual sales volume of $12 million. The company has four major product lines - bookcases, magazine racks, end tables, and bar stools - each of which is ma-naged by a production manager. Since production is spread fairly evenly over the 12 months of operation, Sara McKinley, controller, has prepared an annual budget that is divided into 12 reporting periods for monthly reporting purposes.

WoodCrafts uses a standard cost system and applies variable factory overhead on the basis of machine hours. Fixed production cost is allocated on the basis of square footage occupied using a predeter-mined plant-wide rate; the size of the space occupied varies consi-derably among product lines. All other costs are assigned on the basis of revenue dollars earned. At the monthly meeting to review November performance, Ken Ashley, manager of the bookcase line, received the report shown below.

Required: 1) Identify at least three weaknesses in WoodCrafts Inc.’s

monthly Bookcase Production Performance Report.

2) WoodCrafts Inc. could do a better job of reporting monthly performance to the production managers. Recommend how the report could be improved to eliminate weaknesses, and revise it accordingly.

WoodCrafts Inc. Bookcase Production Performance Report For the Month Ended November 30, 2008

Actual Budget Variance Units 3,000 2,500 500F Revenue $161,000 $137,500 $23,500F Variable production costs: Direct material 23,10 20,000 3,100U Direct labor 18,300 15,000 3,300U Machine time 19,200 16,250 2,950U Factory overhead 41,000 35,000 6,000U Fixed production costs: Indirect labor 9,400 6,000 3,400U Depreciation 5,500 5,500 — Taxes 2,400 2,300 100U Insurance 4,500 4,500 — Administrative expense 12,000 9,000 3,000U Marketing expense 8,300 7,000 1,300U Research and development 6,000 4,500 1,500U Operating profit $ 11,300 $12,450 $1,150U

2010 CMA Part 1 Practice Question #3

Budgeting and Costing

TruJeans, a new startup company, plans to produce blue jean pants, customized with the buyer’s first name stitched across the back pocket. The product will be marketed exclusively via an internet website. For the coming year, sales have been projected at three different levels: optimistic, neutral, and pessimistic. TruJeans does keep inventory on hand, but prefers to minimize this investment.

The controller is preparing to assemble the budget for the coming year, and is unsure about a number of issues, including the follow-ing.

• The level of sales to enter into the budget.

• How to allocate the significant fixed costs to individual units.

• Whether to use job order costing or process costing.

In addition, the controller has heard of kaizen budgeting and is wondering if such an approach could be used by TruJeans.

Required: A. How can the controller use the expected value approach to set

the sales level for the budget? What additional information would be needed?

B. How could the use of variable (direct) costing mitigate the prob-

lem of how to allocate the fixed costs to individual units?

C. Which cost system seems to make more sense for TruJeans, job

order costing or process costing? Explain your answer.

2010 CMA Part 1 Practice Question #4

Internal Audit

Brawn Technology, Inc. is a manufacturer of large wind energy systems. The company has its corporate headquarters in Buenos Aires and a central manufacturing facility about 200 miles away. Since the manufacturing facility is so remote, it does not receive the attention or the support from the staff that the other units do. The president of Brawn is concerned about whether proper permits have been issued for new construction work being done to handle indus-trial waste at the facility. In addition, he wants to be sure that all occupational safety laws and environmental issues are being proper-ly addressed. He has asked the company’s internal auditor to con-duct an audit focusing on these areas of concern.

Required: A. Identify and describe the two fundamental types of internal

audits. Using examples, describe two situations where each type of audit would be applicable.

B. Referring to Brawn Technology,

1) identify the type of audit that would best address the con-cerns of the president.

2) identify the objective of this audit.

3) give two reasons why this type of audit would best address the concerns of the president.

C. Recommend two procedures that could be implemented at

Brawn’s manufacturing plant that would lessen the president’s concerns. Explain each of your recommendations.

2010 CMA Part 1 Practice Question #5

Ethics

Alex Raminov is a management accountant at Carroll Mining and Manufacturing Company (CMMC), a large processor of ores and minerals. While working late one night to complete the footnotes for the financial statements, Raminov was looking for a file in his super-visor’s office and noticed a report regarding procedures for disposing of plant wastes. According to handwritten notes on the face of the report, CMMC had been using a residential landfill in a nearby town-ship to dump toxic coal cleaning fluid wastes over a considerable period of time. The report stated that locating a new dump site was urgent because the current one was nearing capacity.

Raminov realized that it was possible CMMC had been improperly disposing of highly toxic fluids in a landfill that was restricted to residential refuse. Besides the obvious hazards to residents of the area, there could be legal problems if and when the authorities were notified. The financial consequences of clean-up actions, as well as the loss of CMMC's generally good environmental reputation, could be catastrophic for the company.

Raminov asked his supervisor how this item was to be included in the footnotes and inquired whether an accrual for clean-up costs was anticipated. His supervisor told him to “forget about this matter” and that he had no intention of mentioning one word about waste disposal in this year's financial statements.

Required: A. Using the categories outlined in IMA’s Standards of Ethical Pro-

fessional Practice, identify the standards that are specifically re-levant to Alex Raminov’s ethical conflict and explain why the standards are applicable to the situation.

B. According to the IMA’s Standards of Ethical Professional Practice,

what further steps, if any, should Raminov take in resolving his ethical dilemma?

C. If he continues to be rebuffed by his employer, should Raminov

notify the appropriate authorities? Should he anonymously re-lease the information to the local newspaper? Explain your an-swers.