US CMA PART 1
100 MCQs
SECTION A — COST TERMINOLOGY & CLASSIFICATION
Q1–Q20
Q1. Prime costs consist of:
A) Manufacturing overhead + direct labor
B) Direct materials + direct labor
C) Direct materials + manufacturing overhead
D) All manufacturing costs
Answer: B
Q2. Conversion costs consist of:
A) Direct labor + manufacturing overhead
B) Direct materials + direct labor
C) Direct materials + manufacturing overhead
D) All period costs
Answer: A
Q3. True or False: Period costs are inventoriable costs.
A) True
B) False
Answer: B — False. Period costs are expensed in the period incurred.
Q4. Which of the following is a non-production overhead?
A) Factory supervisor salary
B) Indirect materials
C) Sales commission
D) Factory rent
Answer: C
Q5. Fill in the blank:
The resource sacrificed or cost incurred to achieve an objective is called a ______.
A) Cost
B) Profit
C) Revenue
D) Margin
Answer: A — Cost
Q6. Which cost remains constant in total within the relevant range?
A) Mixed cost
B) Prime cost
C) Variable cost
D) Fixed cost
Answer: D
Q7. True or False:
Unit fixed cost decreases as production volume increases within the relevant range.
A) False
B) True
Answer: B — True
Q8. An imputed cost:
A) Is always a sunk cost
B) Is recorded as a cash payment
C) Does not entail a current dollar outlay but may be relevant to a decision
D) Must be recorded in the accounting records
Answer: C
Q9. Opportunity cost is:
A) A past cost that cannot be recovered
B) A cost that varies with production
C) An out-of-pocket cost
D) The contribution to income lost by not using a resource in its best alternative use
Answer: D
Q10. Odd Man Out: Which cost is NOT a product cost?
A) Direct labor
B) Manufacturing overhead
C) Advertising expense
D) Direct materials
Answer: C
Q11. Sunk costs are:
A) Costs that have already been incurred and cannot be recovered
B) Opportunity costs
C) Future costs that differ among alternatives
D) Variable costs
Answer: A
Q12. The relevant range is:
A) The range in which variable costs become fixed
B) The range of profitability
C) The range of activity within which cost behavior assumptions remain valid
D) The range in which total fixed costs change continuously
Answer: C
Q13. A step cost is:
A) A purely variable cost
B) A sunk cost
C) An opportunity cost
D) A cost that remains fixed over a range of activity and then increases to a higher level
Answer: D
Q14. Match the cost type with its behavior.
| Cost Type | Behavior |
|---|---|
| 1. Variable | A. Has both fixed and variable components |
| 2. Fixed | B. Changes in total proportionally with activity |
| 3. Mixed | C. Remains constant in total within the relevant range |
A) 1-C, 2-B, 3-A
B) 1-B, 2-C, 3-A
C) 1-A, 2-C, 3-B
D) 1-B, 2-A, 3-C
Answer: B
Q15. Which is an example of a committed fixed cost?
A) Sales commission
B) Direct materials
C) Factory equipment depreciation
D) Variable electricity
Answer: C
Q16. Fill in the blank:
The point where joint products become separately identifiable is called the ______ point.
A) Break-even
B) Contribution
C) Split-off
D) Recognition
Answer: C — Split-off
Q17. True or False:
Normal spoilage is generally treated as a cost of good units, whereas abnormal spoilage is treated as a loss.
A) False
B) True
Answer: B — True
Q18. Abnormal spoilage is generally:
A) Expensed as a loss
B) Added to the cost of good units
C) Expected in the normal production process
D) Treated as a normal product cost
Answer: A
Q19. Assertion (A):
Relevant costs are future costs that differ among alternatives.
Reason (R):
Sunk costs are irrelevant for decision-making.
A) A is false, R is true
B) Both A and R are true, but R does not explain A
C) Both A and R are true, and R correctly explains A
D) A is true, R is false
Answer: B
Explanation: Both statements are true, but the definition of sunk costs does not itself explain the complete definition of relevant costs.
Q20. Which concept focuses on "doing things right" using resources economically?
A) Effectiveness
B) Efficiency
C) Both efficiency and effectiveness
D) Neither
Answer: B
SECTION B — OVERHEAD & COSTING SYSTEMS
Q21–Q45
Q21. Predetermined overhead rate equals:
A) Budgeted overhead ÷ budgeted activity
B) Actual overhead ÷ budgeted activity
C) Budgeted overhead ÷ actual activity
D) Actual overhead ÷ actual activity
Answer: A
Q22. When actual overhead is greater than applied overhead, overhead is:
A) Overapplied
B) Underapplied
C) Fully absorbed
D) Deferred
Answer: B — Underapplied
Q23. Overapplied overhead means:
A) Actual overhead = applied overhead
B) Actual overhead > applied overhead
C) Actual overhead < applied overhead
D) No overhead was applied
Answer: C
Q24. Under normal costing, manufacturing overhead is applied using:
A) Actual overhead rate × actual activity
B) Predetermined overhead rate × standard activity
C) Actual overhead rate × standard activity
D) Predetermined overhead rate × actual activity
Answer: D
Q25. Under standard costing, overhead is generally applied using:
A) Predetermined overhead rate × actual activity
B) Predetermined overhead rate × standard activity allowed for actual output
C) Actual overhead rate × actual activity
D) Budgeted overhead ÷ actual activity
Answer: B
Q26. If underapplied overhead is immaterial, it is generally:
A) Closed entirely to COGS
B) Deferred to the following period
C) Added to net income
D) Capitalized permanently
Answer: A
Q27. Activity-Based Costing is most beneficial when:
A) There is only one product
B) All products consume overhead equally
C) Products differ significantly in their consumption of overhead activities
D) Overhead costs are insignificant
Answer: C
Q28. The hierarchy of activities in ABC includes all EXCEPT:
A) Unit-level activities
B) Batch-level activities
C) Product-sustaining activities
D) Revenue-level activities
Answer: D
Q29. A cost pool is:
A) A grouping of individual cost items associated with an activity
B) A single product cost
C) A period expense only
D) A single direct cost
Answer: A
Q30. Cost allocation is:
A) Directly tracing costs to a cost object
B) Eliminating indirect costs
C) Assigning indirect costs to a cost object using a reasonable allocation base
D) Recording only variable costs
Answer: C
Q31. Cost tracing is:
A) Prorating overhead
B) Directly assigning a cost to a cost object when the relationship can be identified
C) Allocating service department costs
D) Assigning indirect costs using a cost driver
Answer: B
Q32. Cross-cost subsidization occurs when:
A) All products are costed equally
B) A product is overcosted while another is undercosted
C) Costs are traced directly
D) Overhead is eliminated
Answer: B
Q33. Traditional volume-based costing tends to:
A) Eliminate overhead allocation
B) Undercost high-volume, simple products and overcost low-volume, complex products
C) Overcost high-volume products in every situation
D) Cost all products equally
Answer: B
Q34. A company estimates overhead of $500,000 and 25,000 machine hours. The predetermined overhead rate is:
A) $25 per machine hour
B) $10 per machine hour
C) $50 per machine hour
D) $20 per machine hour
Answer: D
Calculation: $500,000 ÷ 25,000 = $20 per machine hour
Q35. Manufacturing overhead does NOT include:
A) Factory utilities
B) Indirect materials
C) Factory depreciation
D) Sales salaries
Answer: D
Q36. The journal entry for abnormal spoilage, assuming no salvage value, would generally include:
A) Debit Loss from Abnormal Spoilage; Credit Work in Process
B) Debit Finished Goods; Credit Loss
C) Debit Work in Process; Credit Finished Goods
D) Debit Cost of Goods Sold; Credit Finished Goods
Answer: A
Q37. Joint costs may be allocated using all of the following EXCEPT:
A) Physical units
B) Sales value at split-off
C) Net realizable value
D) Direct labor hours
Answer: D
Q38. A by-product is generally:
A) Always the principal product
B) A product with relatively minor sales value compared with the main products
C) A product that never has sales value
D) Always classified as a joint product
Answer: B
Q39. Under the NRV method, joint cost allocated to a product equals:
A) Total NRV ÷ joint costs
B) Product NRV × joint costs
C) (Product's NRV ÷ Total NRV) × Joint costs
D) Joint costs ÷ product NRV
Answer: C
Q40. In the high-low method:
Variable cost per unit =
(High cost − Low cost) ÷ (High activity − ______ activity)
A) Average
B) Normal
C) Standard
D) Low
Answer: D — Low
Q41. The high-low method estimates:
A) Both fixed and variable components of a mixed cost
B) Only fixed costs
C) Only variable costs
D) Neither fixed nor variable costs
Answer: A
Q42. Apportionment of overhead refers to:
A) Tracing direct materials
B) Eliminating overhead
C) Distributing common overhead costs among departments
D) Allocating only direct labor
Answer: C
Q43. Reapportionment of overhead involves:
A) Assigning direct materials to products
B) Allocating service department costs to production departments
C) Calculating product selling prices
D) Recording only variable overhead
Answer: B
Q44. The direct method of support department allocation:
A) Allocates support department costs only to production departments and ignores services between support departments
B) Recognizes all inter-support department services
C) Uses simultaneous equations
D) Allocates costs only to support departments
Answer: A
Q45. The step-down method:
A) Is identical to the direct method
B) Uses simultaneous equations
C) Allocates support department costs sequentially and recognizes some inter-support services
D) Ignores all support department relationships
Answer: C
SECTION C — FINANCIAL ACCOUNTING & REPORTING
Q46–Q75
Q46. Under the indirect method, the statement of cash flows begins operating activities with:
A) Gross profit
B) Cash collected from customers
C) Net income
D) EBITDA
Answer: C
Q47. Which is NOT an operating cash flow adjustment under the indirect method?
A) Changes in accounts receivable
B) Purchase of equipment
C) Changes in inventory
D) Depreciation expense
Answer: B
Q48. Under the indirect method, an increase in inventory generally:
A) Decreases operating cash flow
B) Increases operating cash flow
C) Has no effect
D) Is a financing activity
Answer: A
Q49. A decrease in accounts payable generally:
A) Increases operating cash flow
B) Is an investing activity
C) Has no cash-flow effect
D) Decreases operating cash flow
Answer: D
Q50. Which cash flow measure is particularly important when assessing a company's ability to generate cash from its core operations?
A) Operating cash flow
B) Investing cash flow
C) Financing cash flow
D) Ending cash balance alone
Answer: A
Q51. Under US GAAP, an impairment loss on a long-lived asset to be held and used is generally recognized when:
A) Carrying amount exceeds the asset's fair value after the applicable recoverability test
B) Fair value exceeds carrying amount
C) Historical cost exceeds replacement cost
D) Revenue falls below budget
Answer: A
CMA note: Avoid using "recoverable amount" here as a US-GAAP definition; that terminology is more associated with IFRS.
Q52. A finite-life intangible asset is generally:
A) Never amortized
B) Amortized over its useful life and subject to impairment testing when required
C) Only impairment tested and never amortized
D) Treated as goodwill
Answer: B
Q53. Under US GAAP, goodwill is generally:
A) Amortized over 40 years
B) Expensed immediately
C) Not amortized for most public companies but tested for impairment at the reporting-unit level
D) Never tested for impairment
Answer: C
Q54. Deferred taxes primarily arise from:
A) Temporary differences between financial reporting and tax bases
B) Permanent differences only
C) Current tax payments only
D) Dividends
Answer: A
Q55. Current income tax expense/liability is generally based on:
A) Book income only
B) Taxable income under applicable tax rules
C) Other comprehensive income only
D) Gross profit only
Answer: B
Q56. Which debt investment classification under US GAAP reports unrealized gains and losses generally in OCI?
A) Trading securities
B) Equity-method investments
C) Available-for-sale debt securities
D) Held-to-maturity securities
Answer: C
Q57. Trading debt investments are generally reported at:
A) Fair value, with unrealized changes recognized in net income
B) Amortized cost
C) Historical cost
D) Fair value, with unrealized changes recognized in OCI
Answer: A
Q58. Held-to-maturity debt investments are generally reported at:
A) Fair value through OCI
B) Amortized cost
C) Fair value through net income
D) Replacement cost
Answer: B
Q59. An investment in an associate in which the investor has significant influence is generally accounted for using:
A) Fair value method
B) Consolidation method in all cases
C) Equity method
D) Treasury-stock method
Answer: C
Q60. Intercompany receivables and payables between a parent and subsidiary should generally be:
A) Added to goodwill
B) Reported separately in the consolidated balance sheet
C) Eliminated in consolidation
D) Recognized as revenue
Answer: C
Q61. An unrealized intercompany profit in inventory remaining within the consolidated group should generally be:
A) Recognized immediately as consolidated profit
B) Eliminated in consolidation until realized outside the group
C) Added to goodwill
D) Recorded as financing income
Answer: B
Q62. Bond discount amortization generally:
A) Decreases interest expense
B) Increases interest expense
C) Decreases the bond liability
D) Increases cash interest paid
Answer: B
Q63. Estimated warranty costs are generally recognized:
A) Only when cash is paid
B) When the warranty expires
C) In the period of sale when the loss is probable and reasonably estimable
D) Never until the customer files a claim
Answer: C
Q64. If a noncancelable purchase commitment becomes an onerous contract and the applicable accounting requirements are met, the company may need to:
A) Recognize the applicable loss and liability/provision
B) Ignore the contract completely
C) Recognize revenue immediately
D) Capitalize the entire loss as goodwill
Answer: A
Q65. Depletion is primarily used for:
A) Patents
B) Buildings
C) Natural resources
D) Equipment
Answer: C
Q66. Amortization is generally used for:
A) Land
B) Finite-life intangible assets
C) Natural resources
D) Inventory
Answer: B
Q67. Treasury stock is:
A) A liability
B) A revenue account
C) A contra-equity account
D) An operating asset
Answer: C
Q68. A stock dividend generally:
A) Increases total shareholders' equity
B) Decreases total shareholders' equity
C) Redistributes amounts within equity without changing total shareholders' equity
D) Increases cash
Answer: C
Q69. Which is a contra-asset account?
A) Treasury stock
B) Retained earnings
C) Common stock
D) Accumulated depreciation
Answer: D
Q70. Net income includes all of the following EXCEPT:
A) Interest expense
B) Tax expense
C) Operating income
D) Other comprehensive income
Answer: D
Q71. Other comprehensive income may include:
A) Cost of goods sold
B) Sales revenue
C) Certain foreign currency translation adjustments
D) Ordinary operating expenses
Answer: C
Q72. Assertion (A):
Available-for-sale debt investments are reported at fair value.
Reason (R):
Changes in fair value of trading securities are generally reported in OCI.
A) Both A and R are true, and R explains A
B) A is false, R is true
C) Both A and R are true, but R does not explain A
D) A is true, R is false
Answer: D
Q73. The residual theory of equity suggests that:
A) Equity is the residual interest in assets after deducting liabilities
B) Equity is equal to liabilities
C) Equity has priority over all creditors
D) Equity is always fixed
Answer: A
Q74. Proprietary theory focuses primarily on:
A) Government perspective
B) Creditors' perspective
C) Owners' perspective
D) Entity-as-a-separate-person perspective
Answer: C
Q75. A deferred tax liability generally arises when:
A) There is a permanent difference
B) Taxable income is temporarily greater than book income
C) Book income is temporarily greater than taxable income
D) There is no timing difference
Answer: C
SECTION D — ADVANCED TOPICS & LOGICAL REASONING
Q76–Q100
Q76. Cost control primarily aims to:
A) Eliminate every cost
B) Increase costs
C) Keep actual costs within predetermined standards or targets
D) Permanently reduce all unit costs
Answer: C
Q77. Cost reduction generally means:
A) Achieving a sustainable reduction in unit cost without sacrificing required quality or performance
B) Maintaining costs at current levels
C) Temporarily reducing expenses
D) Increasing fixed costs
Answer: A
Q78. Markup percentage is generally calculated as:
A) Profit ÷ selling price
B) Cost ÷ selling price
C) Profit ÷ cost
D) Revenue ÷ profit
Answer: C
Q79. Profit margin is generally:
A) Profit ÷ selling price
B) Profit ÷ cost
C) Cost ÷ profit
D) Revenue ÷ cost
Answer: A
Q80. A cost object is:
A) Always a product
B) Anything for which costs are measured and assigned
C) Always a department
D) Always a customer
Answer: B
Q81. Overcosting a product means:
A) It is assigned more overhead than the resources it actually consumes
B) It is assigned less overhead than it consumes
C) No overhead is assigned
D) It is assigned exactly the overhead it consumes
Answer: A
Q82. Undercosting a product can lead to:
A) Elimination of overhead
B) Cross-subsidization of other products
C) Lower selling prices automatically
D) No effect on decision-making
Answer: B
Q83. Match the impairment treatment with the asset type.
| Asset | Treatment |
|---|---|
| 1. Finite-life intangible | A. Generally not amortized; tested for impairment |
| 2. Indefinite-life intangible | B. Amortized over useful life; tested for impairment when required |
| 3. Goodwill | C. Generally not amortized for most public companies; tested for impairment |
A) 1-A, 2-B, 3-C
B) 1-B, 2-A, 3-C
C) 1-C, 2-A, 3-B
D) 1-B, 2-C, 3-A
Answer: B
Q84. Allowance for credit losses is generally a:
A) Liability
B) Revenue account
C) Contra-asset account
D) Contra-equity account
Answer: C
Q85. Under the equity method, significant influence is commonly presumed when ownership is approximately:
A) Less than 5%
B) 20%–50%
C) More than 75%
D) Exactly 100%
Answer: B
Q86. To classify a debt investment as held-to-maturity, the investor must generally have:
A) Trading intent
B) Intent and ability to hold the debt security until maturity
C) An ownership interest greater than 50%
D) An equity-method relationship
Answer: B
Q87. Bond premium amortization generally:
A) Increases interest expense
B) Decreases interest expense
C) Increases the cash interest payment
D) Has no effect on interest expense
Answer: B
Q88. Estimated warranty expense is generally recognized:
A) When cash is paid
B) When the warranty expires
C) In the period in which the related sale occurs, when recognition criteria are met
D) Only when a customer makes a claim
Answer: C
Q89. Which is a contra-equity account?
A) Treasury stock
B) Accumulated depreciation
C) Inventory
D) Allowance for credit losses
Answer: A
Q90. A stock dividend generally:
A) Increases total stockholders' equity
B) Has no effect on total stockholders' equity
C) Decreases total stockholders' equity
D) Increases cash
Answer: B
Q91. Assertion (A):
ABC costing can provide more accurate product costs than a simple volume-based system when products consume activities differently.
Reason (R):
ABC uses multiple activity cost drivers to assign overhead.
A) Both A and R are true, and R correctly explains A
B) A is true, R is false
C) A is false, R is true
D) Both A and R are true, but R does not explain A
Answer: A
Q92. Under normal spoilage accounting, the cost of normal spoilage is generally:
A) Charged immediately to a separate abnormal-loss account
B) Included in the cost of good units produced
C) Treated as a financing cost
D) Always charged to COGS immediately
Answer: B
Correction: The original question's proposed journal entry "Debit WIP, Credit WIP" was not a meaningful journal entry. The important CMA concept is the cost treatment, not that journal entry.
Q93. By-products may generally be accounted for using:
A) Only the equity method
B) Only the production method
C) Production or sales methods, depending on the accounting approach
D) Only the sales method
Answer: C
Q94. A cost driver is:
A) A sunk cost
B) A factor that causes or drives changes in the cost of an activity
C) A period cost
D) A product's selling price
Answer: B
Q95. The reciprocal method of support department allocation:
A) Ignores inter-support department services
B) Uses simultaneous equations to recognize reciprocal services among support departments
C) Allocates costs only to support departments
D) Is identical to the direct method
Answer: B
Q96. Fill in the blank:
______ costs have already been incurred and cannot be changed by future decisions.
A) Opportunity
B) Relevant
C) Sunk
D) Differential
Answer: C — Sunk
Q97. If a company has overapplied overhead:
A) Actual overhead is greater than applied overhead
B) Actual overhead is less than applied overhead
C) Actual overhead equals applied overhead
D) The predetermined rate must have been zero
Answer: B
Q98. Odd Man Out: Which is NOT a common method of joint cost allocation?
A) Physical units
B) Sales value at split-off
C) Net realizable value
D) Straight-line depreciation method
Answer: D
Q99. The difference between actual overhead and applied overhead is associated with:
A) Overhead underapplied or overapplied
B) Gross profit
C) Contribution margin
D) Opportunity cost
Answer: A
Q100. Assertion (A):
A deferred tax asset can arise when taxable income is temporarily higher than book income.
Reason (R):
Certain temporary differences cause taxes to be paid earlier than the related financial-reporting expense is recognized, creating a future tax benefit.
A) Both A and R are true, and R correctly explains A
B) A is true, R is false
C) Both A and R are true, but R does not explain A
D) A is false, R is true
Answer: A
FINAL ANSWER KEY
| Q | Ans | Q | Ans | Q | Ans | Q | Ans |
|---|---|---|---|---|---|---|---|
| 1 | B | 26 | A | 51 | A | 76 | C |
| 2 | A | 27 | C | 52 | B | 77 | A |
| 3 | B | 28 | D | 53 | C | 78 | C |
| 4 | C | 29 | A | 54 | A | 79 | A |
| 5 | A | 30 | C | 55 | B | 80 | B |
| 6 | D | 31 | B | 56 | C | 81 | A |
| 7 | B | 32 | B | 57 | A | 82 | B |
| 8 | C | 33 | B | 58 | B | 83 | B |
| 9 | D | 34 | D | 59 | C | 84 | C |
| 10 | C | 35 | D | 60 | C | 85 | B |
| 11 | A | 36 | A | 61 | B | 86 | B |
| 12 | C | 37 | D | 62 | B | 87 | B |
| 13 | D | 38 | B | 63 | C | 88 | C |
| 14 | B | 39 | C | 64 | A | 89 | A |
| 15 | C | 40 | D | 65 | C | 90 | B |
| 16 | C | 41 | A | 66 | B | 91 | A |
| 17 | B | 42 | C | 67 | C | 92 | B |
| 18 | A | 43 | B | 68 | C | 93 | C |
| 19 | B | 44 | A | 69 | D | 94 | B |
| 20 | B | 45 | C | 70 | D | 95 | B |
| 21 | A | 46 | C | 71 | C | 96 | C |
| 22 | B | 47 | B | 72 | D | 97 | B |
| 23 | C | 48 | A | 73 | A | 98 | D |
| 24 | D | 49 | D | 74 | C | 99 | A |
| 25 | B | 50 | A | 75 | C | 100 | A |
High-Priority CMA Corrections
Q19: Both statements are true, but the reason does not completely explain the definition of relevant costs → B.
Q51: Revised to use US GAAP long-lived asset impairment terminology, rather than mixing it with the IFRS "recoverable amount" concept.
Q53: Goodwill treatment has been made more precise for US GAAP.
Q63/Q88: Warranty recognition is tied to the period of sale when recognition criteria are satisfied—not simply "when the product is sold" without qualification.
Q72: AFS debt securities are fair value; trading-security fair-value changes go to net income, not OCI → D.
Q75: For a temporary difference, book income > taxable income can result in a DTL, depending on the underlying temporary difference → C.
Q92: The original journal entry was technically problematic. The CMA concept is that normal spoilage is absorbed by good production, whereas abnormal spoilage is separately recognized as a loss.
Q100: The original concept is valid, but the revised wording makes the relationship between temporary differences, earlier tax payment and future tax benefit clearer.
If you solve mocktest regularly,you gain confidence, competency for main examination
