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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control

(75 que stions)

[Fact Pattern #1] ProperPropeller,Inc.planstomanufactureanewlydesignedhigh-technologypropellerfor airplanes.ProperPropellerforecaststhatasworkersgainexperience,theywillneedlesstimeto completethejob.Basedonpriorexperience,ProperPropellerestimatesa70%cumulative learningcurveandhasprojectedthefollowingcosts. Cumulativenumber ofunitsproduced 1 2 ManufacturingProjections Averagecostperunit Totalcosts $20,000 $20,000 14,000 28,000

[1] Gleim #: 1.3.99 -- Source: CMA 0408 1-146 (ReferstoFactPattern#1) IfProperPropellerproduceseightunits,thetotalmanufacturingcostwillbe A. B. C. D. $62,643 $54,880 $112,000 $50,660 Answer(A)isincorrect.Theamountof$62,643resultsfromusinganincorrect learningcurve. Answer(B)iscorrect.Learningcurveanalysisisusedtoprojectproductivitygains resultingfromtheincreasedrateatwhichpeopleperformtasksastheygainexperience. Theunderlyingassumptionoflearningcurveanalysisisthatworkersgainproductivity atapredictablerateastheygainexperiencewithanewprocess.Inthissituation,the companyisassumingthatthetotalcostsrequiredforeachdoublingofoutputwillbe 70%ofthecostsrequiredforthepreviousdoubling.TheeffectsofProperPropellers projectedlearningcurvecanbecalculatedasfollows: Cumulative Units Produced 1 2 4 8 Cumulative Average Cost $20,000 $14,000($20,00070%) $9,800($14,00070%) $6,860($9,80070%) Cumulative Total Cost $20,000 28,000 39,200 54,880

Batch 1 2 3 4

Answer(C)isincorrect.Theamountof$112,000resultsfromignoringthelearning curveafterthesecondunit. Answer(D)isincorrect.Theamountof$50,660resultsfromimproperlysummingthe cumulativeaveragecostfigures.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[2] Gleim #: 1.1.28 -- Source: CMA 0408 2-010 Whichoneofthefollowingstatementsconcerningapproachesforthebudgetdevelopment processiscorrect? A. Sincedepartmentmanagershavethemostdetailedknowledgeaboutorganizational operations,theyshouldusethisinformationasthebuildingblocksoftheoperating budget. B. Thetop-downapproachtobudgetingwillnotensureadherencetostrategic organizationalgoals. C. Withtheinformationtechnologyavailable,theroleofbudgetsasanorganizational communicationdevicehasdeclined. D. Topreventambiguity,oncedepartmentalbudgetedgoalshavebeendeveloped,they shouldremainfixedevenifthesalesforecastuponwhichtheyarebasedprovestobe wronginthemiddleofthefiscalyear. Answer(A)iscorrect.Sincedepartmentmanagershavethemostdetailedknowledge aboutorganizationaloperations,theyshouldusethisinformationasthebuildingblocks oftheoperatingbudget. Answer(B)isincorrect.,whileatop-downapproachcanhelpmakestrategicgoals moreconsistent,itcannotensureadherence. Answer(C)isincorrect.informationtechnologymakesbudgetingeasier,notless relevantasameansoforganizationalcommunication. Answer(D)isincorrect.anybudgetshouldbeadaptedtochangingcircumstances. [3] Gleim #: 1.5.145 -- Source: CMA 0408 1-176 JohnsonSoftwarehasdevelopedanewsoftwarepackage.Johnsonssalesmanagerhas preparedthefollowingprobabilitydistributiondescribingtherelativelikelihoodofmonthly saleslevelsandrelativeincome(loss)forthecompanysnewsoftwarepackage. MonthlySales InUnits 10,000 20,000 30,000 40,000

Probability .2 .3 .3 .2

Income(Loss) $(4,000) 10,000 30,000 60,000

IfJohnsondecidestomarketitsnewsoftwarepackage,theexpectedvalueofadditional monthlyincomewillbe A. B. C. D. $25,000 $24,000 $24,800 $23,200

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.Theamountof$25,000resultsfromimproperlyweightingthe monthlysalesunits,ratherthantheincomeandlossfigures,bytheprobabilities. Answer(B)isincorrect.Theamountof$24,000resultsfromfailingtoaccountforthe $4,000lossatthe10,000-unitsaleslevel. Answer(C)isincorrect.Theamountof$24,800resultsfromimproperlytreatingthe$4,000 fromthe10,000-unitlevelasincomeratherthanasaloss. Answer(D)iscorrect.Expectedvalueisameansofassociatingadollaramountwitheach ofthepossibleoutcomesofaprobabilitydistribution.Theoutcomeyieldingthehighest expectedvalue(whichmayormaynotbethemostlikelyone)istheoptimalalternative.The expectedvalueofeachoutcome,andoftheprojectasawhole,canbedeterminedthrough thepreparationofapayofftable,asfollows: Monthly Sales InUnits 10,000 20,000 30,000 40,000

Probability .2 .3 .3 .2

Income (Loss) $(4,000) 10,000 30,000 60,000

= = = =

Expected Value $(800) 3,000 9,000 12,000 $23,200

[4] Gleim #: 1.2.62 -- Source: CMA 1289 4-11 Allofthefollowingareassumptionsunderlyingthevalidityoflinearregressionoutputexcept A. B. C. D. Thestandarddeviationoftheerrorsisconstant. Certainty. Themeanoftheerrorsiszero. Theerrorsarenormallydistributed. Answer(A)isincorrect.Itisanassumptionoftheregressionmodel. Answer(B)iscorrect.Linearregressionisbasedonseveralassumptions;forexample, thatthereisnochangeintheenvironment,thaterrorsinthevaluesofthedependent variablesarenormallydistributedwithameanofzero,thatthestandarddeviationof theseerrorsisconstant,thatthevaluesofthedependentvariablesarestatistically independentofeachother,andthattheindependentvariablesarenotcorrelatedwith eachother.However,regressionisonlyameansofpredictingthefuture;itcannot providecertainty. Answer(C)isincorrect.Itisanassumptionoftheregressionmodel. Answer(D)isincorrect.Itisanassumptionoftheregressionmodel.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[5] Gleim #: 1.2.65 -- Source: CMA 0408 1-137 Acompanyhasaccumulateddataforthelast24monthsinordertodetermineifthereisan independentvariablethatcouldbeusedtoestimateshippingcosts.Threepossible independentvariablesbeingconsideredarepackagesshipped,milesshipped,andpounds shipped.Thequantitativetechniquethatshouldbeusedtodeterminewhetheranyofthese independentvariablesmightprovideagoodestimateforshippingcostsis A. B. C. D. Linearprogramming. Linearregression. Flexiblebudgeting. Variablecosting. Answer(A)isincorrect.linearprogrammingisamathematicaltechniqueusedto optimizealinearfunctionsubjecttocertainconstraints. Answer(B)iscorrect.Regressionanalysis,alsocalledleast-squaresanalysis,isthe processofderivingthelinearequationthatdescribestherelationshipbetweentwo(or more)variableswithanonzerocoefficientofcorrelation. Answer(C)isincorrect.flexiblebudgetingisthecalculationofthequantityandcostof inputsthatshouldhavebeenconsumedgiventheachievedlevelofproduction. Answer(D)isincorrect.variablecostingisacostingtechniquethattreatsonlyvariable manufacturingcostsasproductcosts. [6] Gleim #: 1.1.27 -- Source: CMA 0408 2-008 Whichoneofthefollowingisnotanadvantageofaparticipatorybudgetingprocess? A. B. C. D. Communicationbetweendepartments. Coordinationbetweendepartments. Controlofuncertainties. Costcongruence. Answer(A)isincorrect.participatorybudgetinginvolvesextensivecommunication betweendepartments. Answer(B)isincorrect.participatorybudgetinginvolvesextensivecoordination betweendepartments. Answer(C)iscorrect.Uncertaintiescanbepreparedfor,buttheycannotbesubjected tohumancontrolthroughanybudgetprocess. Answer(D)isincorrect.goalcongruenceisoneoftheadvantagesofparticipatory budgeting.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[Fact Pattern #2] TheCollegeHonorSocietysellshot pretzelsatthehomefootballgames. Thepretzelsaresoldfor$1.00each, andthecostperpretzelis$.30.Any unsoldpretzelsarediscardedbecause theywillbestalebeforethenexthome game. Thefrequencydistributionofthedemandfor pretzelspergameispresentedasfollows. UnitSalesVolume 2,000pretzels 3,000pretzels 4,000pretzels 5,000pretzels 6,000pretzels Probability .10 .15 .20 .35 .20

[7] Gleim #: 1.5.126 -- Source: CMA 1289 5-21 (ReferstoFactPattern#2) Theestimateddemandforpretzelsatthenexthomefootballgameusingadeterministic approachbasedonthemostlikelyoutcomeis A. B. C. D. 4,000pretzels. 4,400pretzels. 6,000pretzels. 5,000pretzels. Answer(A)isincorrect.Thefigureof4,000pretzelsassumeseachoutcomeisequally likely. Answer(B)isincorrect.Theestimateddemandusinganexpectedvalueapproachis 4,400pretzels. Answer(C)isincorrect.Thefigureof6,000pretzelsismerelythegreatestdemand. Answer(D)iscorrect.Adeterministicapproachassumesthatavalueisknownwith certainty.Ifthatvalueisdeemedtobethemostlikelyoutcome,assumeddemandwill be5,000pretzels,thevolumewiththehighestprobability(35%). [8] Gleim #: 1.6.159 -- Source: CMA 0408 1-141 Whichoneofthefollowingtechniqueswouldmostlikelybeusedtoanalyzereductionsin thetimerequiredtoperformataskasexperiencewiththattaskincreases? A. B. C. D. Regressionanalysis. Sensitivityanalysis. Learningcurveanalysis. Normalprobabilityanalysis.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.regressionanalysis,alsocalledleast-squaresanalysis,istheprocess ofderivingthelinearequationthatdescribestherelationshipbetweentwo(ormore) variableswithanonzerocoefficientofcorrelation. Answer(B)isincorrect.sensitivityanalysisisusedtorevealhowsensitiveexpectedvalue calculationsaretotheaccuracyoftheinitialestimates. Answer(C)iscorrect.Learningcurveanalysisisusedtoprojectproductivitygainsresulting fromtheincreasedrateatwhichpeopleperformtasksastheygainexperience. Answer(D)isincorrect.normalprobabilityanalysisisusedtodeterminatewhetherthe distributionofasetofdataisstatisticallynormal. [9] Gleim #: 1.2.67 -- Source: CMA 0408 1-139 Inordertoanalyzesalesasafunctionofadvertisingexpenses,thesalesmanagerofSmith Companydevelopedasimpleregressionmodel.Themodelincludedthefollowingequation, whichwasbasedon32monthlyobservationsofsalesandadvertisingexpenseswitharelated coefficientofdeterminationof.90. Sales=$10,000+(2.5Advertisingexpenses) IfSmithCompanysadvertisingexpensesinonemonthamountedto$1,000,therelated pointestimateofsaleswouldbe A. B. C. D. $12,500 $11,250 $2,500 $12,250 Answer(A)iscorrect.Thesimpleregressionequationcanbesolvedasfollows: Sales = = = = $10,000+(2.5Advertisingexpenses) $10,000+(2.5$1,000) $10,000+$2,500 $12,500

Answer(B)isincorrect.Theamountof$11,250resultsfromimproperlymultiplying theanswerbythecoefficientofdetermination. Answer(C)isincorrect.Theamountof$2,500includesonlytheadvertisingexpense. Answer(D)isincorrect.Theamountof$12,250resultsfromimproperlyapplyingthe coefficientofdeterminationtotheadvertisingexpense.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[Fact Pattern #3] AcomputerstoresellsfourcomputermodelsdesignatedasP104,X104,A104,andS104.The storemanagerhasmaderandomnumberassignmentstorepresentcustomerchoicesbasedonpast salesdata.Theassignmentsareshownbelow. Model P104 X104 A104 S104 RandomNumbers 0-1 2-6 7-8 9

[10] Gleim #: 1.5.143 -- Source: CMA 688 5-26 (ReferstoFactPattern#3) Inrunningasimulationofthecomputerdemand,thefollowingnumbersaredrawnin sequence:2,8,and6.Thesimulationindicatesthatthethirdcustomerwillpurchase. A. B. C. D. ModelX104. ModelS104. ModelP104. ModelA104. Answer(A)iscorrect.Thethirdcustomerissimulatedbythethirdnumberdrawn. Therefore,thethirdcustomerspurchaseisrepresentedbythenumber6.Thenumbers 2through6correspondtomodelX104.Thus,thethirdcustomerisexpectedto purchasemodelX104. Answer(B)isincorrect.ModelS104correspondstonumber9. Answer(C)isincorrect.ModelP104correspondstonumbers0and1. Answer(D)isincorrect.ModelA104correspondstonumbers7and8.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[11] Gleim #: 1.1.30 -- Source: CMA 0408 2-012 MariettaThomas,AmadorCorporationsvicepresidentofplanning,hasseenandheardit all.Shehastoldthecorporatecontrollerthatsheis....veryupsetwiththedegreeofslack thatveteranmanagersusewhenpreparingtheirbudgets.Thomashasconsidered implementingsomeofthefollowingactivitiesduringthebudgetingprocess. 1. Developthebudgetsbytopmanagementandissuethemtolower-leveloperatingunits. 2. Studytheactualrevenuesandexpensesofpreviousperiodsindetail. 3. Havethebudgetsdevelopedbyoperatingunitsandacceptthemassubmittedbya company-widebudgetcommittee. 4. Sharethebudgetswithallemployeesasameanstoreachcompanygoalsand objectives. 5. Useaniterativebudgetingprocessthathasseveralroundsofchangesinitiatedby operatingunitsand/orseniormanagers. WhichoneoftheseactivitiesshouldAmadorimplementinordertobestremedyThomas concerns,helpeliminatetheproblemsexperiencedbyAmador,andmotivatepersonnel? A. B. C. D. 2,4,and5. 2and3. 1only. 2and4. Answer(A)iscorrect.Steps2,4,and5areappropriateforalleviatingAmadors budgetproblems.Step1shouldnotbeperformedbecauseabudgetimposedfromthe topismorelikelytoencounterresistance.Step3shouldnotbeperformedbecause operatingunitswilltendtoconsideronlytheirowninterestswhenpreparingbudgets. Answer(B)isincorrect.operatingunitswilltendtoconsideronlytheirowninterests whenpreparingbudgets. Answer(C)isincorrect.abudgetimposedfromthetopismorelikelytoencounter resistance. Answer(D)isincorrect.,whilestudyingpreviousperiodsandsharingthebudgetwith allemployeesareimportantstepstocorrectingAmadorsproblems,incrementally improvingthebudgetthroughaniterativeprocessisalsocrucial.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[Fact Pattern #4] StanBerryisconsideringsellingpeanutsattheKeeferHighSchoolfootballgames.Thepeanuts wouldcost$.50perbagandcouldbesoldfor$1.50perbag.Noothercostswouldbeincurredto sellthepeanuts.Allunsoldbagscanbereturnedtothesupplierfor$.30each.Berryestimatedthe demandforpeanutsateachfootballgameandconstructedthepayofftablethatfollows. Demand (Bags) 20 30 40 50 Probability ofDemand .2 .4 .3 .1 20 $20 $20 $20 $20 Action(BagstoStock) 30 $18 $30 $30 $30 40 $16 $28 $40 $40 50 $14 $26 $38 $50

[12] Gleim #: 1.5.140 -- Source: CMA 690 5-18 (ReferstoFactPattern#4) ThemaximumthatStanBerryshouldpayforperfectinformationsothathecouldalways stockthecorrectnumberofbagsofpeanutsis A. B. C. D. $30.00 $.80 $2.60 $10.40

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.ThemostStanwouldpayforperfectinformationisthedifference betweenexpectedprofitwithperfectinformationandexpectedprofitwithoutperfect information. Answer(B)isincorrect.ThemostStanwouldpayforperfectinformationisthedifference betweenexpectedprofitwithperfectinformationandexpectedprofitwithoutperfect information. Answer(C)iscorrect.Expectedvalueanalysisestimatesfuturemonetaryvaluebasedon forecastsandtheirrelatedprobabilitiesofoccurrence.Theexpectedvalueisfoundby multiplyingtheprobabilityofeachoutcomebyitspayoffandsummingtheproducts.The expectedvalueofperfectinformationisthedifferencebetweentheexpectedvalueunder certaintyandtheexpectedvalueoftheoptimaldecisionunderuncertainty.Theexpected valueundercertaintyequalsthesumoftheproductsoftheprofitmaximizingpayoffsof perfectforecastsandtherelatedprobabilities. 20%$20= 40%$30= 30%$40= 10%$50= Expectedpayoffwithperfectinfo. $4.00 12.00 12.00 5.00 $33.00

Thus,withperfectinformation,theproprietorcouldachieveanaverageprofitof$33per game.Withoutperfectinformation,theexpectedvalueisonly$30.40.Accordingly,upto $2.60couldbepaidforperfectinformation($33-$30.40). Answer(D)isincorrect.ThemostStanwouldpayforperfectinformationisthedifference betweenexpectedprofitwithperfectinformationandexpectedprofitwithoutperfect information. [13] Gleim #: 1.2.50 -- Source: CIA 595 II-46 Theinternalauditorofabankhasdevelopedamultipleregressionmodelwhichhasbeen usedforanumberofyearstoestimatetheamountofinterestincomefromcommercialloans. Duringthecurrentyear,theauditorappliesthemodelanddiscoversthatther2valuehas decreaseddramatically,butthemodelotherwiseseemstobeworkingokay.Whichofthe followingconclusionsarejustifiedbythechange? A. B. C. D. Changingtoacross-sectionalregressionanalysisshouldcauser 2toincrease. Regressionanalysisisnolongeranappropriatetechniquetoestimateinterestincome. Somenewfactors,notincludedinthemodel,arecausinginterestincometochange. Alinearregressionanalysiswouldincreasethemodelsreliability.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.Cross-sectionalregressionanalysisisinappropriate.Theauditoris tryingtoestimatechangesinasingleaccountbalanceovertime. Answer(B)isincorrect.Regressionanalysismaystillbethemostappropriatemethodology toestimateinterestincome,buttheauditorshouldfirstunderstandthefactorsthatmaybe causingr2todecrease.Thereasonmaybeasystematicerrorintheaccountbalance. Answer(C)iscorrect.Thecoefficientofdetermination(r2)istheamountofvariationin thedependentvariable(interestincome)thatisexplainedbytheindependentvariables.In thiscase,lessofthechangeininterestincomeisexplainedbythemodel.Thus,someother factormustbecausinginterestincometochange.Thischangemeritsauditinvestigation. Answer(D)isincorrect.Linearregressionmodelsaresimplermodels,buttheauditor shouldbesearchingforasystematicerrorintheaccountbalanceorapplyingamore complexmodel. [14] Gleim #: 1.2.64 -- Source: CMA 0408 1-136 Forcostestimation,simpleregressiondiffersfrommultipleregressioninthatsimple regressionusesonly A. Oneindependentvariable,whilemultipleregressionusesmorethanoneindependent variable. B. Onedependentvariable,whilemultipleregressionusesallavailabledatatoestimatethe costfunction. C. Dependentvariables,whilemultipleregressioncanusebothdependentandindependent variables. D. Onedependentvariable,whilemultipleregressionusesmorethanonedependent variable.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)iscorrect.Simpleregressionusesthealgebraicformulaforastraightline,y=a +bx,wherexistheindependentvariable.Multipleregressionisusedwhenthereismore thanoneindependentvariable.Multipleregressionallowsafirmtoidentifymanyfactors (independentvariables)andtoweighteachoneaccordingtoitsinfluencesontheoverall outcome(y=a+b1x1+b2x2+b3x3+etc.). Answer(B)isincorrect.simpleregressionusesthealgebraicformulaforastraightline,y= a+bx,wherexistheindependentvariable.Multipleregressionisusedwhenthereismore thanoneindependentvariable.Multipleregressionallowsafirmtoidentifymanyfactors (independentvariables)andtoweighteachoneaccordingtoitsinfluencesontheoverall outcome(y=a+b1x1+b2x2+b3x3+etc.). Answer(C)isincorrect.simpleregressionusesthealgebraicformulaforastraightline,y= a+bx,wherexistheindependentvariable.Multipleregressionisusedwhenthereismore thanoneindependentvariable.Multipleregressionallowsafirmtoidentifymanyfactors (independentvariables)andtoweighteachoneaccordingtoitsinfluencesontheoverall outcome(y=a+b1x1+b2x2+b3x3+etc.). Answer(D)isincorrect.simpleregressionusesthealgebraicformulaforastraightline,y= a+bx,wherexistheindependentvariable.Multipleregressionisusedwhenthereismore thanoneindependentvariable.Multipleregressionallowsafirmtoidentifymanyfactors (independentvariables)andtoweighteachoneaccordingtoitsinfluencesontheoverall outcome(y=a+b1x1+b2x2+b3x3+etc.).Bothmethodsuseonlyonedependentvariable. [15] Gleim #: 1.1.22 -- Source: CMA 0408 2-001 Allofthefollowingareadvantagesoftheuseofbudgetsinamanagementcontrolsystem exceptthatbudgets A. B. C. D. Limitunauthorizedexpenditures. Forcemanagementplanning. Promotecommunicationandcoordinationwithintheorganization. Provideperformancecriteria. Answer(A)iscorrect.Budgetsservemanyroles.Theyforcemanagementtoplan ahead,communicateorganizationalgoalsthroughouttheorganization,andprovide criteriaforfutureperformanceevaluations. Answer(B)isincorrect.forcingmanagementplanningisanadvantageofusing budgets. Answer(C)isincorrect.promotingcommunicationandcoordinationwithinthe organizationisanadvantageofusingbudgets. Answer(D)isincorrect.providingperformancecriteriaisanadvantageofusing budgets.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[16] Gleim #: 1.1.25 -- Source: CMA 0408 2-006 Allofthefollowingareadvantagesoftop-downbudgetingasopposedtoparticipatory budgeting,exceptthatit A. B. C. D. Increasescoordinationofdivisionalobjectives. Reducesthetimerequiredforbudgeting. Facilitatesimplementationofstrategicplans. Maylimittheacceptanceofproposedgoalsandobjectives. Answer(A)isincorrect.,sinceatop-downbudgetisimposedbyuppermanagement, coordinatingtheobjectivesofseparatedivisionsissimplified. Answer(B)isincorrect.,sinceatop-downbudgetiscoordinatedfromabove,itisless time-consumingthanobtaininglower-levelinput. Answer(C)isincorrect.,sinceatop-downbudgetiscoordinatedfromabove,the implementationofstrategicplansiscentralizedandthussimplified. Answer(D)iscorrect.Sinceatop-downbudgetisimposedbyuppermanagement,it haslesschanceofacceptance(alsocalledbuy-in)bythoseonwhomthebudgetis imposed. [17] Gleim #: 1.3.97 -- Source: CMA 0408 1-144 Amanufacturingcompanyhastheopportunitytosubmitabidfor20unitsofaproducton whichithasalreadyproducedtwo10-unitlots.Theproductionmanagerbelievesthatthe learningexperienceobservedonthefirsttwolotswillcontinueforatleastthenexttwolots. Thedirectlaborrequiredonthefirsttwolotswasasfollows: 5,000directlaborhoursforthefirstlotof10units 3,000additionaldirectlaborhoursforthesecondlotof10units Thelearningrateexperiencedbythecompanyonthefirsttwolotsofthisproductis A. B. C. D. 62.5% 60.0% 80.0% 40.0%

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.Thispercentageresultsfromimproperlydividingthe5,000hours spentonthefirstlotbythe8,000totalhoursspentonbothlots. Answer(B)isincorrect.Thispercentageresultsfromimproperlydividingthe3,000hours spentonthesecondlotbythe5,000hoursspentonthefirstlot. Answer(C)iscorrect.Learningcurveanalysisisusedtoprojectproductivitygainsresulting fromtheincreasedrateatwhichpeopleperformtasksastheygainexperience.The underlyingassumptionoflearningcurveanalysisisthatworkersgainproductivityata predictablerateastheygainexperiencewithanewprocess.Forthiscompany,atotalof 8,000hourswasspenttocompletetwolotsofproduct.Thecumulativeaveragespenton thetwolotswastherefore4,000hoursperlot(8,0002).Thiscumulativeaverageof4,000 is80%ofthe5,000hoursthatwerespentonthefirstlot.Thelearningcurveistherefore 80%. Answer(D)isincorrect.Thispercentageresultsfromimproperlydividingthe3,000hours spentonthesecondlotbythe5,000hoursspentonthefirstlotandtakingthecomplement. [Fact Pattern #5] Aerosub,Inc.hasdevelopedanewproductforspacecraftthatincludestheproductionofa complexpart.Themanufactureofthispartrequiresahighdegreeoftechnicalskill.Management believesthereisagoodopportunityforitstechnicalforcetolearnandimproveastheybecome accustomedtotheproductionprocess.Theproductionofthefirstunitrequires10,000direct laborhours.Managementprojectsan80%learningcurveandwantstoproduceatotalofeight units. [18] Gleim #: 1.3.94 -- Source: CMA 0408 1-142 (ReferstoFactPattern#5) Uponcompletionoftheeighthunit,Aerosubscumulativeaveragedirectlaborhours requiredperunitoftheproductwillbe A. B. C. D. 5,120hours. 10,000hours. 8,000hours. 6,400hours.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)iscorrect.Theunderlyingassumptionoflearningcurveanalysisisthatworkers gainproductivityatapredictablerateastheygainexperiencewithanewprocess.A commonassumptionisthatthenumberofhoursrequiredforeachdoublingofoutputwillbe 80%ofthehoursrequiredforthepreviousdoubling.TheeffectsofAerosubsprojected learningcurveonthisproductcanbecalculatedasfollows: Cumulative Units Produced 1 2 4 8 Cumulative Average LaborHours 10,000 8,000(10,00080%) 6,400(8,00080%) 5,120(6,40080%)

Batch 1 2 3 4

Answer(B)isincorrect.Thenumber10,000resultsfromfailingtotakethelearningcurve effectintoaccountatall. Answer(C)isincorrect.Theprojectednumberofhoursaftertwounitsis8,000. Answer(D)isincorrect.Theprojectednumberofhoursafterfourunitsis6,400. [19] Gleim #: 1.5.152 -- Source: CMA 0408 1-183 Whichoneofthefollowingfourprobabilitydistributionsprovidesthehighestexpected monetaryvalue? Alternative#1 Cash Prob Inflows 10% $50,000 20% 75,000 40% 100,000 30% 150,000 Alternative#3 Cash Prob Inflows 10% $50,000 20% 75,000 40% 100,000 30% 125,000 Alternative#2 Cash Prob Inflows 10% $50,000 20% 75,000 45% 100,000 25% 150,000 Alternative#4 Cash Prob Inflows 10% $150,000 20% 100,000 40% 75,000 30% 50,000

A. B. C. D.

Alternative#4. Alternative#1. Alternative#3. Alternative#2.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.theexpectedvalueofAlternative#4isonly$80,000. Answer(B)iscorrect.Whenmonetaryoutcomesandprobabilitiescanbereasonably estimated,apayofftablecanbeconstructedtodeterminethebestcourseofaction: Alternative#1 Probability Payoffs 10% $50,000 20% 75,000 40% 100,000 30% 150,000 Total Alternative#3 Probability Payoffs 10% $50,000 20% 75,000 40% 100,000 30% 125,000 Total Alternative#2 Expected Value Probability Payoffs $5,000 10% $50,000 15,000 20% 75,000 40,000 45% 100,000 45,000 25% 150,000 $105,000 Total Alternative#4 Expected Value Probability Payoffs $5,000 10% $150,000 75,000 20% 100,000 40,000 40% 75,000 37,500 30% 50,000 $97,500 Total Expected Value $15,000 20,000 30,000 15,000 $80,000 Expected Value $5,000 15,000 45,000 37,500 $102,500

Answer(C)isincorrect.theexpectedvalueofAlternative#3isonly$97,500. Answer(D)isincorrect.theexpectedvalueofAlternative#2isonly$102,500. [20] Gleim #: 1.1.33 -- Source: CMA 0408 2-016 Allofthefollowingaredisadvantagesoftop-downbudgetingasopposedtoparticipatory budgeting,exceptthatit A. B. C. D. Maylimittheacceptanceofproposedgoalsandobjectives. Reducesthetimerequiredforbudgeting. Mayresultinabudgetthatisnotpossibletoachieve. Reducesthecommunicationbetweenemployeesandmanagement. Answer(A)isincorrect.,sinceatop-downbudgetisimposedbyuppermanagement,it haslesschanceofacceptance(alsocalledbuy-in)bythoseonwhomthebudgetis imposed. Answer(B)iscorrect.Sinceatop-downbudgetiscoordinatedfromabove,itisless time-consumingthanobtaininglower-levelinput. Answer(C)isincorrect.abudgetestablishedwithoutlower-levelinputmaycontain unrealisticgoals. Answer(D)isincorrect.reducedcommunicationbetweenemployeesandmanagement isadisadvantageoftop-downbudgeting.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[21] Gleim #: 1.5.128 -- Source: CMA 1289 5-23 (ReferstoFactPattern#2) Theconditionalprofitpergameofhaving4,000pretzelsavailableandsellingall4,000 pretzelsis A. B. C. D. $800 $1,200 $2,800 $2,100 Answer(A)isincorrect.Theamountof$800assumes2,000aresold. Answer(B)isincorrect.Thecostof4,000pretzelsis$1,200. Answer(C)iscorrect.Eachpretzelcosts$.30.Thus,thecostof4,000pretzelsis $1,200(4,000$.30).Selling4,000pretzelsat$1eachproducesrevenueof$4,000. Subtractingthe$1,200ofcostsfromthe$4,000ofrevenueresultsinaconditional profitof$2,800. Answer(D)isincorrect.Theamountof$2,100assumes3,000areavailableand3,000 aresold. [22] Gleim #: 1.1.38 -- Source: CMA 0408 2-021 DianaStinson,CherryValley,Inc.sfactorymanager,hadlostherpatience.Sixmonthsago, sheappointedateamfromtheproductionandservicedepartmentstofinalizetheallocation ofcostsandsettingofstandardcosts.Theywerestillfeuding,soshehiredBrennanand Rose,alargeconsultingfirm,toresolvethematter. AllofthefollowingarepotentialconsequencesofhavingthestandardssetbyBrennanand Roseexceptthat A. BrennanandRosemaynotfullyunderstandCherryValleysmanufacturingprocess, resultinginsuboptimalperformance. B. Therecouldbedissatisfactionifthestandardscontaincoststhatarenotcontrollableby theunitheldresponsible. C. Employeescouldreactnegativelysincetheydidnotparticipateinsettingthestandards. D. Thestandardsmayappeartolackmanagementsupport. Answer(A)isincorrect.BrennanandRosemaynotfullyunderstandCherryValleys manufacturingprocess,resultinginsuboptimalperformance. Answer(B)isincorrect.therecouldbedissatisfactionifthestandardscontaincosts thatarenotcontrollablebytheunitheldresponsible. Answer(C)isincorrect.employeescouldreactnegativelysincetheydidnotparticipate insettingthestandards. Answer(D)iscorrect.Standardsconcoctedbyanoutsidefirm,lackingtheintimate knowledgethatemployeeswouldhave,mayappeartolackmanagementsupport.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[23] Gleim #: 1.5.132 -- Source: CMA 688 5-20 Thefollowingtablecontainstheprofitoutcomesforeachstateofnatureanddecision combinationforafirm StatesofNature S1 S2 S3 $24 $14 $(6) $20 $10 $5 $(20) $8 $15 0.10 0.50 0.40

Decision1 Decision2 Decision3 Probabilities

Theexpectedvalueofperfectinformationforthisfirminthiscaseis A. B. C. D. $6.40 $9.00 $8.60 $8.40 Answer(A)iscorrect.Thefirststepistodeterminetheexpectedvaluewithoutperfect informationbyformulatingapayoffmatrix.Forexample,theexpectedpayoffforthe combinationofStateofNatureS1andDecision1is$2.40(10%probability$24 outcome).Theentirepayoffmatrixis S1 $2.40 2.00 (2.00) S2 $7.00 5.00 4.00 S3 $(2.40) 2.00 6.00 Total $7.00 9.00 8.00

Decision1 Decision2 Decision3

Thus,thebestdecisionunderconditionsofuncertaintyisDecision2(expectedvalue= $9).Ifthedecisionmakerknewexactlywheneachstateofnaturewouldoccur,the decisionwouldcorrespondtothemaximumprofitopportunityforthatstateofnature. Forinstance,ifS1iscertain,themostprofitabledecisionisDecision1($24).Thus,the expectedpayoffgivenperfectinformationis$15.40. StateofNature 1 2 3 Profit $24 14 15 Probability 10% 50 40 Payoff $2.40 7.00 6.00

Theexpectedvalueofperfectinformationistherefore$6.40($15.40$9.00). Answer(B)isincorrect.Thebestdecisionunderconditionsofuncertaintyis$9.00. Answer(C)isincorrect.Theexpectedvalueofperfectinformationisthedifference betweentheexpectedpayoffwithperfectinformationandtheexpectedpayoffwithout perfectinformation. Answer(D)isincorrect.ThepayoffsfromDecisions1and3equal$8.40($2.40+ $6.00).

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Page 18

Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[24] Gleim #: 1.6.158 -- Source: CMA 0408 1-187 SusanHineshasdevelopedanestimateoftheearningspershareforherfirmforthenext yearusingthefollowingparameters. Sales Costofgoodssold General&administrativeexpenses Sellingexpense Debtoutstanding Effectivetaxrate Commonsharesoutstanding $20million 70%ofsales $300,000 $100,000plus10%ofsales $5million@8%interestrate 35% 2million

Sheisnowinterestedinthesensitivityofearningspersharetosalesforecastchanges.A10% salesincreasewouldincreaseearningspershareby A. B. C. D. 7.0centspershare. 13.0centspershare. 10.4centspershare. 20.0centspershare.

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Page 19

Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.Theamountof7.0centspershareresultsfromassumingan increaseinfixedsellingcosts. Answer(B)iscorrect.Sensitivityanalysisrevealshowsensitiveexpectedvaluecalculations aretotheaccuracyoftheinitialestimates.Sensitivityanalysisisthususefulindetermining whetherexpendingadditionalresourcestoobtainbetterforecastsisjustified. Original Projection $20,000,000 (14,000,000) $6,000,000 (300,000) (2,100,000) $3,600,000 (400,000) $3,200,000 (1,120,000) $2,080,000 $1.04 10% Increase $22,000,000 (15,400,000) $6,600,000 (300,000) (2,300,000) $4,000,000 (400,000) $3,600,000 (1,260,000) $2,340,000 $1.17

Sales Costofgoodssold Grossprofit Sellingexpenses G&Aexpenses Operatingincome Interestexpense Earningsbeforetaxes Incometaxes Netincome Earningspershare

Answer(C)isincorrect.Theamountof10.4centspershareresultsfromincorrectly assuminganincreaseininterestexpense. Answer(D)isincorrect.Theamountof20.0centspershareresultsfromfailingtotakethe variableportionofsellingexpensesintoaccountorfailingtodeducttheextraincometaxes.

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Page 20

Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[Fact Pattern #6] DonehartCorporationproducesagriculturalvehicles.Mostofthecomponentpartsforthese vehiclesaresubcontractedtoreliablevendors.Thefinalassemblyofallvehiclesisaccomplished atDonehartsplant.DonehartsEngineeringDepartmenthasdevelopedanewfuelinjection systemthatcanbeproducedin-housebecauseoftheavailabilityofproductioncapacity.Thefirst productionrunofthenewfuelinjectionsystemhasalreadybeencompletedin-house.This80-unit productionruntook60directlaborhoursperunittoproducebasedonthecumulativeaverage laborhoursperfuelinjectionunit.Doneharthasexperiencedan80%learningcurvewithsimilar products,andthisexperienceindicatesthatlearningtendstoceasebythetime640systemsare produced.Donehartsdirectlaborcost(includingemployeebenefits)is$18perdirectlaborhour. Donehartsmanagementmustdecidewhethertocontinueproducingthefuelinjectionsystemor tosubcontractthework.DonehartspurchasingagenthasreceivedaproposalfromMidland, Inc.,acompanyspecializinginfuelinjectionsystems.Frompastcontracts,Midlandhasprovento beefficientandreliable.ThetermsofMidlandsproposalareoutlinedbelow. - Donehartmustsupplyallmaterialsrequiredforthefuelinjectionsystemunits. - Thefirst80unitsproducedbyMidlandwillrequiredirectlaborinputattherateof56hours perunit.Currentdirectlaborcostis$20perhour. - ThedirectlaborcostchargedtoDonehartwillbethehourlyrateineffectatthetimethework isperformed.Midlandiscurrentlynegotiatingitslaborcontract,whichincludesa4%increase indirectlaborcostandshouldbeapplicablewhenDonehartsignsthecontract. - Alearningcurvefactorof75%willbeappliedthroughthefirst640unitsproduced,andall benefitsderivedfromthelearningfactorwillaccruetoDonehart. - Donehartmustpaytheactuallaborcostincurredplusa5%margin. [25] Gleim #: 1.3.87 -- Source: Publisher (ReferstoFactPattern#6) IfDonehartmanufacturestheunitsin-house,howmanytotalhourswillittaketocomplete 1,000units? A. B. C. D. 24,330hours. 8,294.4hours. 27,955.2hours. 19,660.8hours.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.Thetimerequiredtocomplete1,000unitsifsubcontractedto Midland,Inc.is24,330hours. Answer(B)isincorrect.Thetimerequiredtocompletetheremaining360unitsafterthe learningcurveis8,294.4hours. Answer(C)iscorrect.Thetotalhoursrequiredtocompleteaprojectwithalearningcurve isfoundbyaddingthetotallaborhoursrequiredtoproducethelastsetofunitsonthe learningcurvewiththeremainingnumberofunitstimesthefinalhoursperincrementalunit. Thefollowingchartshowsthefinalhoursperincrementalunit: Cumulative Average Batch Units LaborHours Cumulative Number Produced perUnit TotalHours 1 80 60 4,800 2 160 48 7,680 3 320 38.4 12,288 4 640 30.72 19,660.8 Hours Numberof Spent Unitsin onBatch Batch 4,800 80 2,880 80 4,608 160 7,372.8 320 HoursSpent onEachUnit inBatch 60 36 28.8 23.04

Afterthefourthbatch,itisassumedthatthelearningcurvewillhavepeaked.Thus,allunits producedthereafterwillrequire23.04hours.Tocomplete1,000units,360mustbe producedafterthefourthbatch.Thisfifthbatchwillrequire8,294.4hours(360units 23.04hoursperunit).Thisnumberaddedtothe19,660.8hoursrequiredtocompletethe 640hoursonthelearningcurveequals27,955.2hours. Answer(D)isincorrect.Thetimerequiredtocompletethe640unitsonthelearningcurve is19,660.8hours.

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Page 22

Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[26] Gleim #: 1.5.150 -- Source: CMA 0408 1-181 ThesalesmanagerofSeritoDollCompanyhassuggestedthatanexpandedadvertising campaigncosting$40,000wouldincreasethesalesandprofitsofthecompany.Hehas developedthefollowingprobabilitydistributionfortheeffectoftheadvertisingcampaignon companysales: Salesincrease (units) 15,000 30,000 45,000 60,000 75,000

Probability .10 .35 .10 .25 .20

Thecompanysellsthedollsat$5.20each.Thecostofeachdollis$3.20.Seritosexpected incrementalprofit,iftheadvertisingcampaignisadopted,is A. B. C. D. $93,000 $6,500 $46,500 $53,000 Answer(A)isincorrect.Theamountof$93,000resultsfromfailingtotakethecostof advertisingintoaccount. Answer(B)isincorrect.Theamountof$6,500resultsfromtreatingtheexpectedunit increasesasexpectedprofitamounts. Answer(C)isincorrect.Theamountof$46,500resultsfromtreatingtheexpectedunit increasesasexpectedprofitamountsandfailingtotakethecostofadvertisinginto account. Answer(D)iscorrect.Whenmonetaryoutcomesandprobabilitiescanbereasonably estimated,apayofftablecanbeconstructedtodeterminethebestcourseofaction [Seritosincrementalprofitoneachdollsoldis$2.00($5.20$3.20)]: Unit Sales Increase 15,000 30,000 45,000 60,000 75,000 Expected Unit Increase 1,500 10,500 4,500 15,000 15,000

Probability 0.10 0.35 0.10 0.25 0.20

= = = = =

Incr. Profit $2 = $2 = $2 = $2 = $2 = Expectedgrossprofit Costofadvertising Expectednetprofit

Expected Profit $3,000 21,000 9,000 30,000 30,000 $93,000 (40,000) $53,000

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Page 23

Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[27] Gleim #: 1.1.32 -- Source: CMA 0408 2-015 Whichoneofthefollowingitemswouldmostlikelycausetheplanningandbudgetingsystem tofail?Thelackof A. B. C. D. Topmanagementsupport. Inputfromseverallevelsofmanagement. Historicalfinancialdata. Adherencetorigidbudgetsduringtheyear. Answer(A)iscorrect.Topmanagementsbeliefinandsupportoftheplanningand budgetingprocessisthesinglemostimportantelementinitssuccess. Answer(B)isincorrect.inputfromseverallevelsofmanagementishelpful,butnotthe mostessentialelementofsuccessfulbudgeting. Answer(C)isincorrect.thelackofhistoricaldataisnotfataltoanadequateplanning andbudgetingprocess. Answer(D)isincorrect.willingnesstoadapttochangingcircumstancesiscrucialtothe successofanyplanningandbudgetsystem. [28] Gleim #: 1.3.98 -- Source: CMA 0408 1-148 (ReferstoFactPattern#1) IfProperPropellerproduceseightunits,theaveragemanufacturingcostperunitwillbe A. B. C. D. $9,800 $1,647 $14,000 $6,860

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Page 24

Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.Theamountof$9,800isthecumulativeaveragecostafterfour units. Answer(B)isincorrect.Theamountof$1,647isthecumulativeaverageaftereight batches,noteightunits. Answer(C)isincorrect.Theamountof$14,000isthecumulativeaveragecostaftertwo units. Answer(D)iscorrect.Learningcurveanalysisisusedtoprojectproductivitygains resultingfromtheincreasedrateatwhichpeopleperformtasksastheygainexperience.The underlyingassumptionoflearningcurveanalysisisthatworkersgainproductivityata predictablerateastheygainexperiencewithanewprocess.Inthissituation,thecompanyis assumingthatthetotalcostsrequiredforeachdoublingofoutputwillbe70%ofthecosts requiredforthepreviousdoubling.TheeffectsofProperPropellersprojectedlearning curvecanbecalculatedasfollows: Cumulative Units Produced 1 2 4 8 Cumulative Average Cost $20,000 $14,000($20,00070%) $9,800($14,00070%) $6,860($9,80070%)

Batch 1 2 3 4

[29] Gleim #: 1.1.40 -- Source: CMA 0408 2-023 Whichoneofthefollowingwillallowabetteruseofstandardcostsandvarianceanalysisto helpimprovemanagerialdecision-making? A. CompanyBusestheprioryearsaverageactualcostasthecurrentyearsstandard. B. CompanyCinvestigatesonlynegativevariances. C. CompanyAdoesnotdifferentiatebetweenvariableandfixedoverheadincalculatingits overheadvariances. D. CompanyDconstantlyrevisesstandardstoreflectlearningcurves. Answer(A)isincorrect.simplyusingfiguresfromapreviousperiodisan unsatisfactorymeansofestablishingabudget. Answer(B)isincorrect.positivevariancescanbeasignofreducedqualityorother concerns. Answer(C)isincorrect.notdistinguishingvariablefromfixedoverheadwillleadto poordecisionmaking. Answer(D)iscorrect.Learningcurvesareanestablishedphenomenon.Workerslearn anewtaskatapredictablerateandtheresultingimprovementsinproductivityshould befactoredintostandardsettingandvarianceanalysis.

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Page 25

Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[30] Gleim #: 1.3.100 -- Source: CMA 0408 1-151 (ReferstoFactPattern#1) Aftercompletingproductionofthefirstpropeller,theestimatedcostforProperPropellerto fillanorderforsevenadditionalpropellersis A. B. C. D. $98,000 $34,880 $92,000 $54,880 Answer(A)isincorrect.Theamountof$98,000resultsfromignoringtheeffectofthe learningcurve. Answer(B)iscorrect.TheeffectsofProperPropellersprojectedlearningcurvecan becalculatedasfollows: Cumulative Units Produced 1 2 4 8 Cumulative Average Cost $20,000 $14,000($20,00070%) $9,800($14,00070%) $6,860($9,80070%) Cumulative Total Cost $20,000 28,000 39,200 54,880

Batch 1 2 3 4

Sinceeightpropellersrequire$54,880andthefirstoneofftheassemblylinecost $20,000,thecostofunits2through8willbe$34,880($54,880$20,000). Answer(C)isincorrect.Theamountof$92,000resultsfromassumingnolearning curveafterthesecondunit. Answer(D)isincorrect.Theamountof$54,880isthecostofalleightpropellers. [31] Gleim #: 1.1.37 -- Source: CMA 0408 2-020 Whencomparedwithidealstandards,practicalstandards A. B. C. D. Resultinalessdesirablebasisforthedevelopmentofbudgets. Incorporateverygenerousallowanceforspoilageandworkerinefficiencies. Producelowerper-unitproductcosts. Serveasabettermotivatingtargetformanufacturingpersonnel.

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Page 26

Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.practicalstandardsaremoreappropriateinmostcasesthanideal standardsinthedevelopmentofbudgets. Answer(B)isincorrect.anacceptanceofhighlevelsofspoilageandworkerinefficiencies cannotbeovercomethroughtheuseofstandards. Answer(C)isincorrect.theeffectofonetypeofstandardoveranothercannotguarantee lowercosts. Answer(D)iscorrect.Practicalstandards,alsocalledattainablestandards,aremorelikely tomeetwithworkeracceptancethanstandardsbasedonanunachievableideal. [32] Gleim #: 1.5.127 -- Source: CMA 1289 5-22 (ReferstoFactPattern#2) Theconditionalprofitpergameofhaving4,000pretzelsavailablebutonlyselling3,000 pretzelsis A. B. C. D. $2,800 $1,800 Someamountotherthanthosegiven. $2,100 Answer(A)isincorrect.Theconditionalprofitgiventhat4,800aresoldis$2,800. Answer(B)iscorrect.Eachpretzelcosts$.30.Thus,thecostof4,000pretzelsis $1,200(4,000$.30).Selling3,000pretzelsat$1eachproducesrevenueof$3,000. Subtractingthe$1,200ofcostsfromthe$3,000ofrevenueresultsinaconditional profitof$1,800. Answer(C)isincorrect.Theamountof$1,800isamongtheresponsesgiven. Answer(D)isincorrect.Theamountof$2,100assumes3,000areavailableand3,000 aresold. [33] Gleim #: 1.3.88 -- Source: Publisher (ReferstoFactPattern#6) IfDonehartmanufacturestheunitsin-house,howmuchadditionalcostwillthecompany incurafterthefirstbatchinordertoproduceatotalof1,000units? A. B. C. D. $559,104 $503,193.60 $463,104 $416,793.60

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Page 27

Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.UsingthedirectlaborcostrelatedtooutsourcingtoMidland resultsin$559,104. Answer(B)isincorrect.Theamountof$503,193.60isfoundbynotsubtractingthecostof theinitial80units. Answer(C)isincorrect.UsingthedirectlaborcostrelatedtooutsourcingtoMidland resultsin$463,104. Answer(D)iscorrect.Thebestmethodtodeterminethetotalout-of-pocketcoststo completeaprojectistofirstmultiplythetotalhoursrequiredbythecostperhour.After this,subtracttheinitialcostsofproducingthefirstbatch.Thiswillresultinthetotalout-ofpocketcoststocompleteaproject. Costfor1,000units (27,955.2hours$18perhour) Costforfirstbatch (80units60hours$18perhour) Costfor920units [34] Gleim #: 1.1.24 -- Source: CMA 0408 2-005 Thefollowingsequenceofstepsisemployedbyacompanytodevelopitsannualprofitplan: Planningguidelinesaredisseminateddownwardbytopmanagementafterreceiving inputfromalllevelsofmanagement. Asalesbudgetispreparedbyindividualsalesunitsreflectingthesalestargetsofthe varioussegments.Thisprovidesthebasisfordepartmentalproductionbudgetsand otherrelatedcomponentsbythevariousoperatingunits.Communicationisprimarily lateralwithsomeupwardcommunicationpossible. Aprofitplanissubmittedtotopmanagementforcoordinationandreview.Top managementsrecommendationsandrevisionsareacteduponbymiddlemanagement. Arevisedprofitplanisresubmittedforfurtherreviewtotopmanagement. Topmanagementgrantsfinalapprovalanddistributestheformalplandownwardtothe variousoperatingunits. Thisoutlineofstepsbestdescribeswhichoneofthefollowingapproachestobudget development? A. B. C. D. Top-downapproach. Totaljustificationofallactivitiesbyoperatingunits. Imposedbudgetingbytopmanagement. Bottom-upapproach. $503,193.60 (86,400.00) $416,793.60

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Page 28

Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.thesestepsdescribetheoppositeofatop-downapproach. Answer(B)isincorrect.topmanagementisnotdemandingjustificationofallactivitiesin thestepsdescribed;suchademandwouldbeconsistentwithasystemknownaszero-based budgeting. Answer(C)isincorrect.topmanagementhasreceivedextensiveinputandcooperationfrom lowerlevelsthroughperformingthesesteps. Answer(D)iscorrect.Abottom-upapproachischaracterizedbygeneralguidancefromthe highestlevelsofmanagement,followedbyextensiveinputfrommiddleandlower management.Thissequenceofstepsaptlydescribesthisprocess. [35] Gleim #: 1.5.123 -- Source: Publisher Underfavorableweatherconditions,themanagementofFlesherFarmsexpectsitsraspberry croptohavea$120,000marketvalue.Anunprotectedcropsubjecttofrosthasanexpected marketvalueof$80,000.IfFlesherprotectstheraspberriesagainstfrost,themarketvalueof thecropisstillexpectedtobe$120,000underfrost-freeconditionsand$180,000ifafrost occurs.WhatmustbetheprobabilityofafrostforFleshertobeindifferenttospending $20,000fortentstoprovidefrostprotection? A. B. C. D. .333 .250 .167 .200

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Page 29

Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.Iftheprobabilityoffrostisgreaterthan.200,anexpectedvalue analysisindicatesthecompanyshouldprovideprotection. Answer(B)isincorrect.Iftheprobabilityoffrostisgreaterthan.200,anexpectedvalue analysisindicatesthecompanyshouldprovideprotection. Answer(C)isincorrect.Iffrosthasaprobabilityof.167,theexpectedvalueofnot providingprotectionexceedsthatofprovidingprotection. Answer(D)iscorrect.Withoutprotection,thecompanywillhavesalesofeither$80,000or $120,000.Withprotection,thecompanywillhavesalesofeither$120,000or$180,000.The $20,000costoftentsmustbesubtractedfromtheseamountstocomputethenet contribution.Thus,thecontributioniftheberriesareprotectedwillbeeither$100,000or $160,000.Theproblemcanbesolvedalgebraicallywiththefollowingformula(X=the probabilityoffrost):

X($80,000)+(1X)($120,000) = X($160,000)+(1X)($100,000) $80,000X+$120,000$120,000X = $160,000X +$100,000$100,000X $120,000$40,000X = $100,000+$60,000X $120,000 = $100,000+$100,000X $20,000 = $100,000X X = .200
Inotherwords,iftheprobabilityoffrostis20%,managementwillbeindifferentbetween providingandnotprovidingprotection.Atafrostexpectancyofgreaterthan20%, managementshouldprovideprotection. [36] Gleim #: 1.4.109 -- Source: Publisher Violationofwhichassumptionunderlyingregressionanalysisisprevalentintimeseries analysis? A. B. C. D. Expectedvalueoferrortermequalszero. Errortermsareindependent. Varianceoferrortermisconstant. Distributionoferrortermsisusuallynormal. Answer(A)isincorrect.Intimeseriesanalysis,theexpectedvalueoftheerrorterm usuallyequalszero. Answer(B)iscorrect.Timeseriesanalysisisaregressionmodelinwhichthe independentvariableistime.Intimeseriesanalysis,thevalueofthenexttimeperiodis frequentlydependentonthevalueofthetimeperiodbeforethat.Hence,theerrorterms areusuallycorrelatedordependentonthepriorperiod;i.e.,theyarecharacterizedby autocorrelation(serialcorrelation). Answer(C)isincorrect.Intimeseriesanalysis,varianceoftheerrortermisusually constant. Answer(D)isincorrect.Intimeseriesanalysis,distributionoftheerrortermsisusually normal.

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Page 30

Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[37] Gleim #: 1.3.90 -- Source: Publisher (ReferstoFactPattern#6) IfDonehartsubcontractstheordertoMidland,howmanyhourswillittaketocompletea unitaftertheinitial640unitsonthelearningcurvearefinished? A. B. C. D. 21.50hours. 11.81hours. 23.625hours. 15.75hours. Answer(A)isincorrect.Thetimeneededtofinishadditionalassumingan80%learning curveis21.50hours. Answer(B)isincorrect.Thetimeneededtofinishadditionalunitsafter1,280units, assumingthelearningcurvedidnotendat640units,is11.81hours. Answer(C)isincorrect.Theaveragelaborhoursperunittofinish640unitsis23.625 hours. Answer(D)iscorrect.Thehoursperunitrequiredtofinishadditionalunitsaftera pointonthelearningcurveisfoundbysubtractingthetotalhoursrequiredtofinishthe previouspointonthelearningcurvefromthecurrentone.Then,thisnumberisdivided bytheincreaseinunitsproduced.InMidlandscase,thecalculationis Hoursneededtoproduce640units Hoursneededtoproducefirsthalf Hoursneededtoproducesecondhalf 15,120 (10,080) 5,040

Thus,eachindividualunitinthesecondgroupof320unitswilltake15.75hoursa piece(5,040320). [38] Gleim #: 1.1.39 -- Source: CMA 0408 2-022 JuraCorporationisdevelopingstandardsforthenextyear.CurrentlyXZ-26,oneofthe materialcomponents,isbeingpurchasedfor$36.45perunit.Itisexpectedthatthe componentscostwillincreasebyapproximately10%nextyearandthepricecouldrange from$38.75to$44.18perunit,dependingonthequantitypurchased.Theappropriate standardforXZ-26fornextyearshouldbesetatthe A. Highestpriceintheanticipatedrangetoensurethatthereareonlyfavorablepurchase pricevariances. B. Priceagreeduponbythepurchasingmanagerandtheappropriatelevelofcompany management. C. Currentactualcostplustheforecasted10%priceincrease. D. Lowestpurchasepriceintheanticipatedrangetokeeppressureonpurchasingto alwaysbuyinthelowestpricerange.

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Page 31

Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.standardsshouldbesettightlyenoughtoprovidemotivationto purchasingmanagement. Answer(B)iscorrect.Standardpricesaredesignedforinternalperformancemeasurement. Standardsshouldbeattainable,butnotsoeasilyastonotprovidemotivation.Management shoulddecideitsobjectivesandsetastandardthatwillachievethatobjectivewhenthe standardismet.Forexample,thelowestpricemightnotbeselectedifthecompanyisusing aJITsystem,forwhichtheprimaryobjectiveistheminimizationofinventories. Answer(C)isincorrect.theactualcostcouldbemoreorlessdependinginthequantity purchased. Answer(D)isincorrect.thelowestpricemaynotalwaysbeinthecompany'sbestinterests ifthequantityrequiredtoobtainthelowestpricewouldleadtomuchhighercarryingcosts. [39] Gleim #: 1.3.91 -- Source: Publisher (ReferstoFactPattern#6) IfDonehartsubcontractstheordertoMidland,howmuchadditionalcostwillDonehartincur afterthefirstbatchinordertoobtainatotalof1,000units? A. B. C. D. $426,535.20 $330,220.80 $390,600 $302,400 Answer(A)iscorrect.Thetotalout-of-pocketcostforoutsourcingisfoundbyadding thetotallaborhoursrequiredtofinishtheunitsonthelearningcurvetotheproductof additionalunitsandhoursperadditionalunit.Thisnumberisthenmultipliedbythe directlaborcost.SinceDoneharthasalreadyproducedabatchof80units,only920are neededfromMidland.Thefirst640ofthis920areonthelearningcurveandwill requireatotalof15,120hourstoproduce.Thisleaves280unitsat15.75hoursapiece, foratotalhoursneededof19,530[15,120+(28015.75)].Thedirectlaborrateis $21.84[$20.00(1+.04laborincrease)(1+.05costmargin)].Donehartscostfor the920unitsoutsourcedtoMidlandistherefore$426,535.20(19,530$21.84). Answer(B)isincorrect.Theamountof$330,220.80ignoresthehoursrequiredforthe additionalunits. Answer(C)isincorrect.Theamountof$390,600ignorestheincreasesinthedirect laborrate. Answer(D)isincorrect.Theamountof$302,400ignoresthehoursrequiredforthe additionalunitsanditignorestheincreasesinthedirectlaborrate.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[40] Gleim #: 1.5.139 -- Source: CMA 690 5-17 (ReferstoFactPattern#4) TheoptimumnumberofbagsofpeanutsforStanBerrytostockis A. B. C. D. 20 30 40 50 Answer(A)isincorrect.Thefigureof20unitsdoesnothavethegreatestexpected value. Answer(B)isincorrect.Thefigureof30unitsdoesnothavethegreatestexpected value. Answer(C)iscorrect.Expectedvalueanalysisisameansofselectingthebestoption whendecisionsinvolverisk.Theexpectedvalueequalsthesumoftheproductsofthe variouspayoffsandtheirrespectiveprobabilities.StanBerrycancalculatetheexpected valueofeachofhisfourpossibleactionsasfollows: Bags Stocked 20 30 40 50 Expected Value $20.00 27.60 30.40 29.60

.2($20)+.4($20)+.3($20)+.1($20) .2($18)+.4($30)+.3($30)+.1($30) .2($16)+.4($28)+.3($40)+.1($40) .2($14)+.4($26)+.3($38)+.1($50)

= = = =

Theactionwiththehighestexpectedpayoffistostock40bags. Answer(D)isincorrect.Thefigureof50unitsdoesnothavethegreatestexpected value. [41] Gleim #: 1.3.89 -- Source: Publisher (ReferstoFactPattern#6) IfDonehartsubcontractstheordertoMidland,whatisthetotalnumberoflaborhours requiredtoproducethe640unitsonthelearningcurve? A. B. C. D. 19,530hours. 18,350hours. 15,120hours. 35,840hours.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.Thetotalhoursrequiredtocompletetheprojectis19,530hours. Answer(B)isincorrect.Thefigureof18,350hoursisfoundbyusingan80%learning curve. Answer(C)iscorrect.Learningcurvesreflecttheincreasedrateatwhichpeopleperform tasksastheygainexperience.Forthisexample,thelearningcurvehasthefollowingeffect: Batch Number 1 2 3 4 Cumulative Units Produced 80 160 320 640 AverageLabor HoursperUnit 56 42 31.5 23.625 (5675%) (4275%) (31.575%) Cumulative Hours 4,480 6,720 10,080 15,120

Answer(D)isincorrect.Theamountoftimenecessaryassumingnolearningcurveis 35,840hours. [42] Gleim #: 1.5.142 -- Source: CMA 688 5-25 (ReferstoFactPattern#3) TheprobabilitythatacustomerwillselectmodelP104is A. B. C. D. Somepercentageotherthanthosegiven. 10% 50% 20% Answer(A)isincorrect.Thecorrectpercentageisamongtheresponsesgiven. Answer(B)isincorrect.ThispercentageistheprobabilityofselectingS104. Answer(C)isincorrect.TheprobabilityofselectingX104is50%. Answer(D)iscorrect.Tenrandomnumbershavebeenassigned.Ofthese,two(0and 1)havebeenassignedtomodelP104.Thus,therearetwochancesoutoften,or20%, thatacustomerwillselectthatmodel. [43] Gleim #: 1.5.134 -- Source: CMA 691 4-3 Theexpectedvalueofperfectinformationisthe A. Differencebetweentheexpectedprofitundercertaintyandtheexpectedmonetary valueofthebestactunderuncertainty. B. Differencebetweentheexpectedprofitunderuncertaintyandconditionalprofitforthe bestactundercertainty. C. Sameastheexpectedprofitundercertainty. D. Sumoftheconditionalprofit(loss)forthebesteventofeachacttimestheprobability ofeacheventsoccurring.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)iscorrect.Theexpectedvalueunderuncertaintyisfoundbymultiplyingthe probabilityofeachoutcome(event)byitspayoff(conditionalprofitorloss)andsumming theproducts.Perfectinformationistheknowledgethatafuturestateofnaturewilloccur withcertainty.Theexpectedvalueofperfectinformationisthedifferencebetweenthe expectedvalueundercertaintyandtheexpectedvalueoftheoptimaldecisionunder uncertainty.Theexpectedvalueundercertaintyequalsthesumoftheproductsoftheprofit maximizingpayoffsofperfectforecastsandtherelatedprobabilities. Answer(B)isincorrect.Itmaynotbethebestactundercertaintythatisconsidered;the valueofperfectinformationisbasedontheeventthatisknownwillhappen,whetherthat eventisthebestortheworst. Answer(C)isincorrect.Thevalueofperfectinformationislimitedtotheexcessofthe profitundercertaintyoverthebestreturnwithoutperfectinformation. Answer(D)isincorrect.Thevalueofperfectinformationislimitedtotheexcessofthe profitundercertaintyoverthebestreturnwithoutperfectinformation. [44] Gleim #: 1.4.110 -- Source: CMA 0408 1-152 Salesofbig-screentelevisionshavegrownsteadilyduringthepastfiveyears.Adealer predictedthatthedemandforFebruarywouldbe148televisions.ActualdemandinFebruary was158televisions.Ifthesmoothingconstantis=0.3,thedemandforecastforMarch, usingtheexponentialsmoothingmodel,willbe A. B. C. D. 148televisions. 151televisions. 155televisions. 158televisions. Answer(A)isincorrect.Exponentialsmoothinginvolvesmorethansimplyusingone monthsforecastastheforecastforthefollowingmonth. Answer(B)iscorrect.Exponentialsmoothingisawidespreadtechniqueformaking projectionsbecauseitrequireslessdatabekeptonhandthanthemovingaverage methods.Mathematically,aforecastisarrivedatwithexponentialsmoothingaccording tothefollowingformula: Forecast = (SmoothingfactorPreviousmonthresult)+ (SmoothingfactorcomplementPreviousmonthforecast) = (0.3158)+(0.7148) = 47.4+103.6 = 151 Answer(C)isincorrect.Thisnumberresultsfromreversingthesmoothingfactorand smoothingfactorcomplement. Answer(D)isincorrect.Exponentialsmoothinginvolvesmorethansimplyusingone monthsactualdemandastheforecastforthefollowingmonth.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[45] Gleim #: 1.1.17 -- Source: Publisher Animproperlyexecutedbudgetprocessmighthavetheeffect(s)of A. B. C. D. Alloftheanswersarecorrect. Inflatedbudgetrequests. Disregardofoverallcompanygoals. Meetingshort-termbutnotlong-termgoals. Answer(A)iscorrect.Lackofgoalcongruencecanresultwhenattainingasubunits budgetarygoalresultsindisregardofoverallcompanygoals.Subunitmanagersmay inflatetheirbudgetrequeststoprovideoperatingleewayandthenengagein unnecessaryspendingtoavoidfuturebudgetcuts.Abudgetmayencourageexclusive concentrationonmeetingshort-termstandardsattheexpenseoflong-term considerations.Amanagerfearfulofnotmeetingthebudgettargetsmayimproperly manipulateallocationofexpenses.Themanagerseekingtostaywithinthebudgetmay disregardemployeemoraleandpoorworkingconditions.Interunitresentmentmay developasaresultofcompetitionforscarcefunds. Answer(B)isincorrect.Allofthelistedeffectsmightoccurbecauseofanimproperly executedbudgetprocess. Answer(C)isincorrect.Allofthelistedeffectsmightoccurbecauseofanimproperly executedbudgetprocess. Answer(D)isincorrect.Allofthelistedeffectsmightoccurbecauseofanimproperly executedbudgetprocess. [46] Gleim #: 1.1.20 -- Source: Publisher Ineffectivebudgetcontrolsystemsarecharacterizedby A. B. C. D. Alloftheanswersarecorrect. Lackoftimelyfeedbackintheuseofthebudget. Useofbudgetsasaplanningbutnotacontroltool. Useofbudgetsforharassmentofindividualsratherthanmotivation.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)iscorrect.Ineffectivebudgetcontrolsystemsarecharacterizedbyeachofthe itemsnoted.Theuseofbudgetsforplanningonlyisaproblemthatmustberesolved throughtheeducationprocess.Managementmustbeeducatedtousethebudgetdocuments forcontrol,notjustplanning.Managementmustlearnthatbudgetscanmotivateandhelp individualsachieveprofessionalgrowthaswellasthegoalsofthefirm.Ignoringbudgets obviouslycontributestotheineffectivenessofthebudgetsystem.Finally,feedbackmustbe timelyorlowermanagementandemployeeswillsoonrecognizethatbudgetfeedbackisso lateitprovidesnoinformation,makingthebudgetaworthlessdevice. Answer(B)isincorrect.Thisisnottheonlyitemlistedthatcharacterizesineffectivebudget controlsystems. Answer(C)isincorrect.Thisisnottheonlyitemlistedthatcharacterizesineffectivebudget controlsystems. Answer(D)isincorrect.Thisisnottheonlyitemlistedthatcharacterizesineffectivebudget controlsystems. [47] Gleim #: 1.5.146 -- Source: CMA 0408 1-177 Accordingtorecentfocussessions,NortonCorporationhasacantmissconsumer productonitshands.Salesforecastsindicateeitherexcellentorgoodresults,withNortons salesmanagerassigningaprobabilityof.6toagoodresultsoutcome.Thecompanyisnow studyingvarioussalescompensationplansfortheproductandhasdeterminedthefollowing contributionmargindata: Contribution Margin Ifsalesareexcellentand Plan1isadopted Plan2isadopted Ifsalesaregoodand Plan1isadopted Plan2isadopted $300,000 370,000 240,000 180,000

Onthebasisofthisinformation,whichofthefollowingstatementsiscorrect? A. Plan1shouldbeadoptedbecauseofthesalesmanagershigherconfidenceingood results. B. EitherPlanshouldbeadopted,thedecisionbeingdependentontheprobabilityof excellentsalesresults. C. Plan2shouldbeadoptedbecauseitis$10,000moreattractivethanPlan1. D. Plan1shouldbeadoptedbecauseitis$8,000moreattractivethanPlan2.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.thepurposeofexpectedvaluecomputationistotakeallpossible outcomesintoaccount,notjustthemostlikely. Answer(B)isincorrect.theplanmustbeadoptedbeforetheactualoutcomeisknown. Answer(C)isincorrect.theexpectedvalueofPlan2exceedsthatofPlan1by$10,000only aftermerelysummingtheunweightedcontributionmargins. Answer(D)iscorrect.Whenmonetaryoutcomesandprobabilitiescanbereasonably estimated,apayofftablecanbeconstructedtodeterminethebestcourseofaction: Decision Alternative Plan1 Stateof Nature Excellent Good Contribution Margin $300,000 240,000 Expected Value $120,000 144,000 $264,000 $148,000 108,000 $256,000

Probability 0.4 0.6

= =

Plan2

Excellent Good

$370,000 180,000

0.4 0.6

= =

Afterweightingthepossiblemonetaryoutcomesbytheirrespectiveprobabilities,the expectedvalueofPlan1is$8,000higherthantheexpectedvalueofPlan2. [48] Gleim #: 1.3.86 -- Source: Publisher (ReferstoFactPattern#6) IfDonehartmanufacturestheunitsin-house,whatistheaveragelaborhoursperunitafter manufacturing640units? A. B. C. D. 60 23.63 23.04 30.72

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.Theaveragelaborhoursperunitonthefirstproductionrunis60. Answer(B)isincorrect.TheaveragelaborhoursperunitforMidland,Inc.is23.63. Answer(C)isincorrect.Incrementalhoursperunitafter320unitshavebeenproducedis 23.04. Answer(D)iscorrect.Learningcurvesreflecttheincreasedrateatwhichpeopleperform tasksastheygainexperience.Forthisexample,thelearningcurvehasthefollowingeffect: Batch Number 1 2 3 4 Cumulative Units Produced 80 160 320 640 Average AverageLabor perUnit 60 48 38.4 30.72 (6080%) (4880%) (38.480%)

Therefore,theaveragelaborhoursperunitis30.72hours. [49] Gleim #: 1.1.36 -- Source: CMA 0408 2-019 Oneapproachfordevelopingstandardcostsincorporatescommunication,bargaining,and interactionamongproductlinemanagers;theimmediatesupervisorsforwhomthestandards arebeingdeveloped;andtheaccountantsandengineersbeforethestandardsareacceptedby topmanagement.Thisapproachwouldbestbecharacterizedasa(n) A. B. C. D. Engineeringapproach. Centralizedtop-downapproach. Teamdevelopmentapproach. Imposedapproach. Answer(A)isincorrect.anengineeringapproachinvolvesonlyengineers. Answer(B)isincorrect.acentralizedtop-downapproachinvolvesstandardsbeing dictatedbyuppermanagement. Answer(C)iscorrect.Ateamdevelopmentapproachtostandardsettinginvolves interactionamongvariousgroupsorindividuals,includingproductlinemanagers,the departmentsforwhichthestandardsarebeingdeveloped,accountants,andindustrial engineers. Answer(D)isincorrect.theapproachdescribedistheoppositeofanimposed approach.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[Fact Pattern #7] Acompanyisconsideringthreealternativemachinestoproduceanewproduct.Thecost structures(unitvariablecostsplusavoidablefixedcosts)forthethreemachinesareshownas follows.Thesellingpriceisunaffectedbythemachineused. Singlepurposemachine Semiautomaticmachine Automaticmachine $.60x+$20,000 $.40x+$50,000 $.20x+$120,000

Thedemandforunitsofthenewproductisdescribedbythefollowingprobabilitydistribution. Demand 200,000 300,000 400,000 500,000 Probability 0.4 0.3 0.2 0.1

[50] Gleim #: 1.5.137 -- Source: CMA 689 5-26 (ReferstoFactPattern#7) Ignoringthetimevalueofmoney,theexpectedcostofusingthesemiautomaticmachineis A. B. C. D. $210,000 $250,000 $130,000 $170,000 Answer(A)isincorrect.Theamountof$210,000iscalculatedbyusingdemandof 400,000units. Answer(B)isincorrect.Theamountof$250,000iscalculatedbyusingdemandof 500,000units. Answer(C)isincorrect.Theamountof$130,000iscalculatedbyusingdemandof 200,000units. Answer(D)iscorrect.Theexpecteddemandis300,000units[(.4200,000)+(.3 300,000)+(.2400,000)+(.1500,000)].Totalexpectedcostistherefore$170,000 [$50,000fixedcost+($.40300,000)variablecost]. [51] Gleim #: 1.3.95 -- Source: CMA 0408 1-145 (ReferstoFactPattern#5) Uponcompletionoftheeighthunit,Aerosubscumulativedirectlaborhourswillbe A. B. C. D. 64,000hours. 80,000hours. 40,960hours. 29,520hours.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.Thefigureof64,000resultsfromimproperlymultiplyingthe cumulativenumberofunitsproducedbythe10,000hoursspentonthefirstbatch,then multiplyingbythelearningcurvepercentage. Answer(B)isincorrect.Thefigureof80,000resultsfromimproperlymultiplyingthe cumulativenumberofunitsproducedbythe10,000hoursspentonthefirstbatch. Answer(C)iscorrect.Theunderlyingassumptionoflearningcurveanalysisisthatworkers gainproductivityatapredictablerateastheygainexperiencewithanewprocess.A commonassumptionisthatthenumberofhoursrequiredforeachdoublingofoutputwillbe 80%ofthehoursrequiredforthepreviousdoubling.TheeffectsofAerosubsprojected learningcurveonthisproductcanbecalculatedasfollows: Cumulative Units Produced 1 2 4 8 Cumulative Average LaborHours 10,000 8,000(10,00080%) 6,400(8,00080%) 5,120(6,40080%) Cumulative Total LaborHours 10,000 16,000 25,600 40,960

Batch 1 2 3 4

Answer(D)isincorrect.Thefigureof29,520resultsfromimproperlysummingthe cumulativeaveragelaborhourfigures. [52] Gleim #: 1.1.41 -- Source: CMA 0408 2-024 AfterperformingathoroughstudyofMichiganCompanysoperations,anindependent consultantdeterminedthatthefirmslaborstandardswereprobablytootight.Whichoneof thefollowingfactswouldbeinconsistentwiththeconsultantsconclusion? A. Managementnotedthatminimalincentivebonuseshavebeenpaidinrecentperiods. B. Productionsupervisorsfoundseveralsignificantfluctuationsinmanufacturingvolume, withshort-termincreasesonoutputbeingfollowedbyrapid,sustaineddeclines. C. Michigansbudgetingprocesswaswell-definedandbasedonabottom-upphilosophy. D. Areviewofperformancereportsrevealedthepresenceofmanyunfavorableefficiency variances. Answer(A)isincorrect.thewidespreadfailureforexpectedbonusestobeearned wouldbeanindicatoroftoo-tightstandards. Answer(B)isincorrect.thesituationdescribedisindicativeofrushjobsbeingtoo common,whichisaresultofpoorproductionplanning,nottightlaborstandards. Answer(C)iscorrect.Itishighlyunlikelythatworkersfamiliarwiththeirown processeswouldsettoo-tightstandards. Answer(D)isincorrect.manyunfavorableefficiencyvarianceswouldbeanindicator oftoo-tightstandards.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[53] Gleim #: 1.1.23 -- Source: CMA 0408 2-003 Allofthefollowingarecriticismsofthetraditionalbudgetingprocessexceptthatit A. Incorporatesnon-financialmeasuresaswellasfinancialmeasuresintoitsoutput. B. Isnotuseduntiltheendofthebudgetperiodtoevaluateperformance. C. Makesacross-the-boardcutswhenearlybudgetiterationsshowthatplannedexpenses aretoohigh. D. Overemphasizesafixedtimehorizon,suchasoneyear. Answer(A)iscorrect.Traditionalbudgetingfocusesstrictlyonfinancialmeasures. Answer(B)isincorrect.traditionalbudgetingisdifficulttousethroughoutthebudget periodforperformancemeasurement. Answer(C)isincorrect.across-the-boardcutsareaneasilyavailablesolutionwhen traditionalbudgetingisused. Answer(D)isincorrect.traditionalbudgetingisheavilyfocusedonafixedtime horizon. [54] Gleim #: 1.5.135 -- Source: CIA 1188 III-44 Indecisiontheory,thoseuncontrollablefutureeventsthatcanaffecttheoutcomeofa decisionare A. B. C. D. Nodes. Probabilities. Statesofnature. Payoffs. Answer(A)isincorrect.Nodes(junctionpoints)aredecisionpoints. Answer(B)isincorrect.Probabilitiesarethelikelihoodofoccurrenceofthestatesof nature. Answer(C)iscorrect.Applyingdecisiontheoryrequiresthedecisionmakerto developanexhaustivelistofpossiblefutureevents.Allpossiblefutureeventsthat mightoccurmustbeincluded,eventhoughthedecisionmakerwilllikelybevery unsureastowhichspecificeventswilloccur.Thesefutureuncontrollableeventsare referredtoasstatesofnature. Answer(D)isincorrect.Payoffsareoutcomemeasuressuchasprofitorloss.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[55] Gleim #: 1.5.148 -- Source: CMA 0408 1-179 ScarfCorporationscontrollerhasdecidedtouseadecisionmodeltocopewithuncertainty. Withaparticularproposal,currentlyunderconsideration,Scarfhastwopossibleactions, investornotinvestinajointventurewithaninternationalfirm.Thecontrollerhas determinedthefollowing. Action: InvestintheJointVenture

EventsandProbabilities: Probabilityofsuccess Costofinvestment Cashflowifinvestmentissuccessful Cashflowifinvestmentisunsuccessful Additionalcoststobepaid Costsincurreduptothispoint

= = = = = =

60% $9.5million $15.0million $2.0million $0 $650,000

Action: DoNotInvestintheJointVenture

Events: Costsincurreduptothispoint Additionalcoststobepaid

= $650,000 = $100,000

Whichoneofthefollowingalternativescorrectlyreflectstherespectiveexpectedvaluesof investingversusnotinvesting? A. B. C. D. $(350,000)and$(100,000). $(350,000)and$(750,000). $300,000and$(100,000). $300,000and$(750,000).

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.Theamountof$(350,000)resultsfromimproperlytreatingsunk costsasrelevantwhencalculatingtheexpectedvalueofinvesting. Answer(B)isincorrect.Theamountsof$(350,000)and$(750,000)resultfromimproperly treatingsunkcostsasrelevant. Answer(C)iscorrect.Whenmonetaryoutcomesandprobabilitiescanbereasonably estimated,apayofftablecanbeconstructedtodeterminethebestcourseofaction: Decision Alternative Invest Stateof Nature Success Nosuccess Expected Value $9,000,000 800,000 (9,500,000) 0 $300,000 $0 0 0 (100,000) $(100,000)

CashInflow $15,000,000 2,000,000

Probability 0.6 = 0.4 = Costofinvestment Additionalcosts Netexpectedvalue 0.6 = 0.4 = Costofinvestment Additionalcosts Netexpectedvalue

DoNot Invest

Success Nosuccess

$0 0

Answer(D)isincorrect.Theamountof$(750,000)resultsfromimproperlytreatingsunk costsasrelevantwhencalculatingtheexpectedvalueofnotinvesting. [56] Gleim #: 1.1.34 -- Source: CMA 0408 2-017 Suboptimaldecisionmakingisnotlikelytooccurwhen A. Thereislittlecongruenceamongtheoverallorganizationgoals,thesubunitgoals,and theindividualgoalsofdecisionmakers. B. Thesubunitsintheorganizationcompetewitheachotherforthesameinputfactorsor forthesamecustomers. C. Goalsandstandardsofperformancearesetbythetopmanagement. D. Guidanceisgiventosubunitmanagersabouthowstandardsandgoalsaffectthem. Answer(A)isincorrect.lowcongruenceamongtheoverallorganizationgoals,the subunitgoals,andtheindividualgoalsofdecisionmakersincreasesthechancesof suboptimaldecisionmaking. Answer(B)isincorrect.,whenthesubunitsintheorganizationcompetewitheach otherforthesameinputfactorsorforthesamecustomers,thechancesofsuboptimal decisionmakingareincreased. Answer(C)isincorrect.,whengoalsandstandardsaredictatedbythetop management,thechancesofsuboptimaldecisionmakingareincreased. Answer(D)iscorrect.Suboptimaldecisionmakingisnotlikelytooccurwhen guidanceisgiventosubunitmanagersabouthowstandardsandgoalsaffectthem.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[57] Gleim #: 1.1.26 -- Source: CMA 0408 2-007 Indevelopingthebudgetforthenextyear,whichoneofthefollowingapproacheswould producethegreatestamountofpositivemotivationandgoalcongruence? A. Havethedivisionalandseniormanagementjointlydevelopgoalsandobjectiveswhile constructingthecorporationsoverallplanofoperation. B. Permitthedivisionalmanagertodevelopthegoalforthedivisionthatinthemanagers viewwillgeneratethegreatestamountofprofits. C. Havethedivisionalandseniormanagementjointlydevelopgoalsandthedivisional managerdeveloptheimplementationplan. D. Haveseniormanagementdeveloptheoverallgoalsandpermitthedivisionalmanager todeterminehowthesegoalswillbemet. Answer(A)isincorrect.seniormanagementmaynotbeinapositiontodevelopan implementationplan. Answer(B)isincorrect.usingdivisionmanagerstodeveloptheirgoalsdoesnothing forgoalcongruence. Answer(C)iscorrect.Jointdevelopmentofgoalsismoreconducivetomotivation,as isallowingdivisionalmanagerstodeveloptheimplementationplan.Goalcongruenceis enhancedwhenseniormanagementisinvolvedinthebudgetingprocessalongwith divisionmanagers. Answer(D)isincorrect.havingseniormanagementsetgoalswouldnotbeas conducivetomotivationaswouldhavinginputfromdivisions. [58] Gleim #: 1.2.68 -- Source: CMA 0408 1-140 TheresultsofregressingYagainstXareasfollows: Coefficient 5.23 1.54

Intercept Slope

WhenthevalueofXis10,theestimatedvalueofYis A. B. C. D. 53.84 6.78 8.05 20.63

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.Thefigure53.84resultsfromtransposingtheinterceptandslope. Answer(B)isincorrect.Thefigure6.78resultsfromsimplyaddingtheinterceptandslope. Answer(C)isincorrect.Thefigure8.05resultsfromsimplymultiplyingtheinterceptand slope. Answer(D)iscorrect.Asimpleregressioncanbecalculatedusingtheformulafora straightline: y=a+bx Where:y a b x = = = = thedependentvariable theY-axisintercept theslopeoftheregressionline theindependentvariable

Solvingwiththeinformationgivenyieldsthefollowingresults: y= = = = a+bx 5.23+(1.5410) 5.23+15.4 20.63

[59] Gleim #: 1.5.138 -- Source: CMA 689 5-27 (ReferstoFactPattern#7) Usingtheexpectedvaluecriterion, A. B. C. D. Theautomaticmachineshouldbeusedbecauseofthehighexpecteddemand. Thesemiautomaticmachineshouldbeusedbecauseithasthelowestexpectedcost. Thesinglepurposemachineshouldbeusedbecauseofthelowexpecteddemand. Theautomaticmachinehasthelowestexpectedcost. Answer(A)isincorrect.Theautomaticmachineisnotthebestchoicebasedonthe expecteddemandlevel. Answer(B)iscorrect.Thesemiautomaticmachinehasanexpectedcostof$170,000 basedonanexpecteddemandof300,000units[(.4200,000)+(.3300,000)+(.2 400,000)+(.1500,000)].Thesinglepurposemachinehasanexpectedcostof $200,000[($.60300,000)+$20,000].Theautomaticmachinehasanexpectedcost of$180,000[($.20300,000)+$120,000)].Hence,thesemiautomaticmachinehas thelowestexpectedcostattheexpectedlevelofdemand. Answer(C)isincorrect.Thesinglepurposemachineisnotthebestchoicebasedonthe expecteddemandlevel. Answer(D)isincorrect.Theautomaticmachinehasthesecondlowestexpectedcost.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[60] Gleim #: 1.6.160 -- Source: CMA 0408 1-143 Amanufacturingfirmplanstobidonaspecialorderof80unitsthatwillbemanufacturedin lotsof10unitseach.Theproductionmanagerestimatesthatthedirectlaborhoursperunit willdeclinebyaconstantpercentageeachtimethecumulativequantityofunitsproduced doubles.Thequantitativetechniqueusedtocapturethisphenomenonandestimatethedirect laborhoursrequiredforthespecialorderis A. B. C. D. Linearprogramminganalysis. TheMarkovprocess. Cost-profit-volumeanalysis. Learningcurveanalysis. Answer(A)isincorrect.linearprogrammingisamathematicaltechniqueusedto optimizealinearfunctionsubjecttocertainconstraints. Answer(B)isincorrect.theMarkovprocessisusedindecisionproblemsinwhichthe probabilityoftheoccurrenceofafuturestatedependsonlyonthecurrentstate. Answer(C)isincorrect.cost-volume-profitanalysisisatoolforunderstandingthe interactionofrevenueswithfixedandvariablecosts. Answer(D)iscorrect.Learningcurveanalysisisusedtoprojectproductivitygains resultingfromtheincreasedrateatwhichpeopleperformtasksastheygainexperience. [61] Gleim #: 1.1.35 -- Source: CMA 0408 2-018 Allofthefollowingstatementsconcerningstandardcostsarecorrectexceptthat A. Timeandmotionstudiesareoftenusedtodeterminestandardcosts. B. Standardcostsareusuallysetforoneyear. C. Standardcostsareusuallystatedintotal,whilebudgetedcostsareusuallystatedona per-unitbasis. D. Standardcostscanbeusedincostinginventoryaccounts. Answer(A)isincorrect.timeandmotionstudiesareoftenusedtodeterminestandard costs. Answer(B)isincorrect.standardcostsareusuallysetforoneyear. Answer(C)iscorrect.Standardcostscanbeusedattheper-unitlevelandanylevelof aggregationabove. Answer(D)isincorrect.standardcostscanbeusedincostinginventoryaccounts.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[62] Gleim #: 1.1.31 -- Source: CMA 0408 2-013 Budgetingproblemswheredepartmentalmanagersarerepeatedlyachievingeasygoalsor failingtoachievedemandinggoalscanbebestminimizedbyestablishing A. Preventivecontrols. B. Bettercommunicationwherebymanagersdiscussbudgetmattersdailywiththeir superiors. C. Apolicythatallowsmanagerstobuildslackintothebudget. D. Participativebudgetingwheremanagerspursueobjectivesconsistentwiththosesetby topmanagement. Answer(A)isincorrect.preventivecontrolsismuchtoovagueaterminthis circumstance. Answer(B)isincorrect.simplydiscussingbudgetmattersmoreoftendoesnotinject disciplineintotheprocess. Answer(C)isincorrect.apolicyallowingbudgetaryslackwouldmaketheproblem worse. Answer(D)iscorrect.Participativebudgetingisapracticalmeansofsettingrealistic, achievablebudgetgoals. [63] Gleim #: 1.5.147 -- Source: CMA 0408 1-178 Denton,Inc.manufacturesindustrialmachineryandrequires100,000switchesperyearinits assemblyprocess.Whenswitchesarereceivedfromavendortheyareinstalledinthespecific machineandtested.Iftheswitchesfail,theyarescrappedandtheassociatedlaborcostof $25isconsideredlostproductivity.Dentonpurchasesofftheshelfswitchesasopposedto custom-madeswitchesandexperiencesqualityproblemswithsomevendorsproducts.A decisionmustbemadeastowhichvendortobuyfromduringthenextyearbasedonthe followinginformation. Percentageexpected topassthetest 90% 94% 97% 99%

Vendor P Q R S

Priceperswitch $35 37 39 40

WhichvendorshouldDentonscontrollerrecommendtomanagement? A. B. C. D. VendorR. VendorQ. VendorP. VendorS.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
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Answer(A)isincorrect.thetotalcostofusingVendorRisgreaterthanthatofVendorP. Answer(B)isincorrect.thetotalcostofusingVendorQisgreaterthanthatofVendorP. Answer(C)iscorrect.Thetotalcostofbuyingfromeachvendorcanbecalculatedas follows: Annual Total Unit Quantity Purchase % Vendor Price Purchased Price Unusable P $35 100,000 $3,500,000 10% Q 37 100,000 3,700,000 6% R 39 100,000 3,900,000 3% S 40 100,000 4,000,000 1%

Quantity Costof Unusable Scrapping TotalCost 10,000 $250,000 $3,750,000 6,000 150,000 3,850,000 3,000 75,000 3,975,000 1,000 25,000 4,025,000

Answer(D)isincorrect.thetotalcostofusingVendorSisgreaterthanthatofVendorP. [64] Gleim #: 1.2.66 -- Source: CMA 0408 1-138 SlawfordManufacturingdevelopedthefollowingmultipleregressionequation,utilizing manyyearsofdata,andusesittomodel,orestimate,thecostofitsproduct. Cost=FC+(aL)+(bM)

Where:FC = fixedcosts L = laborrateperhour M = materialcostperpound

Whichoneofthefollowingchangeswouldhavethegreatestimpactoninvalidatingthe resultsofthismodel? A. Renegotiationoftheunioncontractcallingformuchhigherwagerates. B. Asignificantchangeinlaborproductivity. C. Alargedropinmaterialcosts,asaresultofpurchasingthematerialfromaforeign source. D. Asignificantreductioninfactoryoverheads,whichareacomponentoffixedcosts.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)isincorrect.thewagerateisoneofthevariables,andadifferencebetween expectedandactualvalueforthevariablesisanintegralpartofmultipleregression. Answer(B)iscorrect.Inmultipleregression,alargedifferencebetweentheexpectedvalue andtheactualvalueofoneofthecoefficientshasthemostimpactinrenderingthemodel invalid.Achangeincostswouldbeincorporatedintotheequationautomatically,buta changeinproductivityperhourwouldnot. Answer(C)isincorrect.materialscostisoneofthevariables,andadifferencebetween expectedandactualvalueforthevariablesisanintegralpartofmultipleregression. Answer(D)isincorrect.fixedcostisoneofthevariables,andadifferencebetween expectedandactualvalueforthevariablesisanintegralpartofmultipleregression. [65] Gleim #: 1.5.149 -- Source: CMA 0408 1-180 AllbeeCompanyhasthreepossibleinvestmentopportunities.Thecontrollercalculatedthe payoffsandprobabilitiesasfollows: Probabilities InvestmentB .2 .2 .2 .2 .2

Payoffs InvestmentA $(20,000) .3 (10,000) .1 30,000 .3 70,000 .2 100,000 .1

InvestmentC .3 .1 .2 .3 .1

ThecostofinvestmentsA,B,andCarethesame.Usingtheexpected-valuecriterion,which oneofthefollowingrankingsoftheseinvestments,fromhighestpayofftolowestpayoff,is correct? A. B. C. D. B,A,C. A,B,C. C,A,B. B,C,A.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
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Answer(A)isincorrect.InvestmentChasahigherexpectedvaluethanInvestmentA. Answer(B)isincorrect.InvestmentBhasahigherexpectedvaluethanInvestmentA. Answer(C)isincorrect.InvestmentBhasahigherexpectedvaluethanbothInvestmentC andInvestmentA. Answer(D)iscorrect.Whenmonetaryoutcomesandprobabilitiescanbereasonably estimated,apayofftablecanbeconstructedtodeterminethebestcourseofaction: InvestmentA Payoffs Probability $(20,000) 0.3 (10,000) 0.1 30,000 0.3 70,000 0.2 100,000 0.1 Total InvestmentC Payoffs Probability $(20,000) 0.3 (10,000) 0.1 30,000 0.2 70,000 0.3 100,000 0.1 Total Expected Value $(6,000) (1,000) 6,000 21,000 27,000 $47,000 Expected Value $(6,000) (1,000) 9,000 14,000 23,000 $39,000 InvestmentB Payoffs Probability $(20,000) 0.2 (10,000) 0.2 30,000 0.2 70,000 0.2 100,000 0.2 Total Expected Value $(4,000) (2,000) 6,000 14,000 20,000 $34,000

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[66] Gleim #: 1.5.151 -- Source: CMA 0408 1-182 StockXhasthefollowingprobabilitydistributionofexpectedfuturereturns: Expected Return 20% 5% 15% 20% 30%

Probability .1 .2 .4 .2 .1

TheexpectedrateofreturnonStockXis A. B. C. D. 16% 10% 12% 19% Answer(A)isincorrect.Thispercentageresultsfromfailingtotreatthe20%return figureasareduction. Answer(B)isincorrect.Thispercentageresultsfromimproperlysummingthe expectedratesofreturnanddividingbythenumberofoccurrences. Answer(C)iscorrect.Expectedvaluecomputationcanbeappliedtoratesofreturnas wellastodollaramounts. Weighted Expected Return 2% 1% 6% 4% 3% 12%

Probability 0.1 0.2 0.4 0.2 0.1

Expected Return 20% 5% 15% 20% 30%

Answer(D)isincorrect.Thispercentageresultsfromoverstatingthereturnsatthe higherexpectedreturns.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
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[67] Gleim #: 1.3.101 -- Source: CMA 0408 1-147 MartinFabricatingusesacumulativeaverage-timelearningcurvemodeltomonitorlabor costs.Dataregardingtworecentlycompletedbatchesofapartthatisusedintractor-trailer rigsisasfollows: Batch Number 1 2 Number ofUnits 50 50 CumulativeAverage HoursPerUnit 20 16

Ifthesamerateoflearningcontinuesforthenextseveralbatchesproduced,whichofthe followingbestdescribes(1)thetype(i.e.,degree)oflearningcurvethatthefirmis experiencingand(2)theaveragehoursperunitforunitsincludedinthe201-400rangeof unitsproduced(i.e.,thelast200units)? Type(Degree)of LearningCurve A. B. C. D. 80% 20% 20% 80% AverageHoursPer UnitforUnits201-400 10.24 3.84 10.24 7.68

Answer(A)isincorrect.Thenumber10.24isthecumulativeaveragenumberofhours afterthe4thbatch,nottheaveragespentontheunitsinthebatch. Answer(B)isincorrect.Twentypercentisthecomplementofthelearningcurve,and improperlyhalvingthetimespentontheunitsinthe4thbatch. Answer(C)isincorrect.Twentypercentisthecomplementofthelearningcurve,and 10.24isthecumulativeaveragenumberofhoursforallunitsafterthe4thbatch,not thetimespentontheunitsinthe4thbatch. Answer(D)iscorrect.Thelearningcurvepercentageisdeterminedbynotingthe hoursusedinproducingthefirstdoublingofoutputasapercentageofthehoursused intheoriginalbatch.Since16is80%of20,Martinisexperiencingan80%learning curve.Theaveragehoursusedtoproducethe4thbatchofoutput(units201400)can becalculatedasfollows: Units Cumulative Cumulative in Units Average Batch Batch Produced LaborHours 1 50 50 20 2 50 100 16 3 100 200 12.8 4 200 400 10.24 Cumulative Total Time 1,000 1,600 2,560 4,096 TimeSpent on Batch 1,000 600 960 1,536 TimeSpent onUnits inBatch 20 12 9.6 7.68

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
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[68] Gleim #: 1.5.144 -- Source: CMA 683 5-8 Acompanyissimulatingtheactionsofagovernmentagencyinwhich50%ofthetimea recallofaproductisrequired,40%ofthetimeonlynotificationofthebuyerabouta potentialdefectisrequired,and10%ofthetimenoactiononitspartisrequired.Random numbersof1to100arebeingused.Anappropriateassignmentofrandomnumbersforthe recallcategorywouldbe A. B. C. D. 11-60 40-90 1-40 61-100 Answer(A)iscorrect.Givena50%chanceofarecall,50differentnumbersshouldbe assignedtothatalternative.Theanswer(11-60)istheonlyalternativewith50 numbers. Answer(B)isincorrect.Theassignmentof40-90includes51numbers. Answer(C)isincorrect.Theassignmentof1-40isanappropriateassignmentof randomnumbersforthenotificationcategory. Answer(D)isincorrect.Theassignmentof61-100isanappropriateassignmentof randomnumbersforthenotificationcategory. [69] Gleim #: 1.1.29 -- Source: CMA 0408 2-011 RockIndustrieshasfourdivisions.Inthequesttodevelopamoreachievablebudgetforthe comingyear,thechiefexecutiveofficerhaselectedtodevelopthecompanysbudgetby usingadecentralizedbottom-upbudgetapproach.ChipJonesisproductionmanagerinone ofthedivisions.Jonesinvolvementinthebudgetprocessthisyearwillprobably A. Benegligible. B. Requiredevelopmentofaproductionbudgetafterreceivingthedivisionsprojected salesforecast. C. Requiredevelopmentofaproductionbudgetbasedontheprioryearsmanufacturing activity. D. RequiredevelopmentofaproductionbudgetthatisforwardedtotheBudget Department. Answer(A)isincorrect.theproductionmanagermustbeinvolvedinthebudget process. Answer(B)iscorrect.Managementofthedivisionisresponsibleforsettingthesales forecast.Asproductionmanager,Joneshastheresponsibilityofensuringtheproducts arereadyonscheduleandintherightquantities. Answer(C)isincorrect.currentyearprojectionsarerelevanttoabudget,notprior yearactivity. Answer(D)isincorrect.aproductionmanagercannotdevelopabudgetforproduction until(s)hehasbeentoldwhatthesalesforecastis.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[70] Gleim #: 1.1.21 -- Source: Publisher Whichofthefollowingstatementsregardingbudgetsisfalse? A. B. C. D. Abudgetisaplanthatcontainsaquantitativestatementofexpectedresults. Budgetsmaybedevelopedforcashflowsorlaborusage. Budgetsareusedonlyasaplanningfunction. Budgetspresentorganizationalplansinaformal,logical,andintegratedmanner. Answer(A)isincorrect.Itisatruestatementregardingbudgeting. Answer(B)isincorrect.Itisatruestatementregardingbudgeting. Answer(C)iscorrect.Budgetformulationisaplanningfunction;however,budgets arealsousefulcontroldevices.Budgetsprovideabasisforcontrolofperformance throughcomparisonsofactualwithbudgeteddata.Theypermitanalysisofvariations fromplansandsignaltheneedforcorrectivemanagerialaction. Answer(D)isincorrect.Itisatruestatementregardingbudgeting. [Fact Pattern #8] TheBoosterClubatBlairCollegesellshotdogsathomebasketballgames.Thegrouphasa frequencydistributionofthedemandforhotdogspergameandplanstoapplytheexpectedvalue decisionruletodeterminethenumberofhotdogstostock. [71] Gleim #: 1.5.136 -- Source: CMA 691 4-2 (ReferstoFactPattern#8) TheBoosterClubshouldselectthedemandlevelthat A. B. C. D. Isclosesttotheexpecteddemand. Hasthegreatestprobabilityofoccurring. Hasthegreatestexpectedmonetaryvalue. Hasthegreatestexpectedopportunitycost. Answer(A)isincorrect.Stockinganamountequaltoexpecteddemand(thesumofthe productsofthepossibleamountsdemandedandtheirrespectiveprobabilities)doesnot necessarilymaximizeexpectedprofits. Answer(B)isincorrect.Thenumberofbagstostockisnotnecessarilythesameasthe amountdemandedwiththehighestprobability.Theinventorydecisionshouldbebased ontherelationoftheprobabilitydistributiontothemonetaryoutcomes. Answer(C)iscorrect.TheBoosterClubshouldselectthedemandlevelthat maximizesprofits,thatis,thelevelwiththegreatestexpectedmonetaryvalue.This levelmaynotincludetheeventwiththehighestconditionalprofitbecausethisprofit maybeaccompaniedbyalowprobabilityofoccurrence.Alternatively,theeventwith thehighestprobabilityofoccurrencemaynotbeselectedbecauseitdoesnotoffera highconditionalprofit. Answer(D)isincorrect.Thegreatestopportunitycostisnotfactoredintotheexpected valueanalysis.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[72] Gleim #: 1.3.102 -- Source: CMA 0408 1-150 Amanufacturingcompanyrequired800directlaborhourstoproducethefirstlotoffour unitsofanewmotor.Managementbelievesthata90%learningcurvewillbeexperienced overfourlotsofproduction.Howmanydirectlaborhourswillberequiredtomanufacture thenext12units? A. B. C. D. 2,016 1,792 1,944 2,160 Answer(A)isincorrect.a90%learningcurveproducesanincrementalproductiontime of1,792. Answer(B)iscorrect.Witha90%learningcurve,thecumulativeproductiontimes wouldbeasfollows: Cumulative Time 800 1,440 2,592

Batch 1 2 4

AverageTime 800 720(80090%) 648(72090%)

Subtractingthe800hoursspentonthefirstbatchfromthecumulativetimeforfour batchesleaves1,792hoursforthelastthreebatches(12units). Answer(C)isincorrect.a90%learningcurveproducesanincrementalproductiontime of1,792. Answer(D)isincorrect.a90%learningcurveproducesanincrementalproductiontime of1,792.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

[73] Gleim #: 1.5.141 -- Source: CMA 0205 CarsonProductssellsweatshirtsandispreparingforaWorldCupSoccermatch.Thecost persweatshirtvarieswiththequantitypurchasedasfollows. Quantity 4,000 5,000 6,000 7,000 Unitcost $14.00 13.50 13.00 12.50

Carsonmustpurchasethesweatshirtsonemonthbeforethegameandhasanalyzedthe marketandestimatedsaleslevelsasfollows. Unitsales Probability 4,000 15% 5,000 20% 6,000 35% 7,000 30%

Theestimatedsellingpriceis$25forsalesmadebeforeandduringgameday.Any sweatshirtsremainingaftergamedaycanbesoldatwholesaletoalocaldiscountstorefor $10. TheexpectedprofitifCarsonpurchased6,000shirtsis A. B. C. D. $64,500 $72,000 $66,000 $69,000

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
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Answer(A)iscorrect.Anexpectedvalueforeachlevelofdemandisderivedbyweighting theprofitforthatlevelbytheprobabilityofitsoccurrence.Thecostofgoodsisthesamein everycasebecause6,000sweatshirtsarebeingpurchasedwithoutcertainknowledgeof whatdemandwillbe.Also,thegamedayrevenueforthe7,000demandlevelisthesameas for6,000sinceCarsononlyhas6,000sweatshirtsavailableforsale. DemandLevel 5,000 6,000 $125,000 $150,000 (78,000) (78,000)

Gamedayrevenue@$25ea. Costofgoods(6,000@$13 ea.) Remainder (2,000@$10 revenue ea.) (1,000@$10 ea.) (0@$10ea.) Totalprofit Probability Expectedvalue

4,000 $100,000 (78,000) 20,000

7,000 Total $150,000 (78,000)

10,000 0 $72,000 35% $25,200 0 $72,000 30% $21,600 $64,500

$42,000 15% $6,300

$57,000 20% $11,400

Answer(B)isincorrect.Improperlyusing7,000unitsalesatthe7,000demandlevel(only 6,000shirtsareavailableforsale)resultsin$72,000. Answer(C)isincorrect.Improperlyusingaunitcostof$14.00forallunitsandfailingto weightthetotalprofitsresultsin$66,000. Answer(D)isincorrect.Improperlyusingaunitcostof$13.50forallunitsandfailingto weightthetotalprofitsresultsin$69,000.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
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[74] Gleim #: 1.3.92 -- Source: CIA 1193 III-69 Managementofabookkeepingcompanyobservedthattheaveragetimespenttoperform identicaltasksusinganewsoftwarepackagedecreasesasthenumberoftasksperformed increases.Thefollowinginformationontheuseofthenewsoftwarewascollected. Numberof Tasks Performed 1 2 4 TotalTimeto PerformAll Tasks 10minutes 18minutes 32.4minutes AverageTime toPerform EachTask 10minutes 9minutes 8.1minutes

Ifthislearningeffectcontinues,whatistheaveragetimetoperformeachofthefirsteight tasks? A. B. C. D. 6.56minutes. 5.90minutes. 8.1minutes. 7.29minutes. Answer(A)isincorrect.Thecumulativeaveragetimefor16tasksis6.56minutes. Answer(B)isincorrect.Thecumulativeaveragetimefor32tasksis5.90minutes. Answer(C)isincorrect.Thecumulativetimeforfourtasksis8.1minutes. Answer(D)iscorrect.Learningcurvesreflecttheincreasedrateatwhichpeople performtasksastheygainexperience.Thetimerequiredtoperformagiventask becomesprogressivelyshorter.Thistechniqueisapplicableonlytotheearlystagesof productionortoanynewtask.Onecommonassumptionisthatthecumulativeaverage timeperunitisreducedbyafixedpercentageeachtimecumulativeproductionis doubled.Basedonthegivendata,thiscompanyhasa90%learningcurve(90%10 minutes=9minutes,and90%9minutes=8.1minutes).Accordingly,thecumulative averagetimetoperformeighttasksis7.29minutes(90%8.1minutes). [75] Gleim #: 1.3.96 -- Source: CMA 0408 1-149 (ReferstoFactPattern#5) Aftercompletingthefirstunit,theestimatedtotaldirectlaborhoursAerosubwillrequireto producethesevenadditionalunitswillbe A. B. C. D. 30,960hours. 40,960hours. 70,000hours. 56,000hours.

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Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(75 que stions)

Answer(A)iscorrect.Thecumulativetotalhoursspentontheunitscanbecalculatedas follows: Cumulative Units Produced 1 2 4 8 Cumulative Average LaborHours 10,000 8,000(10,00080%) 6,400(8,00080%) 5,120(6,40080%) Cumulative Total LaborHours 10,000 16,000 25,600 40,960

Batch 1 2 3 4

Sinceittookatotalof40,960hourstocompletealleightunitsand10,000tocompletethe firstone,units2through8took30,960hours(40,96010,000). Answer(B)isincorrect.Thefigure40,960isthenumberofhourstocompletealleight units. Answer(C)isincorrect.Thefigure70,000resultsfromimproperlymultiplyingtheseven unitsbythe10,000averagelaborhoursconsumedinproducingthefirstunit. Answer(D)isincorrect.Thefigure56,000resultsfromimproperlymultiplyingtheseven unitsbythe8,000averagelaborhoursconsumedinproducingthesecondbatch.

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