PART 2 Management Accounting and Reporting

TABLE OF CONTENTS

Introduction Sample questions Answers to sample questions (with learning outcome statements) Content specification outline IMA Ethical Standards

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2 3-23

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24-43 44-50 51-53

Attachments: Time Value of Money Tables Order forms for additional resources

Institute of Certified Management Accountants 10 Paragon Drive Montvale, New Jersey 07645-1760 (800) 638-4427 or (201) 474-1606 www.imanet.org

Sample Questions Part 2

Introduction
The Certified Management Accountant (CMA) is endorsed by the Institute of Management Accountants (IMA). The Institute of Certified Management Accountants (ICMA) is publishing this book of sample questions with answers to help you prepare for the CMA examination. This book is intended to familiarize you with the types of questions that you will encounter on the exams. This publication should be used as a supplement to other study materials. The book includes 65 sample questions, with a proportional representation from each of the sections within this part and at various cognitive levels. Recorded next to each question number is a topic reference to the content specification outline, which is also included in this publication. In addition, we have enclosed time value of money tables that are available to you on the computer when you take the exam. The answers to the questions, along with explanations and supporting calculations, are shown at the end of the question section. Textbook references and the relevant learning outcome statements are also included with the answer. The ICMA publishes a book of sample questions for each of the three multiple-choice parts of the revised CMA programs. We also publish Resource Guide for Revised CMA Exam, which includes comprehensive textbook references for all line items on the content specification outline, exam statistics, and exam taking strategies. In addition, those candidates who previously took and failed an exam part can order an Advanced Exam Performance report. This report tracks the details of the Examination Content Specification Outlines, helping you identify exactly what topics and subtopics you need to study. The report separately shows areas of study that need improvement based on your exam results, so that you can save time by focusing on your weakest areas and improve your score. The CMA and CFM Programs are rigorous tests of your skills and capabilities and require dedication to be successful. We hope that these sample questions will be a valuable resource as your pursue your goal of certification. Should you have questions about the certification process, please let us know or visit the Certification section of IMAs website www.imanet.org. Good luck on the exam!

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Sample Questions Part 2

SAMPLE QUESTIONS PART 2

1. Topic A.1.b. In the budgeting and planning process for a firm, which one of the following should be completed first? a. b. c. d. Sales budget. Financial budget. Cost management plan. Strategic plan.

2. Topic A.1.b. Which one of the following is most important to a successful budgeting effort? a. b. c. d. Experienced analysts. Integrated budget software. Reliable forecasts and trend analysis. Top management support.

3. Topic A.2.a. In preparing a corporate master budget, which one of the following is most likely to be prepared last? a. b. c. d. Sales budget. Cash budget. Production budget. Cost of Goods Sold budget.

4. Topic A.2.c. Which one of the following is not an advantage of activity-based budgeting? a. b. c. d. Better identification of resource needs. Linking of costs to outputs. Identification of budgetary slack. Reduction of planning uncertainty.

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Sample Questions Part 2 5. Topic A.2.e. The type of budget that is available on a continuous basis for a specified future period by adding a month, quarter, or year in the future as the month, quarter, or year just ended is deleted, is called a a. b. c. d. rolling budget. kaizen budget. activity-based budget. flexible budget.

6. Topic A.3.b. A large manufacturers forecast of total sales revenues for a year is least likely to be influenced by a. b. c. d. the seasonal pattern of sales revenues throughout the year. anticipated interest rates and unemployment rates. expected shortages of key raw materials. input from sales personnel.

7. Topic A.3.b. The starting point for creating a master budget for a proprietary secretarial school would be a. b. c. d. estimating salaries of the instructors. forecasting enrollment. preparing a capital expenditure budget. preparing the student recruiting budget.

d. Begin with budgeted laptop production in units, add the desired ending inventory of circuit boards, deduct the expected beginning inventory of circuit boards, and multiply the resulting amount by the budgeted purchase cost per circuit board. 8. Topic A.3.b. Swansons Sweets, a candy manufacturer, expects sales to increase during the upcoming year. In order to achieve this sales increase, the company plans to begin radio advertising and to change suppliers in order to receive higher quality materials. The most predictable cost for Swansons Sweets to budget is a(n) a. b. c. d. discretionary cost. engineered cost. infrastructure cost. noncommitted cost.

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Sample Questions Part 2 9. Topic A.3.a. Maximilian Computer Company uses a comprehensive budgeting system in planning its annual operations. Which of the following best describes the information needed in order to determine the budgeted cost of circuit boards to be purchased for use in building its laptop computer? Assume one circuit board is used in each laptop. a. Begin with budgeted laptop sales in units, add the desired ending inventory of circuit boards, deduct the expected beginning inventory of circuit boards, and multiply the resulting amount by the budgeted purchase cost per circuit board. b. Begin with budgeted laptop sales in units, deduct the desired ending inventory of circuit boards, add the expected beginning inventory of circuit boards, and multiply the resulting amount by the purchase cost per circuit board. c. Begin with budgeted laptop production in units, deduct the desired ending inventory of circuit boards, add the expected beginning inventory of circuit boards, and multiply the resulting amount by the purchase cost per circuit board. d. Begin with budgeted laptop production in units, add the desired ending inventory of circuit boards, deduct the expected beginning inventory of circuit boards, and multiply the resulting amount by the budgeted purchase cost per circuit board. 10. Topic A.3.b. Steers Company has just completed its pro forma financial statements for the coming year. Relevant information is summarized below. Projected net income Anticipated capital expenditures Increase in working capital Depreciation expense $100,000 50,000 25,000 15,000

From the information provided above, the increase in Steers cash account for the coming year will be a. b. c. d. $25,000. $40,000. $90,000. $160,000.

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Sample Questions Part 2 11. Topic A.3.b. Holland Company is in the process of projecting its cash position at the end of the second quarter. Shown below is pertinent information from Hollands records. Cash balance at end of 1st quarter Cash collections from customers for 2nd quarter Accounts payable at end of 1st quarter Accounts payable at end of 2nd quarter All 2nd quarter costs and expenses (accrual basis) Depreciation (accrued expense included above) Purchases of equipment (for cash) Gain on sale of asset (for cash) Net book value of asset sold Repayment of notes payable $ 36,000 1,300,000 100,000 75,000 1,200,000 60,000 50,000 5,000 35,000 66,000

From the data above, determine Hollands projected cash balance at the end of the second quarter. a. b. c. d. Zero. $25,000. $60,000. $95,000.

12. Topic B.1.a. A firm calculates that its annual cost to hold excess goods in order to avoid any chance of running out of inventory is $50,000. This $50,000 is an example of a a. b. c. d. prime cost. quality cost. carrying cost. stockout cost.

13. Topic B.1.b. Roberta Johnson is the manager of Sleep-Well Inn, one of a chain of motels located throughout the U.S. An example of an operating cost at Sleep-Well that is both direct and fixed is a. b. c. d. Johnsons salary. water. toilet tissue. advertising for the Sleep-Well Inn chain.

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Sample Questions Part 2 14. Topic B.1.b. The Profit and Loss Statement of Madengrad Mining Inc. includes the following information for the current fiscal year. Sales Gross profit Year-end finished goods inventory Opening finished goods inventory $160,000 48,000 58,300 60,190

The cost of goods manufactured by Madengrad for the current fiscal year is a. b. c. d. $46,110. $49,890. $110,110. $113,890.

15. Topic B.1. b. The schedule of cost of goods manufactured of Gruber Fittings, Inc. shows the following balances for its fiscal year-end. Direct manufacturing labor Manufacturing overhead Ending work-in-process inventory Raw materials used in production Cost of goods manufactured $ 280,000 375,000 230,000 450,000 1,125,000

The value of the work-in-process inventory at the beginning of the fiscal year was a. b. c. d. $625,000. $250,000. $210,000. $20,000.

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Sample Questions Part 2 16. Topic B.1.c. Mello Joy produces 200,000 units of a good that has the following costs. Direct material costs Direct manufacturing labor costs Indirect manufacturing labor costs $2,000,000 1,000,000 600,000

Mello Joys per unit prime costs and conversion costs, respectively, are a. b. c. d. $8 and $15. $8 and $18. $10 and $8. $15 and $8.

17. Topic B.2.a. Parker Company pays each member of its sales staff a salary as well as a commission on each unit sold. For the coming year, Parker plans to increase all salaries by 5% and to keep unchanged the commission paid on each unit sold. Because of increased demand, Parker expects the volume of sales to increase by 10%. How will the total cost of sales salaries and commissions change for the coming year? a. b. c. d. Increase by 5% or less. Increase by more than 5% but less than 10%. Increase by 10%. Increase by more than 10%.

18. Topic B.2.c. Which one of the following is an advantage of using variable costing? a. b. c. d. Variable costing complies with the U.S. Internal Revenue Code. Variable costing complies with generally accepted accounting principles. Variable costing makes cost-volume relationships more easily apparent. Variable costing is most relevant to long-run pricing strategies.

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Sample Questions Part 2 19. Topic B.2.c. Huntington Corporation pays bonuses to its managers based on operating income, as calculated under variable costing. It is now two months before year-end, and earnings have been depressed for some time. Which one of the following actions should Wanda Richards, production manager, definitely implement if she desires to maximize her bonus for this year? a. b. c. d. Step up production so that more manufacturing costs are deferred into inventory. Cut $2.3 million of advertising and marketing costs. Postpone $1.8 million of discretionary equipment maintenance until next year. Implement, with the aid of the controller, an activity-based costing and activity-based management system.

20. Topic B.2.d. Breegle Company produces three products (B-40, J-60, and H-102) from a single process. Breegle uses the physical volume method to allocate joint costs of $22,500 per batch to the products. Based on the following information, which product(s) should Breegle sell at the splitoff point in order to maximize profit? B-40 J-60 H-102 Physical units produced per batch 1,500 2,000 3,200 Sales value per unit at splitoff $10.00 $4.00 $7.25 Cost per unit of further processing after splitoff 3.05 1.00 2.50 Sales value per unit after further processing 12.25 5.70 9.75 a. b. c. d. H-102 only. J-60 only. B-40 and H-102 only. J-60 and H-102 only.

21. Topic B.4.c. A review of the year-end accounting records of Elk Industries discloses the following information. Raw materials Work-in-process Finished goods Cost of goods sold $ 80,000 128,000 272,000 1,120,000

The companys underapplied overhead equals $133,000. On the basis of this information, Elks cost of goods sold is most appropriately reported as a. $987,000. b. $1,213,100. c. $1,218,000. d. $1,253,000. 22. Topic B.3.b. Page 9

Sample Questions Part 2

Kepler Optics makes lenses for telescopes. Because Kepler will only sell lenses of the highest quality, the normal spoilage during a reporting period is 1,000 units. At the beginning of the current reporting period, Kepler had 2,200 units in inventory, and during the period, production was started and completed on 4,000 units. Units in inventory at the end of the current reporting period were 1,500, and the units transferred out were 3,000. During this period, the abnormal spoilage for Keplers lense production was a. b. c. d. 700 units. 1,000 units. 1,700 units. 3,200 units.

23. Topic B.1.d. Ace Inc. estimates its total materials handling costs at two production levels as follows. Cost $160,000 $132,000 Gallons 80,000 60,000

What is the estimated total cost for handling 75,000 gallons? a. b. c. d. $146,000. $150,000. $153,000. $165,000.

24. Topic B.3.c. SANSCOM Corporation utilizes an activity-based costing system for applying costs to its two products, P and Q. In the assembly department, material handling costs vary directly with the number of parts inserted into the product. Machinery is recalibrated and oiled each weekend regardless of the number of parts inserted during the previous week. Both material handling and machinery maintenance costs are charged to the product on the basis of the number of parts inserted. Due to reengineering of the production process for Product P, the number of insertion parts per finished unit has been reduced. How will the redesign of the production process for Product P affect the activitybased cost of Product Q? a. Material handling cost per Q unit will remain unchanged, and machinery maintenance cost per Q unit will remain unchanged. b. Material handling cost per Q unit will increase, and machinery maintenance cost per Q unit will remain unchanged. c. Material handling cost per Q unit will remain unchanged, and machinery maintenance cost per Q unit will increase. d. Material handling cost per Q unit will increase, and machinery maintenance cost per Q unit will increase. 25. Topic B.3.d. Page 10

Sample Questions Part 2

Claremont Company has been asked to evaluate the profitability of a product that it manufactured and sold from 1997 through 2000. The product had a one-year warranty from date of sale. The following information appears in the financial records. Research, development and design cost (1995 & 1996) $5,000,000 Manufacturing and distribution costs (1997 - 2000) $7,000,000 Warranty costs (1997 - 2000) $200,000 Warranty cost (2001) $100,000

The life-cycle cost for this product is a. b. c. d. $10,000,000. $12,000,000. $12,200,000. $12,300,000.

26. Topic B.3.e. Which one of the following costing methods does not utilize sequential tracking? a. b. c. d. Backflush costing. Job costing. Process costing. Operation costing.

27. Topic B.4.c. In determining next years overhead application rates, a company desires to focus on manufacturing capacity rather than output demand for its products. To derive a realistic application rate, the denominator activity level should be based on a. b. c. d. practical capacity. maximum capacity. normal capacity. master-budget (expected annual) capacity.

28. Topic B.4.b. Wagner Corporation applies factory overhead based upon machine hours. At the beginning of the year, Wagner budgeted factory overhead at $250,000 and estimated that 100,000 machine hours would be used to make 50,000 units of product. During the year, the company produced 48,000 units, using 97,000 machine hours. Actual overhead for the year was $252,000. Under a standard cost system, the amount of factory overhead applied during the year was a. $240,000. b. $242,500. c. $250,000. d. $252,000. 29. Topic C.1.b. Page 11

Sample Questions Part 2

There are many ways that realtime accounts receivable systems differ from batch accounts receivable systems. Which one of the following is not correct? Realtime Systems Must use direct-access files. Processing is done on demand. Processing choices are menu-driven. Invoicing is performed as goods are shipped. Batch Systems Can use simple sequential files. Processing is done during scheduled computer runs. Processing is interactive. Invoicing is performed through scheduled billing runs.

a. b. c. d.

30. Topic C.2.a. When applying the systems approach to the development of an information system solution, a multistep process evolves, referred to as a System Development Life Cycle (SDLC). Six steps involved in this process are as follows. 1. System design 2. System maintenance 3. Statement of objectives 4. System analysis 5. Systems implementation 6. Development and evaluation of alternatives. Which one of the following options correctly lists the order in which these steps should be taken? a. b. c. d. 1, 3, 4, 5, 6, 2. 3, 1, 2, 6, 5, 4. 3, 6, 4, 1, 5, 2. 6, 3, 1, 5, 2, 4.

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Sample Questions Part 2 31. Topic C.2.b., C.3.c. Hollywood Video and Entertainment Co. is planning to develop a new web-based information system. This new system allows customers to use the Internet to rent any of their new releases, Hollywood hits and classic films. Below is the cost-benefit analysis for the new project.

An economic feasibility analysis model such as the one above can be best embedded as a subsystem of which one of the following information systems? a. b. c. d. Transaction processing system. Executive information system. Management information system. Decision support system.

32. Topic C.3.b. A company in Hawaii needs to create a conceptual data model for the new employees training program using an entity-relationship diagram. The company provided the following information. Great Hawaiian Airlines has ten instructors and can teach up to forty trainees per class. The company offers ten different courses. Each course may generate up to five classes. What are the entities that should be included in the entity-relationship diagram? a. b. c. d. Instructor, Great Hawaiian Airlines, Trainee. Instructor, Great Hawaiian Airlines, Course, Enrollment, Class. Great Hawaiian Airlines, Enrollment, Course, Class, Trainee Instructor, Course, Enrollment, Class, Trainee.

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Sample Questions Part 2 33. Topic C.3.c. The application of a multi-level employee performance appraisal system that provides a fair evaluation and secures goal congruence along the organization at the tactical level is an example of which type of decision? a. b. c. d. Structured decision. Semi-structured decision. Unstructured decision. Routine decision.

34. Topic C.3.a. Electronic communications-based business systems that facilitate processing, storage, and management of image-based data require the use of several different types of related technologies. These include all of the following except a. technology-based systems that allow all users access to the life-cycle phases of a business process from initiation through end-user acceptance. b. applications that facilitate the effective capture of data through use of imaging technology. c. communications-based systems that facilitate storage and distribution of image-based data used in business processing and managerial decision making. d. data communications networks for transmission and routing of data from the point of recording and storage to the processes or users needing the data. 35. Topic C.3.d. Which one of the following Artificial Intelligence applications uses categories with overlapping ranges? a. b. c. d. Fuzzy logic. Expert systems. Neural networks. Intelligent agents.

36. Topic C.3.f. Which one of the following is not an application of intranets? a. b. c. d. Communication and collaboration. Business operations and management. Web publishing. Customer self-service.

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Sample Questions Part 2 37. Topic C.4.a. Many organizations participating in e-commerce have serious concerns about security, therefore a new subdiscipline, internet assurance services, has evolved. Its main objective is to a. b. c. d. provide value to data being transmitted by making it secure. insure against fraud and hackers by charging a fee per transmitted transaction. provide assurance that electronic data transmissions reach their destinations and on time. provide assurances that web sites are reliable and transaction security is reasonable.

38. Topic C.4.b. Replication processes are needed in e-commerce to ensure that key support functions (e.g., inventory levels, pricing, and discounts) available to customers are in synch with the company's master system. These processes include all of the following except a. b. c. d. frequent updates for each online process. customer access to realtime inventory levels. pricing strategies and equations used to develop prices. customer access to realtime backorder status.

39. Topic C.5.a. The major components of an enterprise resource planning (ERP) system include all of the following except a. b. c. d. production planning. accounting and finance. integrated logistics. customer relationship management.

40. Topic D.1.a. Teaneck Inc. sells two products, Product E and Product F, and had the following data for last month. Product E Product F Budget Actual Budget Actual Unit sales 5,500 6,000 4,500 6,000 Unit contribution margin $4.50 $4.80 $10.00 $10.50 The companys sales mix variance is a. b. c. d. $3,300 favorable. $3,420 favorable. $17,250 favorable. $18,150 favorable.

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Sample Questions Part 2 41. Topic D.1.b. Franklin Products has an estimated practical capacity of 90,000 machine hours, and each unit requires two machine hours. The following data apply to a recent accounting period. Actual variable overhead Actual fixed overhead Actual machine hours worked Actual finished units produced Budgeted variable overhead at 90,000 machine hours Budgeted fixed overhead $240,000 $442,000 88,000 42,000 $200,000 $450,000

Of the following factors, Baltimores production volume variance is most likely to have been caused by a. b. c. d. a wage hike granted to a production supervisor. a newly imposed initiative to reduce finished goods inventory levels. acceptance of an unexpected sales order. temporary employment of workers with lower skill levels than originally anticipated.

42. Topic D.1.d. Lee Manufacturing uses a standard cost system with overhead applied based upon direct labor hours. The manufacturing budget for the production of 5,000 units for the month of May included the following information. Direct labor (10,000 hours at $15 per hour) Variable overhead Fixed overhead $150,000 30,000 80,000

During May, 6,000 units were produced and the fixed overhead budget variance was $2,000 favorable. Fixed overhead during May was a. b. c. d. underapplied by $2,000. underapplied by $16,000. overapplied by $16,000. overapplied by $18,000.

43. Topic D.2.a. Which one of the following best identifies a profit center? a. b. c. d. The Information Technology Department of a large consumer products company. A large toy company. The Production Operations Department of a small job-order machine shop company. A new car sales division for a large local auto agency.

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Sample Questions Part 2 44. Topic D.2.c. Characteristics of a responsibility accounting system include all of the following except that a. b. c. d. responsibility for performance according to budget must be linked to the appropriate authority. the system should encourage employee involvement and participation. cost centers are responsible for revenues as well as common costs. each level of management is responsible for their departments operations and employees.

45. Topic D.3.e. After investing in a new project, Lee Company discovered that its residual income remained unchanged. Which one of the following must be true about the new project? a. b. c. d. The net present value of the new project must have been negative. The return on investment of the new project must have been less than the firms cost of capital. The return on investment of the new project must have been equal to the firms cost of capital. The net present value of the new project must have been positive.

46. Topic D.4.a. The balanced scorecard provides an action plan for achieving competitive success by focusing management attention on critical success factors. Which one of the following is not one of the critical success factors commonly focused upon in the balanced scorecard? a. b. c. d. Competitor business strategies. Financial performance measures. Internal business processes. Employee innovation and learning.

47. Topic D.5.a. Which one of the following is not a core principle of total quality management (TQM)? a. b. c. d. A focus on customers and stakeholders. Participation and teamwork by everyone in the organization. A process focus supported by continuous improvement and learning. A focus on technological breakthroughs.

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Sample Questions Part 2 48. Topic E.1.a. Financial accounting provides information that can be used for all of the following except a. b. c. d. making decisions on credit. assessing future cash flows. predicting future stock performance. assessing claims on a companys resources.

49. Topic E.2.c. Each of the following includes elements of financial statements, as defined in Statement of Financial Accounting Concepts No. 6, "Elements of Financial Statements," except a. b. c. d. assets and liabilities. comprehensive income and distributions to owners. historical costs and monetary units. losses and gains.

50. Topic E.3.e. All of the following are characteristics of the financial statements required of publicly-traded companies except that the financial statements a. b. c. d. are primarily historical in nature. summarize information. inform the user of future events. are interrelated.

51. Topic E.3.c. Which one of the following would be shown on a multiple-step income statement but not on a single-step income statement? a. b. c. d. Loss from discontinued operations. Gross profit. Extraordinary gain. Net income from continuing operations.

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Sample Questions Part 2 52. Topic E.3.a. Zip Company entered into the following transactions during the year. Purchased stock for $200,000 Purchased electronic equipment for use on the manufacturing floor for $300,000 Paid dividends to shareholders of Zip Company in the amount of $800,000

The amount to be reported in the investing activities section of the Statement of Cash Flow would be a. b. c. d. $200,000. $500,000. $800,000. $1,300,000.

53. Topic E.4.c. Brigid MacAdam, the controller of Lampasso Company, is considering adopting the LIFO method of inventory costing. Selected data from the last three years financial statements and footnotes is presented below. December 31, 2001 $1,020 1,802 513 1,080

Current assets Total assets Current liabilities Retained earnings

2002 $ 994 1,939 538 1,226

2000 $ 999 1,735 510 945

Income before tax Income tax (35%) Net income Dividends

For the year ended December 31, $ 340 $ 343 $ 320 119 120 112 $ 221 $ 223 $ 208 $ 87 $ 83 $ 78

Inventories are valued using the FIFO method of inventory costing. If the LIFO method had been used, inventories would have been $100, $103, and $103 lower than reported at December 31, 2000, 2001, and 2002, respectively. If Lampasso Company had used LIFO during the last three years, a. b. c. d. retained earnings at year-end December 31, 2001 would be $1,028. cash available for dividends would increase by $36 for the year ended December 31, 2002. net income for the year ended December 31, 2000 would be $308 under LIFO. current assets on the December 31, 2002 balance sheet would be $1,061.

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Sample Questions Part 2 54. Topic E.4.d. All of the following would be classified as long-term investments except a. b. c. d. investments in nonconsolidated subsidiaries or affiliated companies. investments in tangible fixed assets utilized in operations. the cash surrender value of life insurance. investments in securities such as common stock, bonds, or long-term notes.

55. Topic E.4.e. At the beginning of the fiscal year, Barclays Inc. had equipment with a book value of $160,000 and $64,000 in accumulated depreciation. During the year, equipment costing $30,000 with a book value of $1,000 was sold for $7,000. The ending balance of the equipment book value account equaled $220,000 and accumulated depreciation at the end of the fiscal year was $80,000. The total amount of equipment purchased during the fiscal year is a. b. c. d. $44,000. $60,000. $97,000. $106,000.

56. Topic E.4.h. The Breen Company has the following debt. Serial bonds of $10,000,000 being retired through a series of annual installments of $1,000,000 each per year for the next 10 years. $3,000,000 mortgage with a balloon payment due in 5 years. $2,000,000 note due in 6 months for which the company has a financing agreement in place to extend for another two years. The company intends to exercise this agreement.

What is the total long-term liability for financial statement purposes? a. b. c. d. $12,000,000. $13,000,000. $14,000,000. $15,000,000.

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Sample Questions Part 2 57. Topic E.4.i. The following financing activities took place at the Wilson Company during the current fiscal year. Issued 10,000 shares of common stock for $10 each. Issued 4,000 shares of redeemable preferred stock for $20 each with a redemption period of 5 years. Issued 3,000 shares of nonredeemable preferred stock for $20 each.

The amount to be shown in Shareholders' Equity is a. b. c. d. $100,000. $160,000. $180,000. $240,000.

58. Topic E.4.b. The Goodwork Corporation plans to establish an Allowance for Doubtful Accounts. Bad debts have averaged 1% of total annual net sales for the past five years. This year the write-off amounted to $12,000. Total net sales for the year were $1,300,000, with cash sales being $300,000 of this total. The accounts receivable aging reflects the following. 1-30 days 150K 2% 31-60 days 50K 2% 61-90 days 30K 5% 91-120 days 20K 10% Over 120 days 10K 50%

Total Current $360,000 $100K Uncollectible* 1% *Estimated

Which one of the following methods would yield the highest balance for the Allowance for Doubtful Accounts? a. b. c. d. Direct write-off method. Percentage of sales method. Percentage of net credit sales method. Percentage of outstanding accounts receivable method.

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Sample Questions Part 2 59. Topic E.4.g. All of the following accounts are classified as current liabilities except a. b. c. d. accounts payable. accrued interest. current maturity of long-term debt. other-than-pension employee benefits liability.

60. Topic E.4.m. Companies are required to disclose which of the following for reportable segments? I. Segment profit or loss. II. Total segment assets. III. Expenditures for long-term segment assets. IV. Information about foreign operations by major customers. a. b. c. d. I, II only. III, IV only. I, III, IV only. I, II, III, and IV.

61. Topic E.4.j. Rose Construction Company had the following year-end data on a long-term construction contract started in 2002 with a contract price of $100,000. 2002 $30,000 50,000 10,000 2003 $40,000 -010,000

Construction cost Estimated completion costs Selling, general and administrative expenses

What is the amount of revenue that will be reported in 2003 using the percentage-of-completion method? a. b. c. d. $37,500. $40,000. $50,000. $62,500.

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Sample Questions Part 2 62. Topic E.4.h. Colvern, Inc. utilizes the effective interest rate method in amortizing premium or discount on its bond issues. If the balance of Colverns liabilities at the beginning of a period is $103,630 and the market interest rate equals 8%, what is the interest expense reported for the semi-annual payment? a. b. c. d. $8,290. $5,889. $4,145. $4,111.

63. Topic E.5.b. The Securities and Exchange Commission requires that "Managements Discussion and Analysis" in the shareholders annual report include a discussion of all of the following aspects of a business except a. b. c. d. liquidity. capital resources. market competitiveness. results of operations.

64. Topic E.4. A statement concerning the accounting principles employed by a firm in the preparation of its publicly issued financial statements a. b. c. d. may be disclosed in the notes to the financial statements or on the face of the income statement. must be shown on the face of the income statement. should be disclosed in the notes to the financial statements. should be disclosed in the managements discussion and analysis.

65. Topic E.6.a. Independent auditors are generally actively engaged in all of the following except a. b. c. d. preparing the financial statement and accompanying notes. counseling management as to the applicability of a new accounting standard. proposing adjustments to the clients financial statement. providing advise to management on the presentation of financial statement information.

SAMPLE ANSWERS PART 2

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Sample Questions Part 2

1. Key = D Strategic planning drives all other planning and budgeting activities within the firm. Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., pp. 176, 177 Learning Outcome Statement: identify the characteristics that define successful budgeting 2. Key = D Top managers determine and significantly influence how budgets are perceived in their companies. Top management initiates the planning and budgeting process and approves policies and procedures regulating it, which makes its support a crucial success factor for the budgeting process. Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., pp. 191-194 Learning Outcome Statement: identify who should participate in the budgeting process for optimum success describe the role of top management in successful budgeting identify the role of top management or the budget committee in providing appropriate guidelines for the budget and identify items that should be included in these guidelines 3. Key = B The pro forma statement of cash flows is usually one of the last steps in preparing a master budget. The process of creating a master budget usually has the following sequence: sales budget, production budget, selling and administrative expenses budget, cash budget, and pro forma financial statements. Cost Management A Strategic Emphasis, Blocher, Chen, Cokins and Lin, 3rd ed., pp. 292-295 Learning Outcome Statement: identify the budget components and explain the interrelationships among the components demonstrate an understanding of how the budget is developed 4. Key = D Activity-based budgeting concentrates on the budgeted cost of activities necessary to produce and sell products and services (outputs). This, in turn, will increase the identification of resource needs and budgetary slack. However, activity-based budgeting does not necessarily reduce planning uncertainty. Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., pp. 189-191 Learning Outcome Statement:

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Sample Questions Part 2 For each of the budget systems identified (Annual/Master budgets, Project budgeting, Activity-based budgeting, Zero-based budgeting, Continuous budgeting, Kaizen budgeting, and Flexible budgeting), the candidate should be able to: demonstrate an understanding of how the budget is developed compare and contrast the benefits and limitations of the budget system 5. Key = A

A rolling budget (or continuous budget) is a plan that always covers a specified future period by adding a period in the future and dropping the period just ended. It forces management to continuously focus on the future specified time period. The time period is always the same length, but the actual time period covered by the budget moves forward with the passage of time. Cost Accounting, a Managerial Emphasis, Horngren, Datar, and Foster, 11th ed., p. 180 Learning Outcome Statement: For each of the budget systems identified (Annual/Master budgets, Project budgeting, Activity-based budgeting, Zero-based budgeting, Continuous (rolling) budgeting, Kaizen budgeting, and Flexible budgeting), the candidate should be able to: define its purpose, appropriate use, and time frame 6. Key = A Since the sales forecast is prepared for the whole year, known seasonal revenue fluctuation patterns should not significantly affect a total year forecast, unlike general economic conditions, sales personnel input, and raw materials supply issues. Cost Management A Strategic Emphasis, Blocher, Chen, Cokins and Lin, 3rd ed., p. 286 Learning Outcome Statement: demonstrate an understanding of the role the sales budget plays in the development of an annual profit plan identify the factors that should be considered when preparing a sales forecast and evaluate the feasibility of the sales forecast based on business information provided 7. Key = B The master budget always begins with the forecast of sales. Tuition from students is the revenue source in a proprietary school. Cost Management A Strategic Emphasis, Blocher, Chen, Cokins and Lin, 3rd ed., p. 286 Learning Outcome Statement: demonstrate an understanding of the role the sales budget plays in the development of an annual profit plan identify the factors that should be considered when preparing a sales forecast and evaluate the feasibility of the sales forecast based on business information provided 8. Key = C

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Sample Questions Part 2

Discretionary costs have no cause-effect relationship between output and resources and are difficult to predict. Engineered costs have a cause-effect relationship between output and resources, are mainly controllable, but are variable. Noncommited costs exclude both fixed and predictable costs. Finally, infrastructure costs are usually fixed and predictable. Cost Accounting, a Managerial Emphasis, Horngren, Datar, and Foster, 11th ed., pp. 461-463 Learning Outcome Statement: demonstrate an understanding of the relationship between the overhead budget and the production budget identify the factors that should be considered when preparing a sales forecast and evaluate the feasibility of the sales forecast based on business information provided demonstrate an understanding of the relationship between the sales budget and the production budget define the components of overhead expense 9. Key = D To determine the budgeted cost of purchases, the number of units to be produced should be adjusted by the change in inventory and then multiplied by the budgeted purchase cost. Cost Management - A Strategic Emphasis, Blocher, Chen, Cokins and Lin, 3rd ed., pp. 286-288 Learning Outcome Statement: identify the role that inventory levels play in the preparation of a production budget and define other factors that should be considered when preparing a production budget define the use of inventory levels and purchasing policies in developing a direct materials budget 10. Key = B Net income $100,000 Capital expenditures -50,000 Increase in working capital -25,000 15,000 Depreciation Increase in cash $ 40,000 Cost Accounting, a Managerial Emphasis, Horngren, Datar, and Foster, 11th ed., pp. 195-198 Learning Outcome Statement: demonstrate an understanding of the relationship between the budget for acquisition of capital assets, the cash budget, and the pro forma financial statements prepare a cash budget from information given

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Sample Questions Part 2 11. Key = D Beginning cash balance Cash collections Decrease in accounts payable Costs and expenses Add back depreciation included in expenses Cash purchase of equipment Cash received from sale of asset ($35,000 + $5,000) Repayment of notes payable Ending cash balance $ 36,000 1,300,000 -25,000 -1,200,000 60,000 -50,000 40,000 -66,000 $ 95,000

Cost Accounting, a Managerial Emphasis, Horngren, Datar, and Foster, 11th ed., pp. 195-198 Learning Outcome Statement: demonstrate an understanding of the relationship between the budget for acquisition of capital assets, the cash budget, and the pro forma financial statements understand the relationship between the cash budget and all other budgets prepare a cash budget from information given 12. Key = C The cost of holding extra inventory is a carrying cost. Carrying costs also include the opportunity costs associated with inventory and storage costs. Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., pp. 686 687 Learning Outcome Statement: identify and calculate the components of cost concepts such as prime cost, conversion cost, overhead cost, carrying cost, sunk cost, discretionary cost, and opportunity cost 13. Key = A A direct cost can be traced directly to a cost object. Salary does not vary over a set period of time and is therefore a fixed direct labor cost. The other items are either variable or indirect. Cost Management - A Strategic Emphasis, Blocher, Chen, Cokins and Lin, 3rd ed., pp. 61-64 Learning Outcome Statement: demonstrate an understanding of the characteristics that differentiate fixed costs, variable costs, and mixed costs and evaluate the effect that changes in production volume have on these costs 14. Key = C Cost of goods sold = Sales Gross profit = $160,000 - $48,000 = $112,000. Available for sale finished goods = Cost of goods sold + Ending finished goods inventory = $112,000 + $58,300 = $170,300.

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Sample Questions Part 2 Cost of goods manufactured = Available for Sale finished goods - Opening finished goods inventory = $170,300 $60,190 = $110,110. Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., p. 407 Learning Outcome Statement: identify and differentiate all cost items reported on the income statement identify and calculate those costs incurred to complete a product and reported as cost of goods sold identify and calculate those costs incurred for current operations but not included in cost of goods sold 15. Key = B Cost of goods manufactured + Ending work-in-process = Direct manufacturing labor + Manufacturing overhead + Raw materials used in production + Work in process at the beginning of the fiscal year Work-in-process at the beginning of the fiscal year = Cost of goods manufactured + Ending work in process - direct manufacturing labor - Manufacturing overhead - Raw materials used in production = $1,125,000 + $230,000 - $280,000 - $375,000 - $450,000 Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., pp. 38-42 Learning Outcome Statement: identify and calculate those costs incurred to complete a product and reported as cost of goods sold identify and calculate those costs incurred for current operations but not included in cost of goods sold 16. Key = D Prime costs include only direct manufacturing costs. Conversion costs are all manufacturing costs excluding direct material costs. Prime costs = Direct materials + Direct Labor = $10 + $5 = $15 Conversion costs = Direct labor + Indirect manufacturing costs = $5 + $3 = $8 Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., p. 43 Learning Outcome Statement: identify and calculate the components of cost concepts such as prime cost, conversion cost, overhead cost, carrying cost, sunk cost, discretionary cost, and opportunity cost 17. Key = B The cost of salaries will increase by exactly 5%. The cost of commissions paid (a variable cost) will increase by the level of activity, which is 10%. Because total compensation is a blend of these two costs, total compensation will increase by some amount between 5% and 10%. Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., pp. 62 77

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Sample Questions Part 2 Learning Outcome Statement: demonstrate an understanding of the behavior of fixed and variable costs in the long and short terms and how a change in assumptions regarding cost type or relevant range affects these costs demonstrate an understanding of the nature and types of cost drivers and the causal relationship that exists between cost drivers and costs incurred 18. Key = C Variable costing is a method of inventory costing in which all variable manufacturing costs are included as inventoriable costs. Fixed manufacturing costs are considered period expenses; consequently, fixed costs are not allocated to the units of production in a cost-volume analysis. Thus, with variable costing the analysis is more apparent; the per unit cost stays constant as the volume of production changes. Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., pp. 286-287 Learning Outcome Statement: demonstrate a thorough understanding of the various methods for measuring costs and accumulating work-in-process and finished goods inventories and a basic understanding of how inventories are relieved demonstrate an understanding of the characteristics of variable costing and absorption costing and the benefits and limitations of these measurement concepts 19. Key = C All of the listed actions are targeted to increase operating income; however, cutting $2.3 million of advertising and marketing costs is beyond the control of the production manager. In addition, stepping up production to defer manufacturing costs into inventory would work only under absorption costing. Finally, ABC and ABM systems implementation is beneficial in the long-run, but would have little effect in the current short-term period. Thus, postponing equipment maintenance until the next reporting period is the only action that would affect operating income and the production managers year-end bonus. Cost Management A Strategic Emphasis, Blocher, Chen, Cokins and Lin, 3rd ed., pp. 738-740 Learning Outcome Statement: demonstrate a thorough understanding of the various methods for measuring costs and accumulating work-in-process and finished goods inventories and a basic understanding of how inventories are relieved identify and calculate the components of cost measurement techniques such as actual costing, normal costing, and standard costing; recognize the appropriate use of each technique; and describe the benefits and limitations of each technique demonstrate an understanding of the characteristics of variable costing and absorption costing and the benefits and limitations of these measurement concepts demonstrate an understanding of how the use of variable costing or absorption costing affects the value of inventory, cost of goods sold, and operating income

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Sample Questions Part 2 20. Key = C The units should be processed after the splitoff point only if the additional cost is less than the additional revenue. Only J-60 units warrant further processing: B-40 $2.25 $3.05 J-60 $1.70 $1.00 H102 $2.50 $2.50

Additional revenue Additional cost

Cost Management A Strategic Emphasis, Blocher, Chen, Cokins and Lin, 3rd ed., pp. 346-347 Learning Outcome Statement: recognize the appropriate use of joint product and by-product costing and demonstrate an understanding of concepts such as split-off point and separable costs determine the allocation of joint product and by-product costs using the physical measure method, the sales value at split-off method, gross profit (gross margin) method, and the net realizable value method; and describe the benefits and limitations of each method 21. Key = C The underapplied overhead should be prorated on the basis of the percentage of production activity of the period included in work-in-process, finished goods, and cost of goods sold. Thus, overhead should be allocated to cost of goods sold in the amount of: $1,120,000/($128,000 + $272,000 + $1,120,000) x $133,000 = $98,000 Since the overhead was undeapplied, we should add this amount to cost of goods sold account to reach the appropriate amount at cost of goods sold account: $98,000 + $1,120,000 = $1,218,000 Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., pp. 114-117 Learning Outcome Statement: demonstrate an understanding that because the allocation base is generally variable, fixed factory overhead is often over or under applied demonstrate an understanding of overhead control accounts, overhead allocation accounts, and the expensing of over or under applied overhead expenses 22. Key = A Total spoilage = beginning units + units started and completed units transferred out ending units = 2,200 + 4,000 3,000 1,500 = 1,700 Abnormal spoilage = Total spoilage Normal spoilage = 1,700 1,000 = 700 Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., pp. 630-631 Learning Outcome Statement: calculate inventory values and cost of goods sold understand how to account for normal and abnormal spoilage

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Sample Questions Part 2 23. Key = C Variable cost per gallon = ($160,000 - $132,000) / (80,000 60,000) = $1.40 per gallon. For the activity level of 60,000 gallons, Variable costs = $1.40 * 60,000 = $84,000. Fixed costs = Total costs Variable costs = $132,000 - $84,000 = $48,000. For the activity level of 75,000 gallons, Total costs = $1.40 * 75,000 + $48,000 = $153,000. Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., pp. 324-335 Learning Outcome Statement: demonstrate an understanding of the characteristics that differentiate fixed costs, variable costs, and mixed costs and evaluate the effect that changes in production volume have on these costs 24. Key = C Material handling costs are variable and machinery maintenance costs are fixed. Because the variable costs are being assigned by the cost driver, material handling cost per Q unit will remain unchanged. The fixed cost per unit will increase, as that cost will now be spread over a smaller number of cost driver units. Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., 136-144 Learning Outcome Statement: define the elements of activity-based costing such as cost pool, cost driver, resource driver, activity driver, and value-added activity calculate product cost using an activity-based system and compare and analyze the results with costs calculated using a traditional system 25. Key = D The life cycle cost for the product = Manufacturing and Distribution costs + R&D and Design costs + Total warranty costs = $7,000,000 + $5,000,000 + $200,000 + $100,000 = $12,300,000. Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., p. 425 Learning Outcome Statement: understand the concept of life-cycle costing For each cost accumulation system identified (Job order costing, Process costing, Activity-based costing, Life-cycle costing), the candidate should be able to: define the nature of the system, understand the cost flows of the system, and recognize its appropriate use 26. Key = A Backflush costing system omits recording some or all of the sequential journal entries relating to the four trigger points that traditional costing systems use: purchase of materials, production, completion of finished goods, and sale of finished goods.

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Sample Questions Part 2 Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., pp. 700 701. Learning Outcome Statement: demonstrate an understanding of backflush costing and describe why it is appropriate in a just-in-time setting where manufacturing cells are utilized For each cost accumulation system identified (Job order costing, Process costing, Activity-based costing, Life-cycle costing), the candidate should be able to: define the nature of the system, understand the cost flows of the system, and recognize its appropriate use 27. Key = A Maximum capacity would occur if there were no interruptions, which is virtually impossible. Normal and master-budget capacity focus on output demand. Thus, practical capacity, which is the maximum production output the firm can reach at the usual level of interruptions, will produce the best overhead allocation rate given the circumstances. Cost Accounting, a Managerial Emphasis, Horngren, Foster, and Datar, 11th ed., p. 300 Learning Outcome Statement: demonstrate an understanding that overhead rates can be determined in a variety of ways, e.g., plant-wide rates, departmental rates, and individual cost driver rates and describe the benefits and limitations of each of these methods determine the appropriate allocation base for variable overhead expenses identify the appropriate allocation base for fixed overhead expense and demonstrate an understanding that because the allocation base is generally variable (e.g., direct labor hours), fixed factory overhead is often over or under applied 28. Key = A $250,000 overhead/100,000 machines hours = $2.50 per hour 100,000 hours/50,000 units = 2 hours per unit $2.50 x 2 hours x 48,000 units = $240,000 Cost Management - A Strategic Emphasis, Blocher, Chen, Cokins and Lin, 3rd ed., pp. 562-596 Learning Outcome Statement: demonstrate an understanding that overhead rates can be determined in a variety of ways, e.g., plant-wide rates, departmental rates, and individual cost driver rates and describe the benefits and limitations of each of these methods determine the appropriate allocation base for variable overhead expenses calculate the per unit variable overhead expense identify the appropriate allocation base for fixed overhead expense and demonstrate an understanding that because the allocation base is generally variable (e.g., direct labor hours), fixed factory overhead is often over or under applied calculate the fixed overhead application rate

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Sample Questions Part 2 29. Key = C Real-time processing is menu driven, but the batch system processing is not interactive. Batch processing is the aggregation of several transactions over a period of time with the subsequent processing of these data as a group. The system feedback in batch processing can be received only after such processing with a substantial delay. Accounting Information Systems, Romney and Steinbart, 8th ed., pp. 102-106 Learning Outcome Statement: identify the different types of business information systems, e.g., transaction processing, management information, decision support, etc. identify and define the two basic ways that transaction processing systems process data; i.e., (a) batch processing and (b) real-time processing 30. Key = C A system development life cycle involves the following sequence of steps: 1. 2. 3. 4. 5. 6. Statement of objectives Creation of alternatives Systems analysis Systems design Systems implementation Systems evaluation

Core Concepts of Accounting Information Systems, Moscove, Simkim and Brangranoff, 8th ed., pp. 390-405 Learning Outcome Statement: define a systems development life cycle (SDLC) and understand that the SDLC involves activities that are highly related and interdependent outline the steps of an SDLC and explain how they are related 31. Key = D A decision support system provides interactive information support to managers and business professionals during the decision-making process using model bases, e.g. spreadsheet programs containing models that express relationships among financial variables, such as expenses, revenues and internal rate of return. Introduction to Information Systems, OBrien, 11th ed., pp. 300-306 Learning Outcome Statement: recognize that systems feasibility studies should encompass cost/benefit analyses which include both tangible and intangible benefits demonstrate an understanding of Decision Support Systems and how they operate

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Sample Questions Part 2 32. Key = D In the relational model, all data elements in the database should be stored in simple tables. Thus, such data elements as Instructor, Course, Enrollment, Class, and Trainee should be represented as separate tables - elements of the entity-relationship diagram. Great Hawaiian Airlines can be defined as a system of the above-mentioned tables. Since it does not contain any data elements, other than the elements stored in the tables, it will not be shown in the entity-relationship diagram. Introduction to Information Systems, OBrien, 11th ed., pp. 164-166 Learning Outcome Statement: demonstrate an understanding of a database management system and describe its characteristics distinguish between a flat database and a relational database demonstrate an understanding of a relational database 33. Key = B Semistructured decisions mainly include tactical management decisions, such as employee performance appraisal, capital budgeting, program budgeting, etc. Introduction to Information Systems, OBrien, 11th ed., p. 296 Learning Outcome Statement: demonstrate an understanding of Decision Support Systems, how they operate, and the types of decisions these systems support 34. Key = A Electronic communications-based business systems require the use of the following types of related technologies: technologies facilitating the effective capturing of data through the use of imaging technology; technologies facilitating storage and distribution of image-based data; and technologies facilitating effective transmission of data to processes or users. Accounting Information Systems, Gelinas and Sutton, 5th ed., pp. 182-183 Learning Outcome Statement: recognize that the use of telecommunications systems allows companies to move data from distant points, generally at lower costs demonstrate an understanding of the purpose of a database management system and describe its characteristics 35. Key = A Fuzzy logic combines imprecise conditions in overlapping ranges, e.g. the category Hot may be defined as the temperature range above 85F and category Warm as the temperature in the range of 80 to 90F. Introduction to Information Systems, OBrien, 11th ed., pp. 319-320

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Sample Questions Part 2 Learning Outcome Statement: recognize that Artificial Intelligence encompasses other applications including expert systems, fuzzy logic, neural networks, etc. and can capture management reasoning in software 36. Key = D An external customer self-service system is a part of extranets, which interconnect the intranet of a business with intranets of its customers, suppliers, or other business partners. An intranet is a network inside an organization that uses internet technologies to provide information sharing, communication, and the support of business processes. Intranets can be accessed via extranet links, which are not part of intranets, but part of extranets. Introduction to Information Systems, OBrien, 11th ed., p.p. 182-185 Learning Outcome Statement: define the term intranet identify how intranets enable companies to share expertise among its organizational units 37. Key = D Internet assurance is a service of providing a limited assurance to users of the vendors web site that the site is reliable and event data security is reasonable. Accounting Information Systems, Gelinas and Sutton, 5th ed, p. 202 Learning Outcome Statement: demonstrate an understanding of other e-commerce technologies, including Online Transaction Processing and Electronic Funds Transfer 38. Key = C In e-commerce systems, data can be portioned split into pieces and stored on various computers replicated copied with parts stored on two or more computers. Pricing strategies and equations used to develop prices are not part of the replication process; instead these functions are typically centralized. Moving Your Business Online, Boona, Strategic Finance, (IMA) February, 2000, pp. 29-32 Learning Outcome Statement: define and identify major characteristics of Electronic Data Interchange (EDI) explain how EDI differs from internet-based electronic commerce applications demonstrate an understanding of other e-commerce technologies, including Online Transaction Processing and Electronic Funds Transfer

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Sample Questions Part 2 39. Key = D The customer relationship management component is part of the marketing information system. Introduction to Information Systems, OBrien, 11th ed., p. 219 Learning Outcome Statement: define enterprise-wide planning (ERP) and its characteristics 40. Key = A CM = Contribution Margin Budgeted mix: 55% E x $4.50 CM 45% F x $10.00 CM Per unit CM Actual mix: 50% E x $4.50 CM 50% F x $10.00 CM Per unit CM Increase in CM x actual units of 12,000 $2.475 4.500 $6.975 $2.250 5.000 $7.250 .275 $3,300 Favorable

Cost Accounting, a Managerial Emphasis, Horngren, Datar, and Foster, 11th ed., pp. 498-499 Learning Outcome Statement: recognize the significance of a sales-mix variance and its impact on revenue and contribution margin demonstrate an understanding that the efficiency (usage) variances can be further analyzed as mix and yield variances 41. Key = B Volume variances are caused by a difference in the budgeted fixed overhead and the amount allocated on the basis of actual output. Option b is consistent with a the change in production compared to budget. A wage hike (option a) would affect the spending variance, not the volume variance. Since the volume variance in this case is unfavorable (amount allocated less than budget), option c would not be correct because an unexpected sales order would increase the amount allocated. Cost Accounting, a Managerial Approach, Horngren, Datar, and Foster, 11th ed., pp. 258-259 Learning Outcome Statement: recognize that performance against operational goals can be measured by a variety of methods including measures based on revenue, manufacturing costs, non-manufacturing costs, and profit depending on the type of center or unit being measured analyze variances, identify causes, and recommend corrective actions investigate the flexible-budget variance to determine individual differences Page 36

Sample Questions Part 2 42. Key = D Applied fixed overhead: ($80,000/10,000 hours) x (6,000 units x 2 direct labor hours per unit) = $96,000 Since the fixed overhead was $2,000 less than budgeted, fixed overhead was overapplied by $18,000 (($80,000 - $2,000) - $96,000) Cost Management - A Strategic Approach, Blocker, Chen, Cokins and Lin, 3rd ed., p. 573 Learning Outcome Statement: investigate the flexible-budget variance to determine individual differences between actual and budgeted input prices and input quantities analyze variances, identify causes, and recommend corrective actions 43. Key = D A profit center is a responsibility center whose manager is responsible for revenues as well as costs. Profit is used to measure performance of a new car sales division of a local auto agency, which best identifies a profit center as it has its own costs and revenues. Cost Accounting, a Managerial Approach, Horngren, Datar, and Foster, 11th ed., p. 191 Learning Outcome Statement: recognize that responsibility centers (strategic business units) represent effective units for performance evaluation identify and explain the different types of responsibility centers 44. Key = C A responsibility accounting system is a formal financial and non-financial information communication system used to control operations and evaluate performance. A responsibility accounting system is based upon responsibility centers, where activities are under managers control. A cost center is a responsibility center whose manager is responsible for costs, but not for revenues. In addition, common costs should not be charged to a cost center, but allocated among all centers involved. Cost Accounting, a Managerial Approach, Horngren, Datar, and Foster, 11th ed., p. 191 Learning Outcome Statement: recognize that responsibility centers (strategic business units) represent effective units for performance evaluation identify and explain the different types of responsibility centers 45. Key = C If residual income remains unchanged, then the residual income of the new project must be zero. This can only occur when the ROI of the new addition is exactly equal to the firms cost of capital.

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Sample Questions Part 2 Cost Accounting, a Managerial Emphasis, Horgren, Foster, and Datar, 11th ed., pp. 788-789 Learning Outcome Statement: define and calculate residual income analyze and interpret residual income calculations and evaluate performance on the basis of the analysis 46. Key = A The critical success factors used in the balanced scorecard are: financial performance customer satisfaction internal business processes innovation and learning Cost Management, A Strategic Emphasis, Blocher, Chen, Cokins and Lin, 3rd ed., p. 16 Learning Outcome Statement: define the concept of a balanced scorecard and identify its components define critical success factors and recognize the importance of these factors 47. Key = D TQM focuses on the customer, strives for continuous improvement, involves the entire work force, actively involves top management, and promotes the use of clear objective measures of quality. Cost Management, A Strategic Emphasis, Blocher, Chen, Cokins and Lin, 3rd ed., pp. 681-683 Learning Outcome Statement: identify the core principles of TQM 48. Key = C Financial reporting provides information: that is useful in making rational investment, credit, and similar decisions; that helps to assess the amounts, timing and uncertainty of prospective cash inflows; about the economic resources of the enterprise and the claims to those resources. Intermediate Accounting, Keiso and Weygandt, 11th ed., p.p. 4-5 Learning Outcome Statement: identify the objectives of external financial reporting, i.e., providing information on resources and obligations, comprehensive income, and cash flow

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Sample Questions Part 2 49. Key = C According to the Statement of Financial Accounting Concepts No. 6, elements of financial statements include assets, liabilities, equity, investments by owners, distributions to owners, comprehensive income, revenue, expenses, gains, and losses. Historical costs and monetary units are not among these financial statement elements. Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed., pp. 34-35 Learning Outcome Statement: identify financial statement elements for each of the financial statements 50. Key = C Financial statements fail to provide forward-looking information needed by internal and external users, as the primary basis of financial statements is historical cost and recording of past economic events. Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed., p. 4 Learning Outcome Statement: demonstrate an understanding of the purposes and uses of each statement identify the limitations of each financial statement 51. Key = B In a singlestep income statement, expenses are deducted from revenues to arrive at net income or loss. In contrast, in multiple-step income statement, certain intermediate components of income are recognized, such as gross profit. Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed., p. 128 Learning Outcome Statement: identify the major components and classifications of each financial statement 52. Key = B The Investing Activities section should reflect the stock purchase and the purchase of electronic equipment for use on the manufacturing floor = $200,000 + $300,000 = $500,000. Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed ., pp. 191-192 Learning Outcome Statement: identify the major components and classifications of each financial statement recognize the correct format of financial information in each financial statement calculate and classify components of each financial statement

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Sample Questions Part 2 53. Key = B Changing from FIFO to LIFO will decrease inventory and decrease income before tax by $103. As the income tax rate is 35%, the decrease in income will result in a decrease in the tax payment in the amount of $103 x 35% = $36. If the LIFO method were used during the last three years, the cash savings from the decrease in income taxes would increase the cash available for dividends by the amount of $36. Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed., pp. 1159-1160 Learning Outcome Statement: calculate the effect on income and on assets of using different inventory methods

54. Key = B Long-term investments consist of investments in securities, investments set aside in special funds, investments in non-consolidated subsidiaries or affiliated companies, and investments in tangible fixed assets not currently used in operations. Investments in tangible fixed assets utilized in operations do not qualify as long-term investments, but as property, plant and equipment. Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed., p. 177 Learning Outcome Statement: define investments and describe its characteristics 55. Key = D Equipment book value $160,000 Accumulated depreciation 64,000 Beginning equipment account balance/cost $224,000 Ending equipment book value Accumulated depreciation Ending equipment account balance/cost 220,000 80,000 $300,000

Book value = Cost less depreciation Equipment purchases = Ending equipment balance cost Beginning equipment balance cost + Equipment sold = $300,000 $224,000 + $30,000 = $106,000 Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed., p. 76 Learning Outcome Statement: demonstrate an understanding of the appropriate accounting convention for property, plant and equipment

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Sample Questions Part 2 56. Key = C The total long-term liability = serial bonds of $10,000,000 current portion of serial bonds in the amount of $1,000,000 + $3,000,000 mortgage + $2,000,000 note = $14,000,000. Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed., pp. 670-671 Learning Outcome Statement: demonstrate an understanding of the appropriate accounting convention for long- term liabilities 57. Key = B The amount shown in the shareholders equity section = 10,000 shares of common stock at $10 each + 3,000 shares of nonredeemable preferred at $20 = $180,000 Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed., pp. 747-749 Learning Outcome Statement: demonstrate an understanding of the appropriate accounting convention for equity transactions 58. Key = D According to the percentage of outstanding accounts receivable method, an allowance for doubtful accounts equals the sum of the products of the estimated percent of uncollectible receivables and the amount of receivables in each time interval: $100K x 1% + $150K x 2% + $50K x 2% + 30K x 5% + 20K x 10% + $10K x 50% = $13,500 The direct write-off method would not establish an allowance, thus resulting in a $12,000 balance. The percentage of sales method will result in a $13,000 balance (1% of net sales of $1,300,000). Finally, the percentage of net credit sales method will result in a $10,000 balance (1% of the difference between net sales and cash sales of $300,000). Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed., pp. 322-326 Learning Outcome Statement: calculate the allowance for uncollectibles using both the percentage of sales approach and the percentage of receivables approach

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Sample Questions Part 2 59. Key = D Current liabilities are obligations whose liquidation is reasonably expected to require use of current assets or the creation of other current liabilities. Accounts payable, accrued interest, and current maturity of long-term debt are considered to be types of current liabilities due to the short-term nature of obligations. Other-than-pension employee benefit liability is generally a long-term liability. Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed., pp. 617-630 Learning Outcome Statement: demonstrate an understanding of the appropriate accounting treatment for current liabilities 60. Key = D For reportable operating segments of a business enterprise, a number of disclosures are required, including the following: factors used to identify the reportable segment, segment profit or loss, total segment assets, expenditures for long-term segment assets, information about foreign operations by major customer. Modern Advanced Accounting, Larsen, 9th ed. p. 558 Learning Outcome Statement: identify the disclosures required for a reportable operating segment 61. Key = D Percent complete = Costs incurred to date/Estimate of total costs Revenue recognized = Percent complete x Estimated total revenue 2002: $30,000/($30,000 + $50,000) x $100,000 = $37,500 2003: 100% x $100,000 - $37,500 recognized in 2002 = $62,500 Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed., pp. 909-910 Learning Outcome Statement: apply the percentage of completion method of revenue 62. Key = C The semi-annual interest expense under the effective interest rate method equals the beginning balance times 4% (market rate divided by 2) = $103,630 x 4% = $4,145. Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed., pp. 679-680 Learning Outcome Statement: calculate interest expense using the effective interest method

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Sample Questions Part 2 63. Key = C Managements Discussion and Analysis (MD&A) covers liquidity, capital resources, and results of operations. Market competitiveness is not covered in the MD&A section of the annual report. Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed., pp. 1296-1297 Learning Outcome Statement: define the integrated disclosure system, standardized financial statements, and Management Discussion and Analysis 64. Key = C According to APB Opinion No. 22, significant accounting principles and methods should be disclosed in the notes to the financial statements or a separate Summary of the Significant Accounting Policies section. Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed., p. 185 Learning Outcome Statement: identify the appropriate disclosure requirements in the body of the financial statements and/or in the footnotes 65. Key = A Auditors conduct independent examinations of the accounting data prepared and presented by a business firm. Intermediate Accounting, Keiso, Weygandt and Warfield, 11th ed., p. 1293 Learning Outcome Statement: identify audit services related to the annual report

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Content Specification Outlines for the Certified Management Accountant (CMA) Examinations
The content specification outlines presented below represent the body of knowledge that will be covered on the CMA examinations. The outlines may be changed in the future when new subject matter becomes part of the common body of knowledge. Candidates for the CMA designation are required to take Parts 1, 2, 3, and 4. Part 4, Business Applications, may only be taken after successful completion of Parts 1, 2, and 3. Candidates are responsible for being informed on the most recent developments in the areas covered in the outlines. This includes understanding of public pronouncements issued by accounting organizations as well as being up-to-date on recent developments reported in current accounting, financial and business periodicals. The content specification outlines serve several purposes. The outlines are intended to: Establish the foundation from which each examination will be developed. Provide a basis for consistent coverage on each examination. Communicate to interested parties more detail as to the content of each examination part. Assist candidates in their preparation for each examination. Provide information to those who offer courses designed to aid candidates in preparing for the examinations.

Important additional information about the content specification outlines and the examinations is listed below. 1. The coverage percentage given for each major topic within each examination part represents the relative weight given to that topic in an examination part. The number of questions presented in each major topic area approximates this percentage. 2. Each examination will sample from the subject areas contained within each major topic area to meet the relative weight specifications. No relative weights have been assigned to the subject areas within each major topic. No inference should be made from the order in which the subject areas are listed or from the number of subject areas as to the relative weight or importance of any of the subjects.

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Sample Questions Part 2 3. Each major topic within each examination part has been assigned a coverage level designating the depth and breadth of topic coverage, ranging from an introductory knowledge of a subject area (Level A) to a thorough understanding of and ability to apply the essentials of a subject area (Level C). Detailed explanations of the coverage levels and the skills expected of candidates are presented below. 4. The topics for Parts 1, 2, and 3 have been selected to minimize the overlapping of subject areas among the examination parts. The topics within an examination part and the subject areas within topics may be combined in individual questions. Questions within Parts 1, 2, and 3 will only cover subject areas outlined in the respective content specifications. The exception is Part 4, Business Applications, which may include any of the subject areas tested in Parts 1, 2, and 3. 5. With regard to Federal income taxation issues, candidates will be expected to understand the impact of income taxes when reporting and analyzing financial results. In addition, the tax code provisions that impact decisions (e.g., depreciation, interest, etc.) will be tested. 6. Candidates for the CMA designation are expected to have a minimum level of business knowledge that transcends all examination parts. This minimum level would include knowledge of basic financial statements, time value of money concepts, and elementary statistics. 7. Parts 1, 2, and 3 are 100% objective and consist of carefully constructed multiple-choice questions that test all levels of cognitive skills. Parts 1 and 3 are three-hour exams and contain 110 questions each. Part 2 is a four-hour exam and has 140 questions. A small number of the questions on each exam are being validated for future use and will not count in the final score. 8. Part 4, Business Applications, consists of several essay questions and problems that are delivered in a computer-based format. Both written and quantitative responses will be required. Candidates will be expected to present written answers that are responsive to the question asked, presented in a logical manner, and demonstrate an appropriate understanding of the subject matter. It should be noted that candidates are expected to have working knowledge in the use of word processing and electronic spreadsheets. 9. Ethical issues and considerations will be tested on Part 4, Business Applications. At least one question in this part will be devoted to an ethical situation presented in a business-oriented context. Candidates will be expected to evaluate the issues involved and make recommendations for the resolution of the situation.

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In order to more clearly define the topical knowledge required by a candidate, varying levels of coverage for the treatment of major topics of the content specification outlines have been identified and defined. The cognitive skills that a successful candidate should possess and that should be tested on the examinations can be defined as follows: Knowledge: Ability to remember previously learned material such as specific facts, criteria, techniques, principles, and procedures (i.e., identify, define, list). Ability to grasp and interpret the meaning of material (i.e., classify, explain, distinguish between). Ability to use learned material in new and concrete situations (i.e., demonstrate, predict, solve, modify, relate). Ability to break down material into its component parts so that its organizational structure can be understood; ability to recognize causal relationships, discriminate between behaviors, and identify elements that are relevant to the validation of a judgment (i.e., differentiate, estimate, order). Ability to put parts together to form a new whole or proposed set of operations; ability to relate ideas and formulate hypotheses (i.e. combine, formulate, revise). Ability to judge the value of material for a given purpose on the basis of consistency, logical accuracy, and comparison to standards; ability to appraise judgments involved in the selection of a course of action (i.e., criticize, justify, conclude).

Comprehension:

Application:

Analysis:

Synthesis:

Evaluation:

The three levels of coverage can be defined as follows: Level A: Level B: Requiring the skill levels of knowledge and comprehension. Requiring the skill levels of knowledge, comprehension, application, and analysis. Requiring all six skill levels, knowledge, comprehension, application, analysis, synthesis, and evaluation.

Level C:

The levels of coverage as they apply to each of the major topics of the Content Specification Outlines are shown on the following pages with each topic listing. The levels represent the manner in which topic areas are to be treated and represent ceilings, i.e., a topic area designated as Level C may contain requirements at the A, B, or C level, but a topic designated as Level B will not contain requirements at the C level.

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Sample Questions Part 2

Part 2 - Management Accounting and Reporting

A. Budget Preparation (15% - Level C) 1. Budgeting concepts a. Operations and performance goals b. Characteristics of a successful budget process c. Resource allocation d. Other budgeting concepts 2. Budget systems a. Annual business plans (master budgets) b. Project budgeting c. Activity-based budgeting d. Zero-based budgeting e. Continuous (rolling) budgets f. Kaizen budgeting g. Flexible budgeting 3. Annual profit plan and supporting schedules a. Operational budgets b. Financial budgets c. Capital budgets d. Pro forma financial statements B. Cost Management (25% - Level C) 1. Terminology a. Product versus period cost b. Manufacturing versus non-manufacturing c. Direct versus indirect d. Fixed versus variable 2. Measurement concepts a. Cost behavior and cost objects b. Actual/normal/standard costs c. Absorption (full) and variable (direct) costing d. Joint product and by-product costing

3. Accumulation systems a. Job order costing b. Process costing c. Activity-based costing d. Life-cycle costing e. Other costing methods

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4. Overhead costs a. Fixed and variable overhead expenses b. Plant-wide versus departmental overhead c. Determination of allocation base d. Allocation of service department costs C. Information Management (15% - Level A) 1. Nature and purpose of an information system a. Business information systems b. Transaction processing systems b. Management information systems 2. Systems development and design a. Systems development life cycle b. Cost benefit analysis 3. Technology of information systems a. Data communications, networks, and client/server systems b. Database management systems c. Decision support systems d. Artificial intelligence and expert systems e. Spreadsheets f. Internet and intranet 4. Electronic commerce a. Electronic data interchange b. Business-to-business c. Other e-commerce technologies 5. Integrated enterprise-wide data model a. Enterprise resource planning (ERP) systems b. Data warehousing and data mining D. Performance Measurement (20% - Level C) 1. Cost and variance measures a. Comparison of actual to planned results b. Use of flexible budgets to analyze performance c. Management by exception d. Use of standard cost systems e. Analysis of variation from standard cost expectations 2. Responsibility centers and reporting segments a. Types of responsibility centers

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Sample Questions Part 2 b. Transfer pricing models c. Reporting of organizational segments 3. Financial measures a. Product profitability analysis b. Business unit profitability analysis c. Customer profitability analysis d. Return on investment e. Residual income f. Economic value added g. Market value added h. Investment base issues i. Cash flow return on investment j. Effect of international operations 4. Balanced scorecard a. Critical success factors b. Financial measures c. Customer satisfaction measures d. Internal business process measures e. Innovation and learning measures f. Effective use of a balanced scorecard 5. Quality considerations a. Total quality management concepts and techniques b. Techniques to analyze quality problems c. Relationship between quality and productivity d. Cost of quality analysis e. Cost of design quality E. External Financial Reporting (25%-Level B) 1. Objectives of external financial reporting a. Information on resources and obligations b. Comprehensive income information c. Cash flow information 2. Financial accounting fundamentals a. Accounting assumptions and conventions b. Recognition and measurement concepts c. Financial statement elements d. Special topics 3. Financial statements and statement users a. Statement of Cash Flow b. Statement of Financial Position (balance sheet) c. Statement of Earnings (income statement)

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Sample Questions Part 2 d. Users of financial statements e. Needs of external users 4. Recognition, measurement, valuation, and disclosure a. Cash and marketable securities b. Accounts receivable c. Inventory d. Investments e. Property, plant, and equipment f. Intangibles g. Current liabilities h. Long-term liabilities and bonds payable i. Equity transactions and earnings per share j. Revenues k. Expenses l. Comprehensive income m. Segment reporting n. Multinational considerations 5. The SEC and its reporting requirements a. Acts establishing the SEC and its power b. SEC reporting requirements for public companies c. SEC disclosure requirements for public companies d. Provisions of Sarbanes-Oxley legislation 6. The annual report a. Audit services related to financial reporting b. Management's responsibility for financial statements c. Role of the audit committee/Board of directors d. Independent auditor's report e. Other components of the annual report

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STANDARDS OF ETHICAL CONDUCT FOR MEMBERS In today's modern world of business, individuals in management accounting and financial management constantly face ethical dilemmas. For example, if the accountant's immediate superior instructs the accountant to record the physical inventory at its original costs when it is obvious that the inventory has a reduced value due to obsolescence, what should the accountant do? To help make such a decision, here is a brief general discussion of ethics and the "Standards of Ethical Conduct for Members." Ethics, in its broader sense, deals with human conduct in relation to what is morally good and bad, right and wrong. To determine whether a decision is good or bad, the decision-maker must compare his/her options with some standard of perfection. This standard of perfection is not a statement of static position but requires the decision-maker to assess the situation and the values of the parties affected by the decision. The decision-maker must then estimate the outcome of the decision and be responsible for its results. Two good questions to ask when faced with an ethical dilemma are, "Will my actions be fair and just to all parties affected?" and "Would I be pleased to have my closest friends learn of my actions?" Individuals in management accounting and financial management have a unique set of circumstances relating to their employment. To help them assess their situation, the Institute of Management Accountants (IMA) has developed the following "Standards of Ethical Conduct for Members."

STANDARDS OF ETHICAL CONDUCT:

Members of IMA have an obligation to the public, their profession, the organizations they serve, and themselves, to maintain the highest standards of ethical conduct. In recognition of this obligation, the IMA has promulgated the following standards of ethical conduct for its members. Members shall not commit acts contrary to these standards nor shall they condone the commission of such acts by others within their organizations. Members shall abide by the more stringent code of ethical conduct, whether that is the standards widely practiced in their country or IMAs Standards of Ethical Conduct. In no case will a member conduct herself or himself by any standard that is not at least equivalent to the standards identified for members in IMAs Standards of Ethical Conduct. The standards of ethical conduct for IMA members are published in SMA 1C (Statement on Management Accounting).

COMPETENCE

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Sample Questions Part 2 Members have a responsibility to: Maintain an appropriate level of professional competence by ongoing development of their knowledge and skills. Perform their professional duties in accordance with relevant laws, regulations, and technical standards. Prepare complete and clear reports and recommendations after appropriate analyses of relevant and reliable information.

CONFIDENTIALITY
Members have a responsibility to: Refrain from disclosing confidential information acquired in the course of their work except when authorized, unless legally obligated to do so. Inform subordinates as appropriate regarding the confidentiality of information acquired in the course of their work and monitor their activities to assure the maintenance of that confidentiality. Refrain from using or appearing to use confidential information acquired in the course of their work for unethical or illegal advantage either personally or through third parties.

INTEGRITY
Members have a responsibility to: Avoid actual or apparent conflicts of interest and advise all appropriate parties of any potential conflict. Refrain from engaging in any activity that would prejudice their ability to carry out their duties ethically. Refuse any gift, favor, or hospitality that would influence or would appear to influence their actions. Refrain from either actively or passively subverting the attainment of the organization's legitimate and ethical objectives. Recognize and communicate professional limitations or other constraints that would preclude responsible judgement or successful performance of an activity. Communicate unfavorable as well as favorable information and professional judgements or opinions. Refrain from engaging in or supporting any activity that would discredit the profession.

OBJECTIVITY
Members have a responsibility to: Communicate information fairly and objectively. Disclose fully all-relevant information that could reasonably be expected to influence an intended user's understanding of the reports, comments, and recommendations presented.

RESOLUTION OF ETHICAL CONFLICT

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Sample Questions Part 2 In applying the standards of ethical conduct, members may encounter problems in identifying unethical behavior or in resolving an ethical conflict. When faced with significant ethical issues, members should follow the established policies of the organization bearing on the resolution of such conflict. If these policies do not resolve the ethical conflict, such members should consider the following courses of action. Discuss such problems with the immediate superior except when it appears that the superior is involved, in which case the problem should be presented initially to the next higher managerial level. If a satisfactory resolution cannot be achieved when the problem is initially presented, submit the issues to the next higher managerial level. If the immediate superior is the chief executive officer, or equivalent, the acceptable reviewing authority may be a group such as the audit committee, executive committee, board of directors, board of trustees, or owners. Contact with levels above the immediate superior should be initiated only with the superior's knowledge, assuming the superior is not involved. Except where legally prescribed, communication of such problems to authorities or individuals not employed or engaged by the organization is not considered appropriate. Clarify relevant ethical issues by confidential discussion with an objective advisor (e.g., IMA Ethics Counseling service) to obtain a better understanding of possible courses of action. - Consult your own attorney as to legal obligations and rights concerning the ethical conflict. If the ethical conflict still exits after exhausting all levels of internal review, there may be no other recourse on significant matters than to resign from the organization and to submit an informative memorandum to an appropriate representative of the organization. After resignation, depending on the nature of the ethical conflict, it may also be appropriate to notify other parties.

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