Free CMA Practice Test Questions and Answers (2026) | Cert Empire Practice Questions

The inability to see all aspects of a situation may prevent accurate problem definition. This inability

may be caused by faulty perception. Faulty perception includes group pressure influencing which

problems are perceived or how the problems are defined.

Increasing the quality of the accounts rejected means that fewer sales will be made. The company is

therefore not trying to maximize its sales or increase its bad debt losses. The objective is to reduce

bad debt losses and thereby maximize profits.

A firm with high risk will have a higher debt-to-equity ratio than a low-risk firm, a lower interest

coverage, and a volatile return on equity. A higher debt-to-equity ratio poses a greater risk of

insolvency. Debt holders must be paid regardless of whether the firm is profitable. Low interest

coverage means that the margin of safety of earnings before interest and taxes is small. A volatile

return on equity signifies that earnings are unpredictable. Lack of predictability increases risk.

Subsidies for new firms lower entry barriers. Thus, new firms may enter the industry and intensify

competition. Government policy also may affect competition via regulations that encourages or

discourage substitutes or affect costs, that govem competitive behavior, or that limit growth.

Government also may be a buyer or supplier.

At this price, the supplying division is indifferent as to whether it sells internally or externally. Outlay

cost plus opportunity cost therefore represents a minimum acceptable price for a seller However, no

transfer price formula is appropriate in all circumstances.

Operating leverage is a measure of the degree to which fixed costs are used in the production

process. A company with a higher percentage of fixed costs (higher operating leverage) has greater

risk than one in the same industry that relies more heavily on variable costs. The DOL equals the

percentage change in net operating income divided by the percentage change in sales. Thus, profits

become more sensitive to changes in sales volume as the DOL increases.

The greater the standard deviation of the expected return, the riskier the investment. a large

standard deviation implies that the range of possible return is wide,i.e.,the probability distribution is

broadly dispersed.converely,the smaller the standard deviation, the tighter the probability

distribution and the lower the risk.

Interest-rate risk is the risk of fluctuations in the value of an asset due to changes in interest rates.

One component of interest-rate risk is price risk; for example, the value of bonds declines as interest

rates increase. Reinvestment-rate risk is another component of interest-rate risk. If interest rates

decline, lower returns will be available for reinvestment of interest and print pal payments received.

Budget formulation is a planning function; however, budgets are also useful control devices. Budget

provide a basis for control of performance through comparisons of actual with budgeted data. They

permit analysis of variations from plans and signal the need for corrective managerial action.

Total risk is the risk of a single assets, whereas market is its risk if is held in a large portfolio of

diversified securities. total risk therefore includes diversifiable and undiversifiable risk

Product needs may differ from country to county because of culture, climate, degree of economic

development, income, legal requirements, technical standards, and other factors. This barrier limits

the ability to achieve economies of scale in global procurement. The height of the barrier depends

on the cost of product modifications.

One effective means of developing and marketing new products is the use of line extensions (new

products in an already served category) and brand extensions. The concept behind extension is that

consumers are already familiar with the firm’s major brand names. Thus, if a new product carries the

same brand name, it will be more likely to succeed. Carrying an established brand name enables a

new product to more easily fill a niche in the marketplace. Furthermore, extensions make efficient

use of promotional costs because customers are already familiar with the quality of the products

created and manufactured under the brand. Most new products are line extensions.

The cash disbursements for the month of April include 40% of April purchases1 30% of March

purchases, 30% of February purchases, April payroll (10% of April sales), operating expenses (20% of

May sales)1 and an interest payment of $20,000.

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Because collections will be accelerated by 3 days at a rate of $300,000 per day, the company will

have an additional $900,000 to invest. Ata rate of 6%, the interest earned will be $54,000 per year.

However, the bank will charge $24,000 (12 months x $2,000 per month) for its services. Thus, the

firm will increase its income by $30000 ($54 .000 — $24 .000).

Planning is the determination of what is to be done, and of how, when, where. and by whom it is to

be done. Plans save to direct the activated that all organizational members must undertake to move

the organization from where it is to where it wants to be. Forecasting is the basis of planning because

it projects the future. A variety of quantitative methods are used in forecasting

According to Kotler (Marketing Management), brand equity is “the positive differential effect that

knowing the brand name has on customer response to the product or service.” It may be measure by

the incremental price a customer will pay for the product. An effect of brand equity is customer

preference for the brand when another product is essentially identical

Net working capital is defined as current assets minus current liabilities; Net working capital is

calculated as follows:

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Networking capital decreases by $10,000 from the current $540,000 to $530,000 under the proposal.

The concept of present value gives greater value to inflows received earlier in the stream. Thus, the declining inflows would be superior to increasing inflows, or even inflows.

If taxes are ignored, depreciation is not a consideration in any of the methods based on cash flows

because it is a non-cash expense. Thus, the internal rate of return, net present value, and payback

methods would not consider depreciation because these methods are based on cash flows. However,

the accounting rate of return is based on net income as calculated on an income statement. Because

depreciation is included in the determination of accrual accounting net income, it would affect the

calculation of the accounting rate of return.