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 questions 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 window 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 questions 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 international 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

HOCK international www.hockinternational.com

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 metropolitan 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 MRCs net cash
flow position. They have asked the clubs financial manager to prepare a projected cash budget based on a proposed revised fee structure. 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 because 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 quarterly 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

100

700

5,000

7,000

70

330

2,000

4,000

50

150

1,000

2,000

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 estimated at $15 per hour of total court usage time.

2010 CMA Part 1

Practice Question #1
Cash Budgeting
Required:
A. Prepare MRCs cash budget for the third quarter. Assume the
opening cash balance is $186,000, that membership at the beginning of the quarter is 2,000, and that the change to the new
pricing structure will be implemented. Include supporting calculations 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 managed 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 predetermined plant-wide rate; the size of the space occupied varies considerably 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
Units
Revenue

Budget

Variance

3,000

2,500

500F

$161,000

$137,500

$23,500F

23,10

20,000

3,100U

Variable production costs:

Direct material

18,300

15,000

3,300U

Machine time

Direct labor

19,200

16,250

2,950U

Factory overhead

41,000

35,000

6,000U

Indirect labor

9,400

6,000

3,400U

Depreciation

5,500

5,500

Taxes

2,400

2,300

100U

Insurance

4,500

4,500

12,000

9,000

3,000U

8,300

7,000

1,300U

Fixed production costs:

Administrative expense
Marketing expense
Research and development
Operating profit

6,000

4,500

1,500U

$ 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 buyers 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 following.
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 problem 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 industrial waste at the facility. In addition, he wants to be sure that all
occupational safety laws and environmental issues are being properly addressed. He has asked the companys internal auditor to conduct 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 concerns 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
Brawns manufacturing plant that would lessen the presidents
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 supervisors 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 township 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 IMAs Standards of Ethical Professional Practice, identify the standards that are specifically relevant to Alex Raminovs ethical conflict and explain why the
standards are applicable to the situation.
B. According to the IMAs 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 release the information to the local newspaper? Explain your answers.