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CMA Learning System, Version 3.

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Session 1
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CMA Learning System, Part 2: Financial Decision Making, Version 3.0, 2
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CMA Learning System, Version 3.0, 2
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Part 2 Participants Guide




Session 2
Updated Exercise and Slides





These updated slides are being provided to update the CMA Learning System with suggestions received by
instructors of the CMA Learning System, and to provide further discussions and clarifications relevant to the
content of the CMA Exam. These slides are to provide replacements of those slides that have been requested
be updated. In the updates and errata process, it is important to include those suggestions that are deemed
necessary and in alignment with the CMA Exam.
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CMA Learning System, Part 2: Financial Decision Making, Version 3.0, 2
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Session 2 Exercise: Financial Statement Analysis Ratios

Al l-Things, Inc.
Comparative Statement of Financial Position
As of May 31
(in thousands)
Year 3 Year 2
Cash $ 400 $ 500
Marketable securities (at cost) 500 500
Accounts receivable (net) 3,200 2,600
Inventory 5,800 5,400
Total current assets 9,900
Property, plant, and equipment (net)
9,000
7,100 7,000
Total assets $17,000 $16,000

Accounts payable $3,700 $3,400
Income taxes payable 900 800
Accrued expenses 1,700 1,400
Total current liabilities 6,300
Long-term debt
5,600
2,000 1,800
Total liabilities 8,300

7,400

Common stock ($1 par value) 2,700 2,700
Paid-in-capital in excess of par 1,000 1,000
Retained earnings 5,000 4,900
Total shareholders equity 8,700

8,600

Total liabilities and shareholders equity $17,000 $16,000

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Session 2 Exercise Solution: Financial Statement Analysis Ratios
Net Profit Margin Percentage
Measures the net income generated by each dollar of sales. The net profit margin ratio provides
some indication of the ability of the firm to absorb cost increases or sales declines.
All-Things net profit margin has been improving and is currently above the industry average.
The improvement in net profit margin further indicates the ability of the firm to weather soft
economic periods, pay down debt, or take on additional debt for expansion.
C. At least two limitations of ratio analysis include the following:
It is often difficult to make comparisons among firms within an industry due to accounting
differences. Different numbers can be shown in the financial statements for the same economic
event because of different accounting methods, such as straight-line versus accelerated
depreciation, LIFO versus FIFO inventory, and so forth.
Ratios represent past conditions that may not indicate future trends.
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CMA Learning System, Version 3.0, 2
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Part 2 Participants Guide




Session 3
Updated Slides






These updated slides are being provided to update the CMA Learning System with suggestions received by
instructors of the CMA Learning System, and to provide further discussions and clarifications relevant to the
content of the CMA Exam. These slides are to provide replacements of those slides that have been requested
be updated. In the updates and errata process, it is important to include those suggestions that are deemed
necessary and in alignment with the CMA Exam.
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CMA Learning System, Part 2: Financial Decision Making, Version 3.0, 2
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CMA Learning System, Version 3.0, 2
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Part 2 Participants Guide





Session 4
Updated Slides






These updated slides are being provided to update the CMA Learning System with suggestions received by
instructors of the CMA Learning System, and to provide further discussions and clarifications relevant to the
content of the CMA Exam. These slides are to provide replacements of those slides that have been requested
be updated. In the updates and errata process, it is important to include those suggestions that are deemed
necessary and in alignment with the CMA Exam.
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CMA Learning System, Part 2: Financial Decision Making, Version 3.0, 2
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Session 4 Exercise Solution: Current Variance (Page 106)

3. Material quantity variance =
standard price x [(standard usage per unit x actual units produced) actual quantity used]


Standard Price Ounces Used*

Cookie mix 0.02 x [(10 x 450,000 units) 4,650,000] = $ 3,000
U
Milk chocolate 0.15 x [(5 x 450,000 units) 2,660,000] = 61,500
U
Almonds 0.50 x [(1 x 450,000 units) 480,000] = 15,000
U
$79,500
U
* (Standard ounces x actual units produced) actual units used = variance


4. Labor efficiency variance = standard hourly rate x (standard hours actual hours)


Standard Cost Minutes Used*

Mixing ($14.40/hr.
60 minutes)
x [(1 min. x 450,000 units) 450,000 min.] = $ 0

Baking ($18.00/hr.
60 minutes)
x [(2 min. x 450,000 units) 800,000 min.] = 30,000

$30,000 F
* [(Standard minutes x actual units produced) actual minutes used) = variance


5. Variable overhead efficiency variance = standard hourly rate x (standard hours actual hours)
$32.40/hr
60 min.
(
450,000 min. + 800,000 min.
)] =
$54,000 F
[(
3 min. x 450,000 units
) - x

6. Variable overhead spending variance =
(actual min. x standard overhead rate) actual variable overhead





7. Contribution margin volume variance =
budgeted unit contribution* x (actual units budgeted units)




* $1,636,000 contribution margin
400,000 budgeted units
= $4.09



$4.09 x (450,000 units 400,000 units) = $204,500 F

$32.40/hr.
60 min.
-
$750,000
=
$75,000 U 450,000 min. + 800,000 min.
x
)] ( [( )
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CMA Learning System, Version 3.0, 2
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Part 2 Participants Guide





Session 5
Updated Slides






These updated slides are being provided to update the CMA Learning System with suggestions received by
instructors of the CMA Learning System, and to provide further discussions and clarifications relevant to the
content of the CMA Exam. These slides are to provide replacements of those slides that have been requested
be updated. In the updates and errata process, it is important to include those suggestions that are deemed
necessary and in alignment with the CMA Exam.

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CMA Learning System, Part 2: Financial Decision Making, Version 3.0, 2
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CMA Learning System, Version 3.0, 2
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Session 6
Updated Slides






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content of the CMA Exam. These slides are to provide replacements of those slides that have been requested
be updated. In the updates and errata process, it is important to include those suggestions that are deemed
necessary and in alignment with the CMA Exam.

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CMA Learning System, Version 3.0, 2
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Part 2 Participants Guide





Session 7
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These updated slides are being provided to update the CMA Learning System with suggestions received by
instructors of the CMA Learning System, and to provide further discussions and clarifications relevant to the
content of the CMA Exam. These slides are to provide replacements of those slides that have been requested
be updated. In the updates and errata process, it is important to include those suggestions that are deemed
necessary and in alignment with the CMA Exam.
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CMA Learning System, Version 3.0, 2
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Part 2 Participants Guide





Session 8
Updated Exercise and Slides






These updated slides are being provided to update the CMA Learning System with suggestions received by
instructors of the CMA Learning System, and to provide further discussions and clarifications relevant to the
content of the CMA Exam. These slides are to provide replacements of those slides that have been requested
be updated. In the updates and errata process, it is important to include those suggestions that are deemed
necessary and in alignment with the CMA Exam.

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CMA Learning System, Part 2: Financial Decision Making, Version 3.0, 2
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Session 8 Exercise 1 Solution: Break-Even and Special Order
A. The break-even point in units is:

Fixed costs: $320,000 (cost of goods sold) +$20,000 (selling and administrative expenses) =
$340,000

Variable costs: $800,000 (cost of goods sold) +$100,000 (selling and administrative expenses) =
$900,000 total variable costs

Variable cost per unit:
$900,000
=$22.50 per unit
40,000 units


Contribution margin per unit: $40.00 (selling price per unit) $22.50 (variable cost per unit) =
$17.50 per unit

Break-Even in Units:
Total Fixed Costs
=
$340,000
= 19,429 units
Contribution Margin Per Unit $17.50

B. Special order cost analysis:
A special order is a one-time order that is not considered part of the companys normal ongoing
business. To analyze the special order, it is necessary to focus on the relevant costs associated
with the decision. Only the incremental revenue and costs are relevant to this decision.

Relevant revenue:
Revenue related to special order (6,000 units x $25.00) $150,000

Relevant cost:
Cost associated with the special order
(Variable costs directly related to producing this order)*
Increase in revenue from special order: $ 18,240
131,760

Yes, the special order should be accepted, since the increase in revenue is greater than the
increase in costs associated with the order.

*Variable cost per unit for special order:
Original variable cost adjusted for changes to variable cost structure =$22.50 $0.54 =$21.96
6000 units x $21.96 =$131,760

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CMA Learning System, Version 3.0, 2
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Session 9








These updated slides are being provided to update the CMA Learning System with suggestions received by
instructors of the CMA Learning System, and to provide further discussions and clarifications relevant to the
content of the CMA Exam. These slides are to provide replacements of those slides that have been requested
be updated. In the updates and errata process, it is important to include those suggestions that are deemed
necessary and in alignment with the CMA Exam.
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Session 10
Updated Exercise and Slides







These updated slides are being provided to update the CMA Learning System with suggestions received by
instructors of the CMA Learning System, and to provide further discussions and clarifications relevant to the
content of the CMA Exam. These slides are to provide replacements of those slides that have been requested
be updated. In the updates and errata process, it is important to include those suggestions that are deemed
necessary and in alignment with the CMA Exam.
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Session 10 Exercise 4: Profitability Index
Section D, Topic 4: Ranking Investment Projects
The Raines Company is evaluating the following three capital investment projects:

Project Cash Inflow
Year 0
Cash Inflow
Year 1
Cash Inflow
Year 2
Present Value of
Cash Flows at 10%
A $100,000 $100,000 $50,000 $132,200
B 50,000 50,000 200,000 210,650
C 50,000 50,000 150,000 169,350

The company has a $100,000 capital rationing limit. Calculate the profitability index for each
project and determine which project will generate the most money from the limited capital
available.

Note: Round all calculations to two decimal places (e.g., 1.54).
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Session 10 Exercise 4 Solution: Profitability Index
Correct answer: 4.21
The formula to determine profitability index (PI) is:

PV of Future Cash Flows
Profitability Index =
Total Initial Investment


Given the following information for the three projects, calculate the profitability index for each
one.

Project Investment Present Value of
Cash Flows at 10%
Profitability
Index
A $100,000 $132,200
B 50,000 210,650
C 50,000 169,350

The profitability index for each project is shown below.

Project Investment Present Value of
Cash Flows at 10%
Profitability
Index
A $100,000 $132,200 1.32
B 50,000 210,650 4.21
C 50,000 169,350 3.39

Project B has the highest profitability index, with 4.21. But given the capital rationing limit of
$100,000, projects B and C can both be recommended over project A because together they have
greater net present value and can provide the highest level of return without exceeding the
constraint.





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Session 11
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be updated. In the updates and errata process, it is important to include those suggestions that are deemed
necessary and in alignment with the CMA Exam
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