CMA P1 Part 1 · Financial Planning, Performance and Analytics: mock exams and practice questions

Sample question 1 · External Financial Reporting Decisions

Delmont Supply uses FIFO under US GAAP. At year-end it holds 2,000 units of a product with the following per-unit data: cost $52, expected selling price $60, costs to complete and sell $11, current replacement cost $45, and normal profit margin $6. What inventory write-down should Delmont recognize?

1. A $0
2. B $6,000
3. C $14,000
4. D $18,000

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Answer: B. Under ASC 330 (as amended by ASU 2015-11), inventory measured using FIFO or average cost is carried at the lower of cost and net realizable value.

NRV = selling price 60 - costs to complete and sell 11 = $49 per unit, which is below cost of $52.

Write-down = (52 - 49) x 2,000 = $6,000. Replacement cost and normal profit margin are relevant only to the LCM test used for LIFO and the retail method.

Sample question 2 · Planning, Budgeting and Forecasting

As part of its strategic planning, Granite Ridge Outdoor Gear is preparing a SWOT analysis. Which of the following should be classified as a threat?

1. A The company's aging production equipment, which causes frequent downtime
2. B Strong customer loyalty to the company's flagship brand
3. C Falling interest rates that make expansion financing cheaper
4. D Proposed legislation that would sharply raise compliance costs for every firm in the industry

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Answer: D. SWOT separates internal factors (strengths and weaknesses, which the organization controls) from external factors (opportunities and threats, arising in the environment).

Industry-wide regulation that raises costs is external and unfavorable, so it is a threat. Aging equipment is an internal weakness, brand loyalty an internal strength, and cheaper financing an external opportunity.

Sample question 3 · Internal Controls

At Dunmore Hardware, which ONE of the following assignments of duties creates the most serious segregation-of-duties weakness?

1. A The purchasing manager approves purchase orders, and a separate receiving clerk counts and inspects goods when they arrive.
2. B The payroll clerk prepares the payroll register, and the treasurer reviews the register and signs the payroll checks.
3. C The warehouse supervisor has custody of inventory, and the accounting department maintains the perpetual inventory records.
4. D The cashier who opens the mail and deposits customer checks also posts those receipts to the customer accounts receivable records.

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Answer: D. Good segregation of duties separates authorization, custody of assets and recording of transactions. A cashier who both handles customer receipts (custody) and posts them to the receivables ledger (recording) can misappropriate cash and hide it, for example by lapping later receipts against earlier accounts. The other three arrangements separate at least two of the three functions.