CMA Online Practice Questions and Answers

Correct Answer: A

Automating and computerizing production processes requires a substantial investment in fixed assets and an increase in risk because of greater fixed costs. CIM also necessitates an increase in software costs and extensive worker retraining. However, the costs of spoilage, rework, and scrap are reduced along with labor costs. The qualitative advantages of CIM are increased flexi lily, shorter manufacturing lead time, quicker development of new products, better product delivery and service, faster response to market changes1 and improved competitiveness.

Correct Answer: D

Benchmarking "involves continuously evaluating the principle of best-in-class organizations and adapting company processes to incorporates the best of these practices." It "analyzes and measures the key outputs of a business proves or function against the best and also identifies the underlying key actions and root causes that contribute to the performance difference "(SMA 4V). The percentage of orders delivered on time at the company's most efficient plant is an example of an internal nonfinancial benchmark.

Correct Answer: B

Substitutes are types of goods and service that serve the same purpose. All products that can replace a good or service should be considered substitutes. For example, bicycles and cars are substitutes for public transportation. Structural considerations determine the effect substitutes have on one another. However, because substitutes are types (not brands) of goods and services that have the same purposes, brand identity is not a structural consideration affecting the threat of substitutes.

Correct Answer: B

A firm with a decision-support system (DSS) may exploit advanced database technology to analyze vast amounts of data. One approach is online analytical processing, or multidimensional data analysis. It allows a user to have multiple perspectives of the same data. Another approach is data mining. It allows a user to discover hidden relationships in the data, such as associations (links to a given event), sequences of events, classifications (descriptions of the group to which an item belongs, or clusters (new groupings not previously known). Consequently, a 1firm might detect trends or underserved customer market segments.

Correct Answer: C

The cash flow cycle begins when the firm pays for merchandise it has purchased and ends when the firm receives cash from the sale of the merchandise. Inventory is held for an average of 60 days prior to sale, but the average age of accounts payable is 30 days. Consequently, the average time between outlay and sale is 30 days. Receivables are collected an average of 45 days after sale, so the length of the cash flow cycle is 75 days (30 + 45).

Correct Answer: C

As a larger proportion of an entity's capital is provided by debt, the debt becomes riskier and more expensive. Hence, it requires a higher interest rate

Correct Answer: C

A naked or uncovered option is a call option that does not have the backing of stock. Thus, the option writer will have to purchase the underling stock if the call option is exercised.

Correct Answer: C

The margin of safety measures the amount by which sales may decline before losses occur. It is1 the excess of budgeted or actual sales over sales at the BEP. It may be stated in either units sold or sales revenue.

Correct Answer: A

Correct Answer: B

Payback is the number of years required to complete the return of the original Investment. Given a periodic constant cash flow, the payback period equals net investment divided by the constant expected periodic after-tax cash flow. The desired payback period is 4 years, so the constant after-tax annual cash flow must be $90,000 ($360,000 + 4). Assuming that the company has sufficient other income to permit realization of the full tax savings, depreciation of the machine will shield $60,000 ($360,000 + 6) of income from taxation each year, an after-tax cash savings of $24,000 ($60,000 x 40%). Thus, the machine must generate an additional $66,000 ($90,000 -- $24,000) of after-tax cash %avings from operations. This amount is equivalent to $110,000 [$66,000 + (1.0-- .4)] of before-tax operating cash savings.