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Question 1 - CMA 1291 H1 - Forecasting Techniques

A distinction between forecasting and planning

A. Arises because forecasting covers the short-term and planning does not.
B. Is that forecasts are used in planning.
C. Is that forecasting is a management activity whereas planning is a technical activity.
D. Is not valid because they are synonyms.

Question 2 - HOCK CMA-P1A5-09 - Top-Level Planning and Analysis

The balance sheet and income statement of the Grow 'n' Glow Manufacturing Company during the past year are as
follows (000 omitted):

BALANCE SHEET
Assets Liabilities
Cash $ 9,700 Accounts payable $ 3,000
Accounts receivable 15,300 Notes payable 10,000
Inventory 18,500 Accrued liabilities 6,000
Total current assets $ 43,500 Total current liabilities $ 19,000

Held-to-maturity securities $ 45,600 Long-term debt $ 35,600

Net fixed assets 32,200 Total liabilities $ 54,600
Total long-term assets $ 77,800
Equity
Total assets $121,300 Common stock $ 10,000
Additional paid-in capital 30,000
Retained earnings 26,700
Total equity $ 66,700

Total liabilities & equity $121,300

INCOME STATEMENT
Net sales $100,000
Cost of goods sold 66,200
Gross profit $ 33,800

Selling expense 16,400

General & admin. expense 11,200
EBIT $ 6,200
Net interest expense $ 1,200
EBT $ 5,000
Taxes @ 35% 1,750
Net income $ 3,250

The company paid dividends during the past year of $975. During the past year, fixed assets were being used at 85% of
capacity. In all other respects, the company was operating at full capacity.

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The company's dividend policy is that dividends will grow at a rate of 4% per year. The past year's interest rate on debt
was 5% on short-term debt and 7% on long-term debt. The held-to-maturity securities earn 4% return and are not
expected to change next year.

Sales for next year are projected to increase at the rate of 15%. Using the Forecasted Financial Statement approach,
how much additional financing will the company need next year? For the interest expense calculations, use the
beginning balance of outstanding loans and an interest rate that is 0.5% higher than the past year's interest rates.

(Hint: Since the company is operating at 100% of capacity in all respects except for fixed assets, and since
held-to-maturity securities are not expected to change, all incomes and expenses and all assets except for
held-to-maturity securities and fixed assets will increase by the same amount for the next year. To determine whether
fixed assets will increase and if so, by how much, determine how much sales could increase without requiring additional
fixed asset purchases and then compare that with forecasted sales for next year.)

A. $1,448
B. $455
C. $2,462
D. $5,175

Question 3 - CMA 1291 3-20 - Budget Methodologies

A continuous profit plan

A. Works best for a company that can reliably forecast events a year or more into the future.
B. Is a plan devised by a full-time planning staff.
C. Is a plan that is revised monthly or quarterly.
D. Is an annual plan that is part of a 5-year plan.

Question 4 - IMA 08-P2-34 - Budget Methodologies

Which one of the following best describes the order in which budgets should be prepared when developing the annual
master operating budget?

A. Production budget, direct material budget, revenue budget.

B. Production budget, revenue budget, direct material budget.
C. Revenue budget, direct material budget, production budget.
D. Revenue budget, production budget, direct material budget.

Question 5 - IMA 08-P2-47 - Budget Methodologies

Tidwell Corporation sells a single product for $20 per unit. All sales are on account, with 60% collected in the month of
sale and 40% collected in the following month. A partial schedule of cash collections for January through March of the
coming year reveals the following receipts for the period.
Cash Receipts
January February March
December receivables $32,000
From January sales 54,000 $36,000

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From February sales 66,000 $44,000

Other information includes the following:

• Inventories are maintained at 30% of the following month's sales.

• Assume that March sales total $150,000.

The number of units to be purchased in February is

A. 3,850 units.
B. 4,900 units.
C. 7,750 units.
D. 6,100 units.

Question 6 - CMA 1295 H1 - Budget Methodologies

Which one of the following statements regarding the difference between a flexible budget and a static budget is correct?

A. A flexible budget primarily is prepared for planning purposes, while a static budget is prepared for performance
evaluation.
B. A flexible budget includes only variable costs, whereas a static budget includes only fixed costs.
C. A flexible budget is established by operating management, while a static budget is determined by top management.
D. A flexible budget provides cost allowances for different levels of activity, whereas a static budget provides costs for
one level of activity.

Question 7 - CMA 1290 3-17 - Budget Methodologies

The operating budget process usually begins with the

A. Financial budget.
B. Sales budget.
C. Balance sheet.
D. Income statement.

Question 8 - CMA 1294 4-28 - Learning Curves

Seacraft Inc. received a request for a competitive bid for the sale of one of its unique boating products with a desired
modification. Seacraft is now in the process of manufacturing this product but with a slightly different modification for
another customer. These unique products are labor intensive and both will have long production runs. Which one of the
following methods should Seacraft use to estimate the cost of the new competitive bid?

A. Regression analysis.
B. Expected value analysis.
C. Learning curve analysis.
D. Continuous probability simulation.

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Question 9 - CMA 1295 H4 - Budget Methodologies

When preparing the series of annual operating budgets, management usually starts the process with the

A. Capital budget.
B. Balance sheet.
C. Cash budget.
D. Sales budget.

Question 10 - CMA 1289 4-25 - Budget Methodologies

Birch Corporation has the following historical pattern on its credit sales.

70% collected in month of sale

15% collected in the first month after sale
10% collected in the second month after sale
4% collected in the third month after sale
1% uncollectible

The sales on open account have been budgeted for the first 6 months of the year are as follows:

Sales On
Month
Open Account
January $70,000
February 90,000
March 100,000
April 120,000
May 100,000
June 90,000

The estimated total cash collections during the second calendar quarter from sales made on open account during the
second calendar quarter would be

A. $310,000
B. $262,000
C. $306,900
D. $288,800

Question 11 - CMA 1291 3-25 - Budget Methodologies

Information pertaining to Noskey Corporation's sales revenue is presented in the following table.

November December January

Year 1 Year 1 Year 2
(Actual) (Budget) (Budget)
Cash sales $80,000 $100,000 $60,000

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Credit sales 240,000 360,000 180,000

Total sales $320,000 $460,000 $240,000

Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 60% are
collected in the month of sale and the remainder in the month following the sale. Purchases of inventory are equal to
next month's sales and gross profit margin is 30%. All purchases of inventory are on account; 25% are paid in the month
of purchase, and the remainder are paid in the month following the purchase.

Noskey Corporation's budgeted total cash payments in December Year 1 for inventory purchases are

A. $283,500
B. $168,000
C. $405,000
D. $220,500

Question 12 - IMA 08-P2-39 - Planning and Budgeting Concepts

Hannon Retailing Company prices its products by adding 30% to its cost. Hannon anticipates sales of $715,000 in July,
$728,000 in August, and $624,000 in September. Hannon's policy is to have on hand enough inventory at the end of the
month to cover 25% of the next month's sales. What will be the cost of the inventory that Hannon should budget for
purchase in August?

A. $680,000
B. $540,000
C. $560,000
D. $509,600

Question 13 - CMA 1291 H2 - Budget Methodologies

A planning calendar in budgeting is the

A. Calendar period covered by the annual budget and the long-range plan.
B. Sales forecast by months in the annual budget period.
C. Calendar period covered by the budget.
D. Schedule of activities for the development and adoption of the budget.

Question 14 - CMA 688 5-8 - Learning Curves

LCB, Inc. is preparing a bid to the Department of the Navy to produce engines for rescue boats. The company has
manufactured these engines for the Navy for the past 3 years, on an exclusive contract, and has experienced the
following costs:

Cumulative Total Cumulative

Units Cumulative Labor
Produced Materials Costs
10 $ 60,000 $120,000
20 120,000 192,000

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40 240,000 307,200

At LCB, variable overhead is applied on the basis of $1.00 per direct labor dollar. Based on historical costs, LCB knows
that the production of 40 engines will be allocated $100,000 of fixed overhead costs. The bid request is for an additional
40 units; all companies submitting bids are allowed to charge a maximum of 25% above full cost for each order.

The maximum bid price that LCB, Inc. could submit to the Department of the Navy for the 40 units is

A. $885,800.
B. $760,800.
C. $708,640.
D. $608,640.

Question 15 - CMA 1294 H4 - Budget Methodologies

A continuous (rolling) budget

A. Presents the plan for only one level of activity and does not adjust to changes in the level of activity.
B. Presents the plan for a range of activity so that the plan can be adjusted for changes in activity.
C. Presents planned activities for a period but does not present a firm commitment.
D. Drops the current month or quarter and adds a future month or quarter as the current month or quarter is completed.

Question 16 - IMA 08-P2-22 - Planning and Budgeting Concepts

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

A. lowest purchase price in the anticipated range to keep pressure on purchasing to always buy in the lowest price range.
B. price agreed upon by the purchasing manager and the appropriate level of company management.
C. highest price in the anticipated range to insure that there are only favorable purchase price variances.
D. current actual cost plus the forecasted 10% price increase.

Question 17 - CMA 691 1-9 - Budget Methodologies

The most direct way to prepare a cash budget for a manufacturing firm is to include

A. Projected sales, credit terms, and net income.

B. Projected sales and purchases, percentages of collections, and terms of payments.
C. Projected net income, depreciation, and goodwill impairment.
D. Projected purchases, percentages of purchases paid, and net income.

Question 18 - CMA 692 3-8 - Budget Methodologies

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The budget that is usually the most difficult to forecast is the

A. Production budget.
B. Sales budget.
C. Manufacturing overhead budget.
D. Expense budget.

Question 19 - HOCK CMA-P1A5-05 - Top-Level Planning and Analysis

Increases in sales generally cause spontaneous increases in some liability and net worth lines on the balance sheet.
The liability and net worth items that increase spontaneously with increases in sales include all of the following except

A. retained earnings.
B. notes payable.
C. accrued salaries and wages.
D. accounts payable.

Question 20 - HOCK CMA P3A H7 - Planning and Budgeting Concepts

Which one of the following management considerations does the company usually address first in strategic planning?

A. Outsourcing.
B. Overall objectives of the company.
C. Recent annual budgets.
D. Structure of the organization.

Question 21 - CMA 1291 3-13 - Budget Methodologies

A flexible budget is appropriate for

A. Any level of activity.

B. Control of direct labor and direct materials but not fixed factory overhead.
C. Control of direct materials and direct labor but not selling and administrative expenses.
D. Control of fixed factory overhead but not direct materials and direct labor.

Question 22 - CMA 691 3-1 - Budget Methodologies

Wilson Company uses a comprehensive planning and budgeting system. The proper order for Wilson to prepare certain
budget schedules would be

A. Statement of cash flows, cost of goods sold, income statement, and balance sheet.
B. Cost of goods sold, income statement, balance sheet, and statement of cash flows.
C. Cost of goods sold, balance sheet, income statement, and statement of cash flows.
D. Income statement, balance sheet, statement of cash flows, and cost of goods sold.

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Question 23 - IMA 08-P2-19 - Planning and Budgeting Concepts

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):

A. Engineering approach.
B. Imposed approach.
C. Team development approach.
D. Centralized top-down approach.

Question 24 - CMA 1288 5-19 - Learning Curves

Moss Point Manufacturing recently completed and sold an order of 50 units that had costs as follows.

Direct materials $1,500

Direct labor (1,000 hours x $8.50) 8,500
Variable overhead (1,000 hours x $4.00)* 4,000
Fixed overhead** 1,400
$15,400

*Applied on the basis of direct labor hours.

**Applied at the rate of 10% of variable cost.

The company has now been requested to prepare a bid for 150 units of the same product.

If an 80% learning curve is applicable, Moss Point's total cost on this order would be estimated at

A. $38,000.
B. $26,400.
C. $41,800
D. $32,000.

Question 25 - CMA 692 3-26 - Budget Methodologies

Berol Company plans to sell 200,000 units of finished product in July and anticipates a growth rate in sales of 5% per
month. The desired monthly ending inventory in units of finished product is 80% of the next month's estimated sales.
There are 150,000 finished units in inventory on June 30. Each unit of finished product requires 4 pounds of direct
materials at a cost of $1.20 per pound. There are 800,000 pounds of direct materials in inventory on June 30.

Assume Berol Company plans to produce 600,000 units of finished product in the 3-month period ending September 30,
and to have direct materials inventory on hand at the end of the 3-month period equal to 25% of the use in that period.
The estimated cost of direct materials purchases for the 3-month period ending September 30 is

A. $2,200,000.
B. $2,880,000.
C. $2,640,000.
D. $2,400,000.

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Question 26 - CMA 1290 4-28 - Forecasting Techniques

The letter x in the standard regression equation is best described as a(n)

A. Dependent variable.
B. Constant coefficient.
C. Independent variable.
D. Coefficient of determination.

Question 27 - CMA 691 4-1 - Risk, Uncertainty and Expected Value

The Booster Club at Blair College sells hot dogs at home basketball games. The group has a frequency distribution of
the demand for hot dogs per game and plans to apply the expected value decision rule to determine the number of hot
dogs to stock.

The expected monetary value of an act is the

A. Sum of the conditional opportunity loss of each event times the probability of each event occurring.
B. Sum of the conditional profit (loss) for each event.
C. Sum of the products of the conditional profit (loss) for each event multiplied by the probability of each event's
occurrence.
D. Conditional profit (loss) for the best event times the probability of each event's occurrence.

Question 28 - CMA 1292 H4 - Budget Methodologies

A budget manual, which enhances the operation of a budget system, is most likely to include

A. Documentation of the accounting system software.

B. A chart of accounts.
C. Distribution instructions for budget schedules.
D. Employee hiring policies.

Question 29 - CMA 1291 3-22 - Budget Methodologies

A systemized approach known as zero-base budgeting (ZBB)

A. Divides the activities of individual responsibility centers into a series of packages that are prioritized.
B. Classifies budget requests by activity and estimates the benefits arising from each activity.
C. Presents the plan for only one level of activity and does not adjust to changes in the level of activity.
D. Presents a statement of expectations for a period of time but does not present a firm commitment.

Question 30 - IMA 08-P3-01 - Planning and Budgeting Concepts

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Cerawell Products Company is a ceramics manufacturer that is facing several challenges in its operations. Which one
of the following is subject to the least control by the management of Cerawell in the current fiscal year?

A. Experienced employees have decided to terminate their employment with Cerawell and go to work for the competition.
B. A competitor has achieved an unexpected technological breakthrough that has given them a significant quality
advantage, and has caused Cerawell to lose market share.
C. A new machine that was purchased this year has not helped reduce Cerawell’s unfavorable labor efficiency variances.
D. Vendors have asked that the contract price for the goods they supply to Cerawell be renegotiated and adjusted for
inflation.

Question 31 - CMA 1289 5-20 - Risk, Uncertainty and Expected Value

The College Honor Society sells hot pretzels at the home football games.

The frequency distribution of the demand for pretzels per game is presented as follows:

United Sales Volume Probability

2,000 pretzels .10
3,000 pretzels .15
4,000 pretzels .20
5,000 pretzels .35
6,000 pretzels .20

The pretzels are sold for $1.00 each, and the cost per pretzel is $.30. Any unsold pretzels are discarded because they
will be stale before the next home game.

The estimated demand for pretzels at the next home football game using an expected value approach is

A. 5,000 pretzels.
B. 4,400 pretzels.
C. Some amount other than those given.
D. 4,000 pretzels.

Question 32 - CIA 590 IV-12 - Budget Methodologies

A firm desires a finished goods ending inventory equal to 25% of the following month's budgeted sales. January sales
are budgeted at 10,000 units and February at 12,000 units. Each unit requires 2 pounds of Material X, which costs $4
per pound. The company has a just-in-time system and materials are delivered daily just prior to use, so no raw
materials inventories are maintained. Materials are paid for in the month following purchase. The January 1 finished
goods inventory is 2,500 units. In February, what amount should the company expect to pay as a cash outflow for raw
materials?

A. $21,000
B. $42,000
C. $40,000
D. $84,000

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Question 33 - CMA 1294 3-9 - Budget Methodologies

Super Drive, a computer disk storage and back-up company, uses accrual accounting. The company's Statement of
Financial Position for the year ended November 30, is as follows:

Super Drive
Statement of Financial Position
November 30
Assets
Cash $52,000
Accounts receivable, net. 150,000
Inventory 315,000
Property, plant and equipment 1,000,000
Total assets $1,517,000
Liabilities and Equity
Accounts payable $175,000
Common stock 900,000
Retained earnings 442,000
Total liabilities and shareholders equity $1,517,000

Additional information regarding Super Drive's operations include the following:

Sales are budgeted at $520,000 for December and $500,000 for January of the next year.
Collections are expected to be 60% in the month of sale and 40% in the month following the sale.
80% of the disk drive components are purchased in the month prior to the month of sale, and 20% are purchased
in the month of sale. Purchased components are 40% of the cost of goods sold.
Payment for the components is made in the month following the purchase.
Cost of goods sold is 80% of sales.

The projected gross profit for the month ending December 31 is

A. $134,000
B. $536,000
C. $104,000
D. $416,000

Question 34 - CMA 692 3-27 - Budget Methodologies

Esplanade Company, which has the following historical pattern for its credit sales:
70% collected in month of sale
15% collected in the first month after sale
10% collected in the second month after sale
4% collected in the third month after sale
1% uncollectible

The sales on open account have been budgeted for the last 6 months of the year as shown below.

July $60,000
August 70,000
September 80,000

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October 90,000
November 100,000
December 85,000

The estimated total cash collections during October from accounts receivable would be

A. $63,000.
B. $86,700.
C. $21,400.
D. $84,400.

Question 35 - CMA 1288 5-20 - Learning Curves

Moss Point Manufacturing recently completed and sold an order of 50 units which that had the following costs.

Direct materials $ 1,500

Direct labor (1,000 hours x $8.50) $ 8,500
Variable overhead (1,000 hours x $4.00)* $ 4,000
Fixed overhead ** $ 1,400
$15,400

* Applied on the basis of direct labor hours

** Applied at the rate of 10% of variable cost

If Moss Point had experienced a 70% learning curve, the bid for the 150 units would

A. Show a 30% reduction in the total direct labor hours required with no learning curve.
B. Include 6.40 direct labor hours per unit at $8.50 per hour.
C. Be 10% lower than the total bid at an 80% learning curve.
D. Include increased fixed overhead costs.

Question 36 - CMA 1290 3-14 - Planning and Budgeting Concepts

The use of budgetary slack does not allow the preparer to

A. Be flexible under unexpected circumstances.

B. Increase the probability of achieving budgeted performance.
C. Project actual expenses.
D. Use the budget to control subordinate performance.

Question 37 - CMA 1296 H7 - Budget Methodologies

Karmee Company has been accumulating operating data in order to prepare an annual profit plan. Details regarding
Karmee's sales for the first 6 months of the coming year are as follows:

Estimated Type of
Month
Monthly Sales Monthly Sale

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January $600,000
February 650,000
March 700,000 All Months:
Cash sales 20%
April 625,000 Credit sales 80%
May 720,000
June 800,000

Collection Pattern for Credit Sales

Month of sale 30%

One month following sale 40%
Second month following sale 25%

Karmee's cost of goods sold averages 40% of the sales value. Karmee's objective is to maintain a target inventory equal
to 30% of the next month's sales in units. Purchases of merchandise for resale are paid for in the month following the
sale. The variable operating expenses (other than cost of goods sold) for Karmee are 10% of sales and are paid for in
the month following the sale. The annual fixed operating expenses are presented below. All of these are incurred
uniformly throughout the year and paid monthly except for insurance and property taxes. Insurance is paid quarterly in
January, April, July, and October. Property taxes are paid twice a year in April and October.

Annual Fixed Operating Costs

Advertising $720,000
Depreciation 420,000
Insurance 180,000
Property taxes 240,000
Salaries 1,080,000

The amount for cost of goods sold that will appear on Karmee Company's budgeted income statement for the month of
February will be

A. $272,000
B. $260,000
C. $195,000
D. $254,000

Question 38 - CMA 1292 H2 - Budget Methodologies

Butteco has the following cost components for 100,000 units of product for the year.

Raw materials $200,000

Direct labor 100,000
Manufacturing overhead 200,000
Selling/administrative expense 150,000

All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative
expenses. The total costs to produce and sell 110,000 units are

A. $495,000.
B. $650,000.
C. $695,000.

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D. $715,000.

Question 39 - CMA 1283 4-24 - Budget Methodologies

Kelly Company is a retail sporting goods store that uses accrual accounting for its records. Facts regarding Kelly's
operations are as follows:
Sales are budgeted at $220,000 for December year 1 and $200,000 for January year 2.
Collections are expected to be 60% in the month of sale and 38% in the month following the sale.
Gross margin is 25% of sales.
A total of 80% of the merchandise held for resale is purchased in the month prior to the month of sale and 20% is
purchased in the month of sale. Payment for merchandise is made in the month following the purchase.
Other expected monthly expenses to be paid in cash are $22,600.
Annual depreciation is $216,000.

Below is Kelly Company's statement of financial position at November 30, year 1.

Assets
Cash $22,000
Accounts receivable
76,000
(net of $4,000 allowance for uncollectible accounts)
Inventory 132,000
Property, plant, and equipment (net of $680,000 accumulated deprecation) 870,000
Total assets $1,100,000
Liabilities and Stockholders' Equity
Accounts payable $162,000
Common stock 800,000
Retained earnings 138,000
Total liabilities and stockholders' equity $1,100,000

The projected balance in accounts payable on December 31, year 1 is

A. $162,000.
B. Some amount other than those given.
C. $204,000.
D. $153,000.

Question 40 - IMA 08-P2-32 - Budget Methodologies

What would be the correct chronological order of preparation for the following budgets?

I. Cost of goods sold budget.

II. Production budget.
III. Purchases budget.
IV. Administrative budget.

A. I, II, III, IV
B. II, III, I, IV
C. IV, II, III, I

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D. III, II, IV, I

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