CMA Test 4

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Question 1 of 10

1. Question

A division currently has net operating income of $240,000 and total assets of $1,000,000, giving a current ROI of 24%. The company’s minimum required rate of return is 14%. The division manager is evaluating a new project that requires $400,000 in assets and is expected to generate annual net operating income of $72,000.

If the division manager’s performance is evaluated using Return on Investment (ROI), would the manager accept the investment? What about if evaluated using Residual Income (RI)?

Accept under both ROI and RI — the new project ROI of 18% exceeds the hurdle rate of 14%.
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Reject under ROI; Accept under RI — the project dilutes the division's current ROI but generates positive residual income above the hurdle rate.
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Accept under ROI; Reject under RI — the project improves ROI but generates negative residual income.
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Reject under both ROI and RI — the new project NOI of $72,000 is insufficient to justify the $400,000 investment.
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Question 2 of 10

2. Question

In the Balanced Scorecard, the ‘Learning and Growth’ perspective typically focuses on:

Improving the company's stock price.
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Reducing the cycle time of a manufacturing process.
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Employee training and corporate culture.
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Increasing the market share in a new region.
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Question 3 of 10

3. Question

A cost that remains constant in total but decreases per unit as production volume increases is a:

Variable cost.
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Fixed cost.
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Mixed cost.
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Sunk cost.
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Question 4 of 10

4. Question

Which of the following is a ‘Conversion Cost’?

Direct Materials.
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Sales Commissions.
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Manufacturing Overhead.
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CEO Salary.
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Question 5 of 10

5. Question

Direct materials and direct labor are both examples of:

Period costs.
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Prime costs.
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Conversion costs.
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Indirect costs.
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Question 6 of 10

6. Question

A ‘Relevant Range’ is the range of activity over which:

The company can operate at 100% capacity.
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Total fixed costs and variable cost per unit remain constant.
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The company is profitable.
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The market price of the product remains stable.
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Question 7 of 10

7. Question

What is the primary difference between absorption costing and variable costing?

The treatment of direct labor.
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The treatment of variable manufacturing overhead.
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The treatment of fixed manufacturing overhead.
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The treatment of selling and administrative expenses.
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Question 8 of 10

8. Question

Which of the following costing methods is most appropriate for a company that produces unique, custom-made products?

Process costing.
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Job-order costing.
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Backflush costing.
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Operation costing.
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Question 9 of 10

9. Question

Which cost driver is most likely appropriate for a ‘Product-level’ activity?

Machine hours.
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Direct labor hours.
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Number of engineering change orders.
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Number of units produced.
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Question 10 of 10

10. Question

In a process costing system using the weighted-average method, ‘Equivalent Units’ are calculated to:

Determine the physical count of units in the warehouse.
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Account for the work done on partially completed units.
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Allocate selling expenses to different departments.
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Calculate the profit margin for a specific job.
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Quiz Summary

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1. Question

If the division manager’s performance is evaluated using Return on Investment (ROI), would the manager accept the investment? What about if evaluated using Residual Income (RI)?

2. Question

In the Balanced Scorecard, the ‘Learning and Growth’ perspective typically focuses on:

3. Question

A cost that remains constant in total but decreases per unit as production volume increases is a:

4. Question

Which of the following is a ‘Conversion Cost’?

5. Question

Direct materials and direct labor are both examples of:

6. Question

A ‘Relevant Range’ is the range of activity over which:

7. Question

What is the primary difference between absorption costing and variable costing?

8. Question

Which of the following costing methods is most appropriate for a company that produces unique, custom-made products?

9. Question

Which cost driver is most likely appropriate for a ‘Product-level’ activity?

10. Question

In a process costing system using the weighted-average method, ‘Equivalent Units’ are calculated to: