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Free CMA Practice Questions

10 free, exam-style Certified Management Accountant (CMA) practice questions with answers and explanations. No signup required. Work through them below, then take the full free CMA practice test to study every exam domain.

Question 1

Pinnacle Manufacturing reports a favorable material price variance of $8,400 and an unfavorable material usage variance of $11,200 for the current quarter. The purchasing manager recently switched to a lower-cost supplier. The MOST likely explanation for this combination of variances is:

  1. Production volume was significantly higher than planned, increasing total material consumption beyond the standard allowance
  2. The standard costs are outdated and should be revised to reflect current market prices for raw materials
  3. The lower-cost materials from the new supplier are of inferior quality, resulting in more waste, scrap, and rework during production
  4. Production workers need additional training because they are unfamiliar with the new manufacturing equipment
Show answer & explanation

Correct answer: C - The lower-cost materials from the new supplier are of inferior quality, resulting in more waste, scrap, and rework during production

Question 2

Meridian Corp. sells a product for $90 per unit with variable costs of $50 per unit. Total fixed costs are $400,000 per year and the corporate tax rate is 20%. How many units must Meridian sell to earn an after-tax net income of $160,000?

  1. 10,000 units
  2. 15,000 units
  3. 14,000 units
  4. 20,000 units
Show answer & explanation

Correct answer: B - 15,000 units

Question 3

Kensington Manufacturing produced 25,000 units and sold 20,000 units during its first year of operations. Fixed manufacturing overhead totaled $500,000. Under which costing method will reported net income be HIGHER, and by how much?

  1. Absorption costing income is $100,000 higher because fixed overhead on 5,000 unsold units remains in ending inventory rather than being expensed
  2. Variable costing income is $100,000 higher because it expenses all fixed overhead immediately
  3. Both methods report the same net income because total manufacturing costs are identical regardless of the method used
  4. Absorption costing income is $500,000 higher because all fixed overhead is deferred to the balance sheet
Show answer & explanation

Correct answer: A - Absorption costing income is $100,000 higher because fixed overhead on 5,000 unsold units remains in ending inventory rather than being expensed

Question 4

Vertex Technologies has a capital structure consisting of 65% equity and 35% debt. The cost of equity is 13.5%, the before-tax cost of debt is 7.0%, and the corporate tax rate is 30%. What is Vertex's weighted average cost of capital (WACC)?

  1. 11.23%
  2. 8.78%
  3. 7.44%
  4. 10.49%
Show answer & explanation

Correct answer: D - 10.49%

Question 5

Cascade Industries and Summit Corp. both report a return on equity of 18%. Cascade has a net profit margin of 6%, asset turnover of 1.0, and an equity multiplier of 3.0. Summit has a net profit margin of 9%, asset turnover of 1.5, and an equity multiplier of 1.33. Which statement is MOST accurate?

  1. Both companies are equally risky because they generate the same return for shareholders
  2. Cascade relies heavily on financial leverage while Summit achieves ROE through superior profitability and efficiency
  3. Summit is riskier than Cascade because its higher asset turnover indicates aggressive expansion
  4. Cascade is more profitable than Summit because it has a higher equity multiplier
Show answer & explanation

Correct answer: B - Cascade relies heavily on financial leverage while Summit achieves ROE through superior profitability and efficiency

Question 6

Horizon Manufacturing produces electronic components at a unit cost of: direct materials $14, direct labor $10, variable manufacturing overhead $6, fixed manufacturing overhead $8 (allocated based on 40,000 units), and variable selling expenses $4. The normal selling price is $55 per unit. A foreign distributor offers to purchase 5,000 units at $32 per unit. The special order would not incur any variable selling expenses, and Horizon has sufficient idle capacity. Horizon should:

  1. Reject the order because $32 is below the full unit cost of $42
  2. Reject the order because $32 is below the normal selling price of $55
  3. Accept the order because the relevant cost is $30 per unit, generating $10,000 in incremental profit
  4. Accept the order because any price above $0 contributes to covering fixed costs
Show answer & explanation

Correct answer: C - Accept the order because the relevant cost is $30 per unit, generating $10,000 in incremental profit

Question 7

Taylor, a CMA working as a senior cost analyst, discovers that the company's CFO has been directing staff to recognize revenue from contracts before performance obligations are satisfied, materially overstating quarterly earnings. Taylor's direct supervisor reports to the CFO. According to the IMA's recommended process for resolving ethical conflicts, Taylor should:

  1. Bypass the direct supervisor and escalate the issue to the audit committee or board of directors, since the normal reporting chain is compromised by the CFO's involvement
  2. Document the issue thoroughly but wait for the next quarterly review cycle to raise concerns through the standard internal audit process
  3. Consult with external legal counsel immediately to determine potential personal liability before taking any internal action within the company
  4. Request a transfer to a different department to avoid direct involvement while allowing senior management to address the revenue recognition practices
Show answer & explanation

Correct answer: A - Bypass the direct supervisor and escalate the issue to the audit committee or board of directors, since the normal reporting chain is compromised by the CFO's involvement

Question 8

Steelridge Corp. is evaluating two mutually exclusive projects. Project Alpha requires a $500,000 investment with an NPV of $85,000 and an IRR of 16%. Project Beta requires a $150,000 investment with an NPV of $52,000 and an IRR of 22%. The company's WACC is 12%. Which project should Steelridge select?

  1. Project Beta because its IRR of 22% significantly exceeds Alpha's 16%, indicating superior efficiency
  2. Project Beta because it requires a smaller initial investment, thereby reducing overall risk exposure
  3. Either project is acceptable since both have positive NPV and IRR above WACC, so the company should be indifferent
  4. Project Alpha because NPV directly measures value creation for shareholders, and Alpha's $85,000 NPV exceeds Beta's $52,000
Show answer & explanation

Correct answer: D - Project Alpha because NPV directly measures value creation for shareholders, and Alpha's $85,000 NPV exceeds Beta's $52,000

Question 9

Westlake Pharmaceuticals spent $2,000,000 on research activities and $3,000,000 on development activities during the year. The development expenditures have met all applicable criteria for capitalization under the relevant accounting framework. Under IFRS, the company would report total research and development EXPENSE of:

  1. $5,000,000 because both research and development costs are expensed as incurred under all major frameworks
  2. $3,000,000 because only the development phase is expensed while research costs are capitalized as intangible assets
  3. $2,000,000 because research is expensed as incurred while qualifying development costs are capitalized as an intangible asset
  4. $0 because both research and development costs that meet recognition criteria are capitalized under IFRS
Show answer & explanation

Correct answer: C - $2,000,000 because research is expensed as incurred while qualifying development costs are capitalized as an intangible asset

Question 10

Quantum Corp. manufactures three products using a single machine that has 6,000 available hours per month. Product X contributes $60 per unit and requires 4 machine hours. Product Y contributes $36 per unit and requires 2 machine hours. Product Z contributes $50 per unit and requires 5 machine hours. To maximize total contribution margin, Quantum should prioritize production in the following order:

  1. X, Z, Y - ranked by highest contribution margin per unit
  2. Y, X, Z - ranked by highest contribution margin per machine hour
  3. X, Y, Z - ranked by highest selling price per unit
  4. Z, X, Y - ranked by most machine hours consumed per unit
Show answer & explanation

Correct answer: B - Y, X, Z - ranked by highest contribution margin per machine hour

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