CMA (IMA) Practice Questions (2026) — Free Sample Questions with Answers

Answer: B

1. Performance obligations: analyzer (point in time) and service (over time). Total standalone price = 48,000 + 12,000 = $60,000.
2. Allocate $54,000: analyzer 54,000 × 48,000/60,000 = $43,200; service 54,000 × 12,000/60,000 = $10,800.
3. Service earned Oct–Dec = 10,800 × 3/24 = $1,350.
4. Revenue for 2026 = 43,200 + 1,350 = $44,550; the remaining $9,450 is a contract liability.

$43,200: Recognizes only the analyzer's allocated price and omits the three months of service already performed.

$44,550: Correct. Allocate by relative standalone selling price: analyzer 54,000 × 48/60 = $43,200 at delivery; service 54,000 × 12/60 = $10,800 × 3/24 = $1,350; total $44,550 (ASC 606 steps 4–5).

$49,500: Uses standalone prices (48,000 + 12,000 × 3/24) without allocating the $6,000 bundle discount across both obligations.

$54,000: Recognizes the whole price at delivery; the service is a separate performance obligation satisfied over time.

Allocate the transaction price to each performance obligation in proportion to standalone selling prices, then recognize each when (point in time) or as (over time) it is satisfied.

Answer: A

1. Cumulative average time per unit falls to 80% each time cumulative output doubles: 1 unit 500, 2 units 400, 4 units 320, 8 units 256 hours.
2. Total hours: 4 units = 4 × 320 = 1,280; 8 units = 8 × 256 = 2,048.
3. Incremental hours for units 5–8 = 2,048 − 1,280 = 768.
4. Cost = 768 × $40 = $30,720 — the figure to use in pricing the follow-on order.

$30,720: Correct. Cumulative average time at 8 units = 500 × 0.8³ = 256 hours, so 8 units take 2,048 hours. The first 4 took 4 × 320 = 1,280 hours. Units 5–8 need 768 hours × $40 = $30,720.

$40,960: Applies the 8-unit cumulative average (256 hours) to only the four new units; the average applies to all eight units produced.

$51,200: Uses the 4-unit average of 320 hours for the new units, ignoring the further learning gained when cumulative output doubles to 8.

$81,920: Prices all 2,048 cumulative hours for 8 units instead of only the incremental hours for units 5–8.

In the cumulative average-time model, compute total time at each cumulative quantity and take the difference to get the time for an additional batch.

Answer: 14800 cartons

1. Formula: production = budgeted sales + desired ending finished goods − beginning finished goods.
2. Desired June ending inventory = 20% × 14,000 July cartons = 2,800; June beginning inventory = 20% × 15,000 = 3,000.
3. Substitution: 15,000 + 2,800 − 3,000 = 14,800 cartons.
4. Interpretation: June production is slightly below June sales because the inventory buffer shrinks as July sales fall.

The production budget converts the sales budget into units to make, adjusting for the change in finished-goods inventory.

Answer: A

1. Current ROI = $1,800,000 ÷ $12,000,000 = 15%.
2. ROI with project = ($1,800,000 + $270,000) ÷ ($12,000,000 + $2,000,000) = 14.8%.
3. Project RI = $270,000 − 12% × $2,000,000 = $30,000; divisional RI rises from $360,000 to $390,000.
4. The project earns 13.5% > 12%, so it benefits the company; RI promotes goal congruence here and ROI does not.

ROI would discourage the project because divisional ROI falls to about 14.8%, while residual income rises by $30,000: Correct. Current ROI is 15%; with the project ROI = $2,070,000 ÷ $14,000,000 = 14.8%. Project RI = $270,000 − 0.12 × $2,000,000 = $30,000, so RI rewards accepting a project that beats the 12% hurdle.

Under ROI the manager would accept the project because its 13.5% return exceeds the 12% required rate of return on assets: A manager judged on ROI compares the project with the division's current 15% ROI, not with the company hurdle rate.

Under residual income the manager would reject the project because divisional residual income falls by $30,000: Reverses the sign: the project earns $30,000 more than the 12% capital charge, so RI increases.

Both measures would lead the manager to accept the project, because the project return of 13.5% exceeds the cost of capital: ROI falls from 15% to 14.8%, so an ROI-evaluated manager has an incentive to reject a project that is good for the company.

ROI can cause managers to reject projects that earn more than the cost of capital but less than current ROI; residual income avoids this goal-congruence problem.

Answer: 4200 \$

1. Formula: DM price variance (at purchase) = (AP − SP) × actual quantity purchased.
2. Actual price = $130,200 ÷ 21,000 lb = $6.20 per lb.
3. Substitution: ($6.20 − $6.00) × 21,000 lb = $0.20 × 21,000 = $4,200.
4. Interpretation: the rush purchases from the backup supplier cost $4,200 more than standard — an unfavorable price variance.

When the price variance is isolated at purchase, multiply the price difference by the quantity purchased (21,000 lb), not the quantity used (19,800 lb, which would give $3,960).

Answer: D

1. Allocate Maintenance $120,000: IT 20% = $24,000; Machining 50% = $60,000; Assembly 30% = $36,000.
2. IT cost to allocate = $80,000 + $24,000 = $104,000, spread only over production departments (30% + 45% = 75%).
3. IT to Assembly = (45 ÷ 75) × $104,000 = $62,400; to Machining = $41,600.
4. Assembly total = $36,000 + $62,400 = $98,400.

$82,800: Applies IT's original 45% to its $104,000 total; under step-down, IT's cost is re-proportioned over the departments not yet allocated (45 ÷ 75 = 60%).

$88,500: Allocates IT first; the stated sequence begins with Maintenance.

$93,000: Uses the direct method, which ignores Maintenance's services to IT.

$98,400: Correct. Maintenance to Assembly = 30% × $120,000 = $36,000. IT total = $80,000 + $24,000 = $104,000; to Assembly = 45/75 × $104,000 = $62,400. Total $98,400.

Step-down allocates one service department at a time, and once a department is allocated it receives no further allocations, so later departments re-proportion their usage percentages.

Answer: B

an unqualified opinion on both internal control and the financial statements, because the misstatements were corrected: Correcting the misstatements fixes the statements but not the control; a material weakness existing at year-end still requires an adverse ICFR opinion.

an adverse opinion on internal control over financial reporting and an unqualified opinion on the financial statements: Correct. Under AS 2201, a material weakness at the assessment date requires an adverse ICFR opinion, while statements that are fairly presented after adjustment receive an unqualified opinion.

a qualified opinion on internal control over financial reporting and a qualified opinion on the financial statements: A qualified ICFR opinion is not the response to a material weakness, and the statements are fairly presented, so no qualification is needed.

a disclaimer of opinion on internal control over financial reporting and an adverse opinion on the financial statements: A disclaimer arises from a scope limitation, and an adverse opinion on the statements would require uncorrected pervasive misstatements.

The two opinions in an integrated audit are separate: a material weakness drives an adverse ICFR opinion, while the financial statement opinion depends on whether the statements, as adjusted, are fairly presented.

Answer: B

1. t-statistic = coefficient ÷ standard error: batches 410 / 65 = 6.31; temperature 22 / 31 = 0.71.
2. Batches: p < 0.001, below 0.05, so reject the hypothesis that its coefficient is zero; it is a significant driver.
3. Temperature: p = 0.48, above 0.05 (and |t| < 2), so its coefficient is not distinguishable from zero.
4. Keep production batches and drop temperature from the cost model.

keep both drivers, because both coefficients are positive and so each one raises energy cost: A positive coefficient does not establish significance; temperature's coefficient ($22) is smaller than its standard error ($31), t = 0.71.

keep batches only, because its p-value is below 0.05 while temperature's p-value of 0.48 is not: Correct. Batches: t = 410 / 65 = 6.31, p < 0.001, significant. Temperature: t = 22 / 31 = 0.71, p = 0.48 > 0.05, not significant, so it should be dropped.

keep temperature only, because its p-value of 0.48 shows the stronger relationship with energy cost: Reverses the p-value: a high p-value means the result is likely due to chance; the lower p-value (batches) indicates the stronger evidence.

keep neither driver, because the intercept has the largest standard error in the regression output: Significance depends on each coefficient relative to its own standard error (the t-statistic), not on which standard error is largest in absolute terms.

A coefficient is statistically significant when its p-value is below the chosen significance level (equivalently, when the coefficient is large relative to its standard error, roughly |t| > 2); the size or sign of a coefficient alone does not show significance.

Answer: A

1. ROA = net profit margin × asset turnover: 2025 = 8.0% × 1.25 = 10.0%; 2026 = 6.0% × 1.50 = 9.0%.
2. ROE = ROA × equity multiplier: 2025 = 10.0% × 1.80 = 18.0%; 2026 = 9.0% × 2.00 = 18.0%.
3. Interpretation: operating performance (ROA) weakened; ROE was unchanged only because of more debt, so the CEO's conclusion is not supported.

ROE held steady only because higher financial leverage offset a decline in ROA: Correct. ROA = 8.0% × 1.25 = 10.0% versus 6.0% × 1.50 = 9.0%; ROE = 10.0% × 1.80 = 18.0% and 9.0% × 2.00 = 18.0%. Greater leverage masked weaker operating returns and added financial risk.

ROE held steady because the margin decline and turnover gain exactly offset: Margin × turnover fell from 10.0% to 9.0%, so the two operating components did not offset each other.

ROE rose because the improvement in asset turnover more than offset the lower margin: ROE did not rise (18.0% in both years), and ROA actually fell from 10.0% to 9.0%, so turnover did not fully offset the margin decline.

ROE fell because the net profit margin declined by two percentage points: Ignores the turnover and leverage changes; the product of all three components gives an unchanged ROE of 18.0%.

DuPont analysis splits ROE into margin × turnover × leverage, revealing whether a return is driven by operations or by financial leverage.

Answer: A

1. Daily sales = 7,300,000 / 365 = $20,000; daily COGS = 5,110,000 / 365 = $14,000.
2. DSO = 600,000 / 20,000 = 30 days; DIO = 700,000 / 14,000 = 50 days; DPO = 420,000 / 14,000 = 30 days.
3. Cash conversion cycle = DIO + DSO − DPO = 50 + 30 − 30 = 50 days.
4. Interpretation: cash is tied up for 50 days between paying suppliers and collecting from customers.

50 days: Correct. DSO = 600,000 / (7,300,000 / 365) = 30 days; DIO = 700,000 / (5,110,000 / 365) = 50 days; DPO = 420,000 / (5,110,000 / 365) = 30 days. CCC = 30 + 50 − 30 = 50 days.

59 days: Computes days payable on sales (420,000 / 20,000 = 21 days) instead of cost of goods sold.

80 days: Is the operating cycle (DSO + DIO) and omits the payables deferral period.

110 days: Adds days payable outstanding instead of subtracting it.

Cash conversion cycle = days inventory outstanding + days sales outstanding − days payables outstanding; the operating cycle omits the payables term.

Answer: C

1. After-tax cost of debt = 7% × (1 − 0.25) = 5.25%.
2. Retained-earnings break point = retained earnings / equity weight = 3,000,000 / 0.50 = $6,000,000.
3. Beyond $6,000,000 the equity component is new common at 13.5%: WACC = 0.40(5.25%) + 0.10(8%) + 0.50(13.5%) = 2.10% + 0.80% + 6.75% = 9.65%.
4. Interpretation: projects funded with the last $2,000,000 must earn at least 9.65%.

8.90%: Uses the retained-earnings cost of equity for the whole budget, although the retained-earnings break point is only $6,000,000.

9.09%: Averages the cost of the first $6,000,000 and the last $2,000,000; the marginal cost of capital applies to the last dollar, not the average.

9.65%: Correct. Break point = $3,000,000 / 0.50 = $6,000,000 < $8,000,000, so the last dollars use new common: 0.40 × 5.25% + 0.10 × 8% + 0.50 × 13.5% = 9.65%.

10.35%: Uses the 7% pretax cost of debt instead of the after-tax cost of 7% × (1 − 0.25) = 5.25%.

The marginal cost of capital rises at each break point (amount of cheaper capital ÷ its weight); the cost of the last dollar raised is the relevant hurdle.

Answer: D

1. Decor segment margin = CM $140,000 − avoidable fixed $90,000 = $50,000 positive.
2. Dropping Decor loses that $50,000 segment margin; the $80,000 of common costs is reallocated to the other lines.
3. Complementary effect: Rugs CM falls 10% × $300,000 = $30,000.
4. Total change = −$50,000 − $30,000 = −$80,000; Larchmont should keep Decor.

decrease by $170,000: Ignores the $90,000 of avoidable fixed costs that would be eliminated: −$140,000 lost Decor CM − $30,000 lost Rugs CM = −$170,000.

decrease by $160,000: Treats the $80,000 of common costs reallocated to Lighting and Rugs as a new cost; reallocation does not change total common fixed costs.

decrease by $140,000: Counts only Decor's lost contribution margin; it ignores both the $90,000 of avoided fixed costs and the $30,000 Rugs effect.

decrease by $80,000: Correct. Lost Decor CM −$140,000 + avoided fixed costs $90,000 − lost Rugs CM (10% × $300,000) $30,000 = −$80,000.

Drop a segment only if its avoidable fixed costs exceed the contribution margin lost, including CM lost on related products; allocated common costs are irrelevant.

Answer: C

1. Unit CM = $120 − $72 = $48.
2. Pretax target = after-tax target ÷ (1 − t) = $360,000 ÷ 0.75 = $480,000.
3. Units = (fixed costs + pretax target) ÷ unit CM = ($1,440,000 + $480,000) ÷ $48 = 40,000 kits.
4. Check: 40,000 × $48 = $1,920,000 CM − $1,440,000 = $480,000 pretax − 25% tax = $360,000 after tax.

35,625: Multiplies the after-tax target by (1 − t) to get $270,000 instead of dividing by (1 − t).

37,500: Ignores income taxes and adds the $360,000 after-tax target directly to fixed costs.

40,000: Correct. Required pretax income = $360,000 ÷ (1 − 0.25) = $480,000; units = ($1,440,000 + $480,000) ÷ $48 = 40,000.

50,000: Grosses up the fixed costs as well as the target income by 1 ÷ (1 − t); fixed costs are deductible and are not grossed up.

Convert an after-tax profit target to pretax by dividing by (1 − tax rate), then add it to fixed costs and divide by unit contribution margin.

Answer: 277500 \$

1. Depreciation = ($800,000 + $40,000) ÷ 4 = $210,000 a year.
2. Formula: after-tax operating cash flow = pretax savings × (1 − t) + depreciation × t.
3. Substitution: $300,000 × 0.75 + $210,000 × 0.25 = $225,000 + $52,500 = $277,500.
4. Interpretation: the $52,500 depreciation tax shield is a real cash benefit; the allocated overhead and the loan interest are excluded.

Annual after-tax cash flow = after-tax cash savings + depreciation tax shield; financing costs are captured in the discount rate, not the cash flows.

Answer: C

discuss the matter with the CFO and ask that the December entries be reversed: Discussing with the immediate supervisor is not appropriate when the supervisor appears to be involved; the issue goes to the next level.

raise the cutoff error with the external auditors when they arrive for year-end fieldwork: The IMA Statement treats communicating problems to people outside the organization as inappropriate unless the law requires it; internal resolution comes first.

follow Northfield's resolution policy and take the concern above the CFO through it: Correct. The IMA Statement directs members first to follow the employer's established policies for resolving ethical conflicts; because the CFO is involved, the issue properly goes above the supervisor, here to the audit committee.

correct the revenue entries herself and document the adjustment in the year-end file: Reversing the entries on her own bypasses authorization and leaves the CFO's direction unaddressed; the IMA resolution process calls for raising the issue, not acting unilaterally.

IMA resolution path: follow organizational policy (including hotlines), go to the supervisor unless involved (then the next level), seek an IMA ethics counselor or own attorney, and consider leaving only if unresolved.