CMA Part 1 General Review

transaction log

- processing control, bc addresses how a system manipulates inputted data - history of actions executed by a system - a file listing changes to a database

Which one of the following will allow a better use of standard costs and variance analysis to help improve managerial decision making?

constantly revising standards to reflect learning curves

net initial investment

- purchase of new equipment - investment in net working capital + net salvage value from selling old equipment (include tax benefit if sold at loss or subtract out taxes paid if sold at a gain)

On December 15, a company distributed a previously declared cash dividend of $120,000 and declared a 5% stock dividend with a market value of $100,000. If the company uses U.S. GAAP, these two transactions would decrease the company's total shareholders' equity by:

$0

During the month of February, a company purchased 260,000 pounds of raw material for $5 per pound and used 250,000 of these pounds in production. This raw material is applied at the beginning of the process. On February 1, the company had 10,000 units in work-in-process inventory that were 10% complete and valued at $25,000 for materials. At the end of the month, there were 40,000 units in work-in-process inventory that were 40% complete. If the company transferred out 500,000 units to finished goods during February, the direct material cost per unit that should be used to value ending work-in-process inventory is:

$2.36

On December 1, a company had 1,000 units in inventory valued at $787,500. On December 12, the company purchased 2,000 units for $1,562,400. Sales of 2,400 units were made on December 23, and on December 30, the company purchased another 2,000 units for $1,537,200. If the company uses a periodic system and the weighted-average inventory valuation method, the company's December 31 balance sheet would report inventory of:

$2021292

A firm is considering a capital project. According to the project plan, an existing piece of equipment with a historical cost of $400,000 and a current selling price of $10,000 will be disposed. The old equipment has been depreciated on a straight-line basis with no salvage value for 18 years of its estimated 20-year useful life. The new equipment has a cost of $500,000, and the firm expects it will have to commit $20,000 in inventory and $24,000 in accounts receivable with the new project. The firm's effective income tax rate is 40%. The required net initial investment for the new project is:

$522k [500k + 20k + 24k - (10k sales price + 12k tax benefit on 30k loss on sale) ] = $522k

Consider the following data for a company for the month just ended. Sales$4,000,000Gross margin (based on sales)25%Decrease in inventories$160,000Decrease in accounts payable for inventories$275,000 The estimated cash disbursements for inventories were:

$3,115,000

A manufacturing company is contemplating switching from its current costing approach, variable costing, to absorption costing. Relevant data for the company in January 20x2 is as shown here. Selling price$30/unitUnits produced40,000Units sold30,000Inventory as of 1/1/X2NoneDirect materials$6/unitDirect labor$3/unitVariable overhead$2/unitVariable selling and administrative expense$1/unitFixed selling and administrative expense$75,000Fixed manufacturing overhead$160,000 Based on the information presented, the company's operating income using absorption costing is:

$345k

During the first month of its operations, a company manufactured a product with variable production costs of $50 per unit. Fixed manufacturing overhead totaled $1,800,000 and is allocated based upon units produced. During the month, the company completed 15,000 units, sold 12,000 units, and incurred no variances. If the company's operating income under absorption costing was $400,000, its operating income (loss) under variable costing was:

$40k

A construction company has an annual master budget that shows straight-line depreciation expense of $516,000 for the year. The master budget shows a production volume of 206,400 units and production is expected to occur uniformly throughout the year. The capacity for the facility is 215,000 units. During February, the company produced 16,340 units of product and actual depreciation expense recorded was $40,500. The company controls manufacturing costs with a flexible budget. The flexible budget amount for depreciation expense for March would be:

$43k

A manufacturing company is in the process of preparing its flexible budget for next month's manufacturing costs. The company estimates costs within a relevant range of 10,000 to 30,000 units per month. During the last two months, electricity costs (a semi-variable cost) were $39,600 for 18,000 units and $42,000 for 20,000 units. How much should be budgeted for electricity costs to produce 24,000 units?

$46800

Mission stmt

- purpose of the org - ID what product or service the org will provide - promote common shared goal on part of employees (NOT explaining tactics to increase mrkt share)

A manufacturing company incurred the following costs during the last quarter, related to product development and production. Materials storage$ 50,000Product design180,000Materials handling and moving41,000Direct materials400,000Quality inspections62,000 What amount of costs should be classified as value-added?

$580k (quality inspections NOT value added)

The balances for the following accounts on the balance sheet of a company as of the end of Year 20x2 and Year 20x1 are shown here. Year 20X2Year 20X1Cash$1,000$ 800Marketable securities?7,200Inventory500500Wages and salaries payable2,0002,500Accounts payable1,3001,000Accounts receivable5,0006,000Prepayments1,200500 The company has net income for Year 20x2 of $1,900, has no fixed assets, and has no investing or financing activities. Using the indirect method for preparing the cash flow statement, what is the balance in the marketable securities account as of the end of Year 20x2?

$9k

Business Process Analysis (BPA)

- ID process, its structure, interested parties, and the info exchange - assesses effectiveness and efficiency of a process - info exchange would show where cloud computing would be helpful - process steps would show where AI and RPA would be helpful

Negotiated transfer prices

- achieve goal congruence - useful to evaluate division performance - allow divisions to make their own decisions - NOT simple and quick to implement

All of the following statements regarding the top-down or risk-based approach to the audit of internal control over financial reporting are true

- approach begins at the financial stmt level - focuses on entity-level controls before moving on to significant accounts and disclosures - the auditor should focus on accounts and disclosures that present a reasonable possibility of misstatement (does NOT describe the order in which audit procedures will be done)

Artificial Intelligence (AI)

- can capture and process unstructured info from receipts, PDFs, and external systems - eliminate need for data entry personnel - more accurate and reliable input available sooner - can retrieve data quickly and easily without having to be loaded into a database - can ID patterns and reduce incidence of fraud

Income statement uses:

- compare company's results to those of competitors - assess risk of the company achieving future profitability - predict the company's future revenues (NOT used to analyze the company's performance compared to budget bc income stmt doesn't include any budgeted info only actual results)

Robotics process automation (RPA)

- configuring virtual robots using software and tools - robots use the existing system to perform tasks based on predefined rules ex. automate the closing process and producing financial reports - reduced error rate and ensures quality process bc performs steps exact same way every time - ensures info is current, such as tax rates

Internal controls

- control environment is foundation for all other components, providing discipline and structure - control activities are the policies and procedures that help ensure mgmt directives are carried out - risk assessment is the company's identification and analysis of relevant risks to achievement of its goals - monitoring evaluates whether ICs working as intended (Monitoring is NOT process to penalize mgrs for breakdown in ICs)

Factors the Sales Budget should consider:

- credit policies - pricing policies - economic and industry conditions - recent sales trends - advertising and promotions - unfilled backorders - competitors' actions and operating plans

why use current cost for ROI to evaluate divisions?

- historic cost biased bc older assets higher cost than newer assets - book value and depreciable cost biased bc of depreciation method and salvage value

Data governance initiatives include locating and retrieving information about data objects in order to accomplish what enterprise goals?

- improve IT productivity while meeting regulatory compliance requirements

Preventive controls are an integral part of virtually all accounting information systems. All of the following are essential elements of a preventive control system

- separation of responsibilities - sound personnel practices - documentation of policies and procedures (NOT implementation of state of the art systems)

BOD responsibilities

- set corporate strategy, overall direction, and vision - hiring and evaluating CEO performance - ensuring that the corporation is managed in accordance with applicable laws (NOT attesting to the effectiveness of controls financial reporting)

Cloud computing

- tools, software, applications, storage, servers, and networks over the internet provided by a third party - subscription pricing model more optimal than investing in on premise system - usually quicker updates to current versions - facilitates effective communication bc allows multiple users to work on files - quicker availability to info by authorized users bc don't need to wait for other dept to transmit the info - reliance on internet connection though

Contribution Margin as Evaluation Tool:

- used for breakeven analysis - total revenues minus all variable costs - measures how much revenue left to cover traceable fixed costs and turn a profit - helps evaluate if sales volume is sufficient to ensure profitability

Steps in the Budget Process

1. establish budget committee 2. establish specific budget period and guidelines 3. budget proposal 4. negotiation 5. review and approval 6. revision

Technology can improve accounting info in 2 major ways:

1. increase speed and accuracy of capturing data into the system (ex. POs and sales invoices) 2. automate processing (makes queries and producing reports easier)

A company uses process costing to manufacture Product X and has the physical unit flow information available for the month of January. Beginning work-in-process inventory, January 132,000Started in production during January200,000Completed production during January184,000Ending work-in-process inventory, January 3148,000 The beginning inventory was 60% complete for direct materials and 30% complete for conversion costs. The ending inventory was 90% complete for direct materials and 60% complete for conversion costs. Using the first-in, first-out method, the equivalent units of production for direct materials are:

208k

A manufacturing company notices that when its cumulative production doubles, it observes a 10% decrease in the time it takes to produce one unit of product. Based on a cumulative average-time learning model, this decrease in unit production time implies a learning curve of:

90%

A sales-volume variance of $36,000 unfavorable and a flexible-budget variance of $56,000 favorable equals:

A static-budget variance of $20,000 favorable.

P.C. Programs Inc. produces software for individual users and small businesses. Rita Morgan manages the customer hotline department for the firm and is responsible for answering customer questions related to software products produced by all divisions of the firm. For purposes of promoting goal congruence, which one of the following would be the leastappropriate measure of her performance?

Number of calls to the hotline for each new release of software.

Which one of the following describes the most effective preventive control to ensure proper handling of cash transactions?

One employee issues prenumbered receipts for all cash collections while another employee reconciles the daily total of the prenumbered receipts to the bank deposits.

Which one of the following auditor findings would most likely raise a red flag about a company's internal control environment?

Only select committees of the board have access to outside attorneys.

Listing all depreciable assets without having a corresponding depreciation charge can affect which of the following accounting information system (AIS) cycles?

PPE cycle

Which one of the following is the most appropriate technique to restrict access to computer programs and databases to authorized personnel?

Develop unique account numbers for each user.

Management has been asked to evaluate the profitability of its customers and determine which one should be dropped. Each customer has a unique set of characteristics. While each purchases the same product from the manufacturer, sales representatives have developed specific contracted discounts with each customer. Additionally, each customer has factors, such as specific handling and shipping needs, that impact the variable costs incurred for each case sold. Data for each customer are presented here. AlphaBetaThetaCases sold27,00036,00024,000List price$15.40$15.40$15.40Price discount(1.10)(1.20)(0.50)Invoice price14.3014.2014.90Total revenues$386,100$511,200$357,600Total variable cost per case$8.75$10.00$8.50Total variable costs$236,250$360,000$204,000 Using customer profitability analysis, which customer should the manufacturer drop?

Drop Alpha because it has the lowest profitability. (calculate contribution margin)

Which statement best describes the relationship between Enterprise Resource Planning (ERP) and Enterprise Performance Management (EPM) systems?

ERP systems focus on automating transactional processes, while EPM systems focus on automating management processes.

Why does Enterprise Performance Management (EPM) require periodic reporting and reviewing of results?

Ensure the organization actions remain aligned with its strategy over time

Which of the following are appropriate Data Classification tags to apply to a document that contains nonpublic information but is not considered sensitive, a trade secret, or personally identifiable information?

Internal Use Only

Which one of the following is a characteristic of enterprise resource planning?

It enables supply chain management to integrate with the financial accounting subsystem. - centralized database

An international nonprofit organization finances medical research. The majority of its revenue and support comes from fund-raising activities, investments, and specific grants from an initial sponsoring corporation. The organization has been in operation for over 15 years, and has just finished a major fund-raising event that raised $500 million for the current fiscal period. The following are selected data from recent financial statements (in millions of dollars). Current YearPast YearRevenue$500$425Investments (average balances)210185Investment income1620Administrative expense108 A financial analyst wants to determine if the change in investment income during the current year was due to changes in investment strategy, changes in portfolio mix, or other factors. Which one of the following techniques should be used?`

Multiple regression analysis that includes independent variables associated with the nature of the investment portfolio and market conditions

Superior Tables is a table manufacturer. The company is considering eliminating the Easy Living product line because of losses over the past year. Results for the year just ended for the Easy Living product line are as shown here. Sales (20,000 units)$ 6,000,000Variable manufacturing costs2,700,000Fixed manufacturing costs2,400,000Administrative costs2,000,000Operating loss($1,100,000) None of the fixed manufacturing costs can be eliminated, but 25% of the administrative costs are avoidable and can be eliminated if the product line is eliminated. Based on the information presented, should the Easy Living product line be eliminated?

No, because eliminating the product line would increase the operating loss by ($2,800,000).

For a corporation that is subject to the U.S. Income Tax Code and reports its financial results in accordance with U.S. GAAP, which one of the following requires the recognition of a deferred tax liability?

Sales accounted for on an accrual basis and on the cash basis for tax purposes

When preparing an operational budget, which one of the following is the order in which the component budgets are commonly prepared?

Sales, production, direct materials purchased, cost of goods manufactured, income statement, capital expenditures, cash, and balance sheet

Foot Apparel manufactures socks. The Athletic Division sells its socks for $6 a pair to external customers. Socks have variable manufacturing costs of $2.50 per pair and fixed manufacturing costs of $1.50 per pair. The division's total fixed manufacturing costs are $105,000 at the normal volume of 70,000 pairs. The operating range is 50,000 pairs to 100,000 pairs. The European Division has offered to buy 15,000 pairs at the full cost of $4. The Athletic Division has excess capacity and the 15,000 pairs can be produced without interfering with the current outside sales of 70,000 pairs. Should the Athletic Division accept the offer?

Yes, because the Athletic Division's operating income will increase by $22,500.

A company's operations include - a high level of fixed costs - produce a variety of products What type of costing system should be recommended?

activity-based costing (job order costing not appropriate for many fixed costs bc uses volume based cost allocations)

completed contract method

allowed under US GAAP (not allowed under IFRS)

percentage of completion method

allowed under both IFRS and GAAP

Contribution margin focuses on which one of the following?

amount of revenue available to cover fixed costs

The fundamental mandate of Section 302 of the Sarbanes-Oxley Act is the requirement that senior management of public companies must:

attest to the fair and appropriate presentation of financial statements.

This type of analysis is best utilized to identify patterns that exist when data exhibits rises and falls that are not of fixed period.

availability

Histogram

best used to show distribution of a single numerical value

Which one of the following duties assigned to the cashier exposes the organization to a control risk in terms of segregation of duties?

cashier also entering info into the AR subsidiary ledger

On July 15, a company entered into a three-month agreement to rent a machine the company needed to complete a special order. The machine would be delivered on August 1, and rental payments are due on the first day of each rental month. The effect this event would have on the company's July 31 financial statements would be to:

cause no change in assets, liabilities, or income.

A company has $100 million of debt that is due in March Year 3. In December Year 2, the company entered into a non-cancelable agreement with its lender to refinance the debt with the same interest rate, and the full principal is due in December Year 5. How should the debt be classified on the December Year 2 balance sheet of the company?

classified as LT liability

At the beginning of the year, a company entered into a long-term contract to build a facility for $40 million. Half of the construction would be completed each year for the next two years. At the beginning of the following year, the company received a second contract to construct a second facility for $80 million. This project will last four years with 30%, 25%, 25%, and 20% of the facility completed during the four years, respectively. If the company recognized revenue of $40 million in the second year, the method it used to account for long-term contracts was the:

completed contract method under US GAAP

A company's production manager is accountable for controlling costs while manufacturing quality products. The manager also provides recommendations for equipment improvements and replacements. In this market, customers are very sensitive to the product's quality. What type of responsibility center is the production manager in charge of?

cost center (although makes recommendations isn't responsible for equipment decisions)

A company uses return on investment (ROI) to compare its divisions, using this evaluation to determine division manager bonuses. Which method of asset measurement would provide the best method of comparison?

current cost

This type of analysis is best utilized to identify patterns that exist when data exhibits rises and falls that are not of fixed period.

cyclical analysis (NOT irregular patterns)

Data sanitization work is performed during which of the following stages of the data life cycle?

data purging

A camera manufacturing company is considering eliminating Model XP5 from its camera line because of losses over the past quarter. The past quarter's financial information for Model XP5 is shown here. Sales (1,000 units)$600,000Manufacturing costs: Direct materials300,000 Direct labor ($15 per hour)120,000 Overhead200,000Operating loss$ (20,000) Overhead costs are 70% variable and the remaining 30% represents depreciation of special equipment for Model XP5 that has no resale value. If Model XP5 is dropped from the product line, operating income will:

decrease by $40k (reverse product lines op loss/income - fixed costs that wouldn't be eliminated aka 60k depreciation)

ABC Distributing is considering migrating from a purchased on-premises application to a Software as a Service (SaaS) solution for their customer management system (CMS). Their sales personnel will use the application both in the corporate or regional offices, and as they travel to conferences and prospect visits. Quick turnaround for customer issues and the ability to generate custom configurations and quotes on demand is a critical advantage of ABC over its competitors. Which common disadvantage of SaaS solutions could prove to be an obstacle for ABC migrating to the cloud?

dependency on an internet connection (NOT latency of application response)

Which one of the following items could be identified in the operating section of the cash flow statement prepared using the indirect method?

depreciation expense for the year

SOX 302

describes corporate responsibility for financial reports

The risk associated with auditors failing to identify material misstatements in a financial statement is referred to as:

detection risk

The chief information technology officer (CIO) introduced a technology to prevent unauthorized external access to its client's network. The technology described by the CIO is most likely:

firewall

The controller of an online retailer in Europe has negotiated a five-year contract with a shipping company to pay the following amounts annually for the delivery of its goods, regardless of the amount. Year 1€ 1,000,000Year 2€ 1,000,000Year 3€ 1,500,000Year 4€ 1,500,000Year 5€ 2,000,000 What type of costs are these shipping expenditures?

fixed

Which one of the following is not normally measured in a standard cost system?

fixed OH efficiency

Operating income under variable costing is contribution margin minus:

fixed manufacturing overhead and fixed selling and administrative expenses.

Static budget variance =

flexible budget variance + sales volume variance

advantage of ERP

focused IT costs (single source of info for only one integrated system reduces admin and operational costs)

Which one of the following transactions would affect retained earnings but not additional paid-in capital?

impairment of LT asset (NOT change in value of AFS security bc doesn't impact RE but AOCI)

Which of the following is the greatest benefit of implementing robotics process automation (RPA)?

improved accuracy (NOT higher compliance rate; RPA independent of compliance bc still require compliance controls whether manual or RPA)

The U.S. Public Company Accounting Oversight Board (PCAOB) seeks to protect investors by requiring public companies to:

integrate an internal control audit with the financial stmt audit

The concurrent action of basic competitive forces as defined by Porter's 5 forces model determines the:

long term profitability and the competitive intensity of the industry

The management of a company has just completed a thorough review of its strategic goals and formulated the company's long-term plan and short-term objectives. The most appropriate next step for the company is the development of a(n):

master budget

The theory of constraints focuses on managing bottlenecks in the organization, which generally has the effect of reducing:

operating costs and inventory levels

A manufacturing company uses a standard cost system that applies overhead based upon direct labor hours. The manufacturing budget for the production of 7,500 units for the month is shown here. Direct labor (15,000 hours at $20 per hour)$300,000Variable overhead50,000Fixed overhead105,000 During the month, 8,000 units were produced, and the fixed overhead budget variance was $1,000 unfavorable. Fixed overhead during the month was:

overapplied by $6k (over/under applied OH = actual - applied; budgeted is irrelevant)

Suppose you have a sales dataset that consists of item number, price, quantity, and sales date-time. Based on past sales, you want to estimate what sales will be if you roll back the prices of a group of items by 10%. What type of analytics are you carrying out?

predictive

Security controls mitigate a wide variety of information security risks. Fences and locks would best fall under which of the following controls?

preventive and deterrent

Accountants for Hire is a firm that specializes in providing accounting-related services to a wide range of clients across several geographical areas. The accounting-related services vary, and the unique qualifications required in each local market may differ significantly. Each geographical office has a manager who controls the type of accounting services offered to clients as well as the hiring of necessary staff to provide those services. The CEO is in the process of determining the appropriate responsibility centers to use for performance management in the organization. Based on this business scenario, which one of the following is the best type of responsibility center for each geographical area's office?

profit center (hiring staff does NOT mean responsible for investment decisions)

expenditures cycle

purchasing and procurement (NOT depreciation expense

spooling

putting jobs in a buffer or waiting area until a second application is ready to use them; most common with printing

audit risk

related to audit opinion issued; fail to modify audit opinion from unqualified if a material misstatement actually exists in the fin stmts

A fundamental difference between U.S. GAAP and IFRS is that:

reversal of inventory write-downs is permitted under IFRS; however, reversal of inventory write-downs is prohibited under U.S. GAAP.

What data visualization technique would be most effective for presenting the geographic density of customers?

scatter plot

segregation of duties

separate people should have access to physical assets and records for those assets

irregular patterns in time series analysis

short term fluctuations which are not systematic

scatter plot

shows nonlinear of two variables; useful to depict correlation among data

A standard cost system uses:

standard prime costs with overhead applied based upon the standard cost driver units allowed.

Processing control for an entity's accounting application system

transaction log

Under life-cycle costing, research and development costs are considered:

upstream costs (sUPply = upstream; Demand/Distribution = downstream)

cyclical pattern in time series analysis

when data exhibits rises and falls that are not of fixed period - duration of fluctuations usually at least 2 years