1

IMA
®
For Self-Study Users
As of July 1, 2010

The items below pertain to updates for the CMA
®
Exam Prep Products (V 3.0) and cover updates
relevant to the Self Study Textbooks Part 1 and/or Part 2. Each item is identified by product (such
as Textbook Part 1 or 2), and the associated text page/slide number. Please review these items
and adjust your materials to ensure complete information when preparing for the CMA exam.

To ensure you are kept abreast of further changes, the updates and errata notification will be
available on IMA
®
’s Learning Center (LC) with a posting date. You may access the notification by
logging onto the IMA website (imanet.org) using your IMA member number and password and
click Learning Center. Once on the Learning Center, launch your CMA Exam product, click the
“Resources” tab for OIR or “Attachments” in the Practice Test Overview course to access the

CMALS TEXTBOOK PART 1: Financial Planning, Performance and Control

Page 55: Figure 1A-23
 Under column 1, line “Total cost of resin purchases,” delete reference (see Fig. 2-10).

Page 124: Paragraph near end of page starting with “Continuing the prior example…”
 Change reference (see Figure 1B-5) to read (see Figure 1B-4).

Page 140: Knowledge Check Answers: Cost and Variance Measures
 For answer #4, add reference (See Page 124) at end of question.

Page 151: Knowledge Check: Responsibility Centers and Reporting Segments
 For question #3 under Description Column, change 3
rd
managers to manipulate how costs are allocated” (description is not: “Determines the
relative proportions of costs for each party that shares a common cost, and allocates the
costs by those percentages”).

Page 185/186: Question 1B1-CQ08
 Change Feedback: The correct answer is c: \$33,000 favorable (not “d: \$33,000
unfavorable”).
 Add to last sentence in Feedback (top of pg. 186) so it reads: LRV = -\$33,000 favorable
which makes the labor price (rate) variance \$33,000 favorable.

Page 187/188: Question 1B1-CQ11
 Change Feedback on page 188: Third paragraph should read “Budgeted overhead at the
actual direct labor hours use = (\$1,500,000) + (430,000 hours) (\$0.50 per direct labor
hour).

Page 191: Questions 1B3-CQ01
 Change Feedback, 4th sentence down to read “Percent of ROI achieved = (20 -16) / (16)
= 25%.

2
Page 202: Under Figure 1C-4: Total Cost and the Effect of Capacity Limits
 Change second sentence in Structural Cost Drivers paragraph to read: “There are four
types of structural cost drivers: scale, experience level, technology, and complexity.”

Page 313: Question 1C2-CQ12
 Change word “shirms” to read “shirts” in sentences 2, 4, and 5.
 Change word “shirms” to read “shirts” in Feedback.

Page 328: The steps in TDRA (bottom of page)
 Change Step 3 in the TDRA process to read “entity-level” (not entry-level) controls…
 Change Step 4 in the TDRA process to read “entity-level” (not entry-level) control
failures.

Page 404: Notes:
 Change Note [1] to read “Direct labor overhead of \$560,000 (not \$156,000) / \$80,000
total direct labor hours = \$7.00 per direct labor hour.”

Page 420: Question 1B-ES05 Unit Cost Structure
 Change figure formats under Extraction Division and Pet Products Division

Transfer price for clay
Material cost
Labor cost
Total cost per unit

\$4.00
6.00
11.00*
\$21.00
Extraction
Division
Pet Products
Division
\$22.00
2.00
4.00
7.00**
\$35.00
*Overhead in the extraction division is 25% fixed and 75% variable.
**Overhead in the Pet Products Division is 65% fixed and 35% variable.

Page 441: Answer to Question 1B-ES05 (on previous page)
 Change Volume under Extraction Division and Pet Products Division to 500,000 (not
Selling price
Less variable costs
Material cost
Labor cost
Transfer price
Unit contribution margin
Volume
Total contribution margin
Results of Using Market-Based Transfer Pricing
\$26.00
\$4.00
\$6.00
\$8.25

\$7.75
X 500,000
\$3,875,000.00
Extraction
Division
Pet Products
Division
\$42.00
\$2.00
\$4.00
\$2.45
\$26.00
\$7.55
X 500,000
\$3,775,000.00
*Variable overhead = \$11 x 75% = \$8.25.
**Variable overhead = \$7 x 35% = \$2.45.
*
**

3
CMALS TEXTBOOK PART 2: Financial Decision Making

Page 2: First paragraph, 2
nd
sentence
 Change sentence to read “Financial statement analysis is performed (not performance)
by stockholders and creditors, and…”

Page 17: Formula for Quick (Acid-Test) Ratio
 Change formula in formula box to:
Quick (Acid-Test) Ratio = Cash + Marketable Securities + Accounts Receivable
Current Liabilities

Note: The formula for the Quick (Acid-Test) Ratio that will be used on the CMA exam
was changed after these materials were finalized.

Pages 31/32: Knowledge Check Answers: Financial Performance Metrics – Financial Ratios
 Change Answer #3 to reflect updated formula for quick (acid-test) ratio. Answer should
read: “XYC’s acid-test ratio for Y2 is 1.27 (not 1.544); its acid-test ratio for Y1 is 1.34”
(not 1.389) (see pg. 17).
 Update calculations:

Y2:
\$24,628 + \$429,949
Y1:
\$36,125 + \$385,273

\$358,821 \$314,393
Note: The numerator for this formula should not include any prepaid expenses or
accruals.

Question #5 (pg. 29): Correct Answer is #7 (pg. 31)
Question #6 (pg. 30): Correct Answer is #8 (pg. 31)
Question #7 (pg. 30): Correct Answer is #9 (pg. 32)
Question #8 (pg. 30): Correct Answer is #5 (pg. 31)
Question #9 (pg. 30): Correct Answer is #6 (pg. 31)

Page 35: Diluted Earnings per Share
 Change the sample calculation for the Fully Diluted EPS numerator to read \$50,000,000 -
\$5,000,000 + \$30,000 (not \$50,000).

Fully Diluted EPS =
\$50,000,000 - \$5,000,000 + \$30,000

\$3,920,000 + 50,000 + 1,000,000

= \$9.11 per Fully Diluted Share (not \$9.06) per Fully Diluted Share

Page 47: Accounting Methods, 2
nd
Paragraph – 2
nd
Sentence
 Change sentence to read “For the same underlying economic event, use of LIFO, under
certain assumptions of increasing inventory units and prices, yields lower (not higher)
income than FIFO inventory valuation method.

Page 64: Sales Denominated in FC
 Change January 16
th
entry cash of \$13,400 to the debit column:

January 16:
Cash (fc) 13,400
Acc. Rec. (fc) 13,300
Exchange Gain 100
Calculations: (€20,000 x \$0.67 = \$13,400)
(\$13,200 + \$100 = \$13,300); see numbers in first two journal entries.

4
Page 85: Feedback to Q2A2-CQ29
 Change P/E Ratio, year 2 = \$60/ \$3 = \$20 (not \$60/\$2 = 20).

Page 100: Delete asterisk in last column on the right in the table at the bottom of the page:

P
i
R
i,1
R
i,2
(R
i,1
) – E(R
1
) (R
i,2
) – E(R
2
) P
i
[(R
i,1
) – E(R
1
)][ (R
i,2
) – E(R
2
)]
0.25 0.06 0.25 –0.100 0.125 –0.00313
0.50 0.16 0.10 0.00 –0.025 0.00000
0.25 0.26 0.05 +0.100 –0.075 –0.00188
( ) ( )
n
1, 2 i i, 1 1 i, 2 2
i 1
Cov {P R E R R E R }
=
( (
= ÷ ÷
¸ ¸ ¸ ¸
¿
= –0.00501

Page 124: Figure 2B-7: Common Types of Bonds
 Change first bullet under Government Bonds description to read “Backed by the full faith
and credit of the U.S. government”.

Page 127: Figure 2B-8: Moody’s and Standard & Poor’s Bond Ratings
 Change 2nd bullet under figure 2B-8 to read “U.S. Treasury bonds are rated AAA
because they are backed by the full faith and credit of the U.S. government.”

Page 127: Bond Yields
 Change sentence to read “A bond’s coupon rate never changes (except with step up
bonds) but inflation and changes in market interest rates affect the value of a bond.”

Page 153: For Example:
 Change 3rd bullet to read “Party A has a better credit rating than Party B and pays lower
interest rates than in fixed and floating markets.
 Change 4th bullet to read “Party B pays more than Party A (not B) in markets but
relatively less in the floating-rate market at a floating rate of the (LIBOR) plus 1
percentage point.

Page 159: Knowledge Check Answers: Financial Instruments (starts on prior page)
 Change answer for #9 to d: moves inversely to market interest rate changes.
(answer is not c: is independent of market interest rates).

Page 169: For Example
 Change 5th sentence to read “structure of 40% debt, 10% preferred, and 50% equity,
what is the breakpoint for retained”

Page 219: Step 1
 Change 3rd bullet to read “The present value of the tax shields (not depreciation) would
be \$29,568 [\$8,000 x 3.696 (present value of annuity for i=11% and n=5 periods)].

5
Page 222: Figure 2B-24: NAL Calculation
 Delete 6,000 from row 6, column (3):

Figure 2B-24: NAL Calculation
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(1) (2) (3) (4) (5) (6)
(7) =
(2) – (3) –
(5) + (6)
(8)
(9) =
(7) x(8)
(10) (10) (12)
(13) =
(9) – (12)
0 \$50,000 \$6,000 \$44,000 1.000 \$44,000 \$44,000
1 6,000 \$10,000 \$4,000 \$450 –9,550 .943 –9,006 –9,006
2 6,000 16,000 6,400 450 –11,950 .890 –10,636 –10,636
3 6,000 9,600 3,840 450 –9,390 .840 –7,888 –7,888
4 6,000 5,760 2,304 450 –7,854 .792 –6,220 –6,220
5 6,000 5,760 2,304 450 –7,854 .747 –5,867 –5,867
6 2,880 1,152 450 –702 .705 –495
\$12,00
0
.43
2
\$5,18
4
–5,679
–1,296
Column (3) = \$10,000(1 – tax rate) = \$10,000(1 – 0.4) = 10,000(0.6) = \$6,000
Column (5) numbers equal column (4) multiplied by the tax rate of 40%

Page 259: Knowledge Check Answers: International Finance
 Answer to #1 is d: The exchange rate of U.S. dollars for euros has increased from
1.25 to 1.40 (answer is not b: The exchange rate of U.S. dollars for euros has decreased
from 1.25 to 1.40).

Page 264/265: Question 2B3-CQ01
 Change Feedback (top of page 265) to read “Cost of preferred stock capital = \$8/\$92-\$5=
9.2%.

Page 292: Under Figure 2C-9: Budget Projections at Break-Even
 Change first sentence to read “Using data from Figure 2C-9, the \$10,500 (not \$26,250) of
total revenues is broken down between Product A and B as follows: 76.2% for A
(\$8,000/\$10,500) (not \$20,000/\$26,250) and 23.8% for B (\$2,500/\$10,500) (not
\$6,250/\$26,250).

Page 305: Sell or Process Further
 Change 2nd sentence, 3rd paragraph to read “For example, “gasoline, diesel fuel, and
heating oil are three joint products that are prepared (refined) from crude oil.”

6
Page 312: Question #5
 Change 1st sentence of question to read “Given the following for the four (not three)
produced by Huron Machining, which…

Page 356: Question 2C1-CQ02
 Change first sentence to read: “Edwards Products has just developed a new product with
a variable manufacturing cost of \$30 per unit”.
 Move up to Approach Z description, “Rely on wholesalers to handle the product.
Edwards would sell the new product to the wholesalers at \$32 per unit and incur no
selling expenses. Estimated annual sales would 14,000 units.”

Page 367: Question 2C3-CQ03 (starts on prior page)
 Change answer for “The income elasticity of demand for LSTs to c. 1.8 (instead of 2.0)
 Change Feedback to read: The correct answer is: c. 1.8 (not 2.0).
 Under Feedback, correct calculations are:
% change in sales = (28,000 – 20,000) / 24,000 = 8,000 / 24,000 = 0.33
% change in income = (\$60,000 - \$50,000) / \$55,000 = \$10,000 / \$55,000 = 0.18
Income elasticity of demand = 0.33 / 0.18 = 1.83.

Note: The above calculations are consistent with the CMA exam’s use of the “midpoint
formula” approach to calculate elasticity of demand, as explained on page 332.

Page 386: For Example: (top of page)
 Change last sentence to “Thus the depreciation charge for year 2 would be: (0.20)
\$8,000 = \$1,600” (not (0.20)\$10,000=\$2,000).

Page 410: Capital Rationing
 Change second sentence in first paragraph under figure 2D-20 to read “Although projects
B and C individually have lower NPVs than project A, they collectively have the higher
NPV (\$28,000 for B and C versus \$21,400 for A)” (not \$21,000 for A).

Page 411: Profitability Index: Figure 2D-21:
 Change figures in Columns PV of Future Cash Flows(2) and Profitability Index (2)/(1) as
follows:
Figure 2D-21: Profitability Index
Project Total Initial
Investment (1)
PV of Future Cash
Flows (2)
Profitability Index
(2)/(1)
A \$10,000 \$31,400 3.14
B 5,000 21,065 4.21
C 5,000 16,935 3.39
Note: The numbers used in column 2 reflect the present value of the future cash flows
only, not the net present value of the entire investment project.

7
Page 416: Knowledge Check Answers: Ranking Investment Projects
 Calculations to NPV in Question 2:
NPV of Project A: -\$15,000 + (\$10,000 x 0.9434) + (\$15,000 x 0.890) = \$7,784
NPV of Project B: -\$5,000 + (\$5,000 x 0.9434) + (\$10,000 x 0.890) = \$8,617
NPV of Project C: -\$5,000 + (\$8,000 x 0.9434) + (\$7,000 x 0.890) = \$8,777
NPV of Project D: -\$10,000 + (-\$10,000 x 0.9434) + (\$4,000 x 0.890) = -\$15,874

 Question 3: Changes to chart
Change figure for project D (row 4) of Cash Inflow Year 1 column to (10,000)
Change values in Net Present Value (NPV) column to reflect impact of initial
investment (cash flow in Year 0) for project A, B, C, D

Project

Cash Inflow
Year 0
Cash Inflow
Year 1
Cash Inflow
Year 2
Net Present
Value (NPV)
at 6%
Profitability
Index (PI)
A (\$15,000) \$10,000 \$15,000 \$7,784 1.519
B (5,000) 5,000 10,000 8,617 2.723
C (5,000) 8,000 7,000 8,777 2.755
D (10,000) (10,000) 4,000 (15,874) (0.587)

 Calculations to compute Profitability Index (PI) in Question 3:
PV of Project A: (\$10,000 x 0.9434) + (\$15,000 x 0.890) = \$22.784
PV of Project B: (\$5,000 x 0.9434) + (\$10,000 x 0.890) = \$13,617
PV of Project C: (\$8,000 x 0.9434) + (\$7,000 x 0.890) = \$13,777
PV of Project D: (-\$10,000 x 0.9434) + (\$4,000 x 0.890) = -\$5,874

PI of Project A: \$22.784 / \$15,000 = 1.519
PI of Project B: \$13,617 / \$5,000 = 2.723
PI of Project C: \$13,777 / \$5,000 = 2.755
PI of Project D: -\$5,874 / \$10,000 = -0.587

Change P/E ratios to remove \$ signs as follows:

\$10,000,000
Previous Year EPS =
15,000,000
=
\$0.67
per
share

\$15.00
Trailing P/E =
\$0.67
=
22.39 x
earnings

\$15.00
\$1.00
=
15.00 x
earnings

Page 488: Online Demo
 Delete last 2 sentences in paragraph.

Page 494: Notes:
 Change Note [1] to read “Direct labor overhead of \$560,000 (not \$156,000) / \$80,000
total direct labor hours = \$7.00 per direct labor hour.”