Here is a CMA Part 1 (Financial Planning, Performance & Analytics) integrated corporate case study with 30 difficult, logical, scenario-based MCQs
📘 Corporate Case Study
Orion Tech Manufacturing Inc.
is a U.S.-based manufacturer of smart industrial control panels used in automated warehouses. The company operates in three segments:
1. Standard Panels (SP)
2. Customized Panels (CP)
3. Maintenance & Analytics Services (MAS)
The company uses:
• Standard costing system
• Activity-Based Costing (ABC) for overhead analysis
• Flexible budgeting
• Responsibility accounting
• Capital budgeting models (NPV & IRR)
📊 Financial Summary (Year 2025)
Income Statement (in $000)
Particulars Amount
Sales Revenue 50,000
Variable Manufacturing Cost 22,000
Variable Selling Expense 3,000
Contribution Margin 25,000
Fixed Manufacturing Overhead 8,000
Fixed S&A 6,000
Operating Income 11,000
Interest Expense 2,000
Net Income 6,300
Tax rate = 30%
📌 Additional Operational Data
• Total Units Sold: 100,000
• Standard Panels: 70,000 units
• Customized Panels: 30,000 units
ABC Cost Drivers (Fixed Overhead $8,000,000)
Activity Cost Driver Total Driver Units
Machine Setup 2,000,000 Setup Hours 10,000
Quality Inspection 3,000,000 Inspection Hours 15,000
Material Handling 3,000,000 Material Moves 20,000
CP consumes 60% of setups but only 30% of units.
📌 Variance Data (Standard Costing)
• Direct Material Price Variance: $400,000 U
• Direct Material Quantity Variance: $200,000 F
• Direct Labor Rate Variance: $300,000 U
• Direct Labor Efficiency Variance: $500,000 F
• Fixed OH Volume Variance: $600,000 U
📌 Capital Investment Proposal
New robotic system:
• Investment: $5,000,000
• Life: 5 years
• Salvage: $500,000
• Annual cash inflow: $1,600,000
• Cost of capital: 12%
📌 Non-Financial Metrics
Balanced Scorecard shows:
• Customer satisfaction decreased by 5%
• On-time delivery improved from 88% to 95%
• Employee training hours increased by 40%
• Defect rate increased by 2%
🔎 30 Difficult CMA-Style MCQs
1. Contribution Margin Ratio equals:
A. 44%
B. 50%
C. 52%
D. 55%
✅ Answer:
CM = 25,000 / 50,000 = ??%
2. Degree of Operating Leverage:
A. 2.27
B. 1.91
C. 2.00
D. 2.50
✅ Answer:
DOL = 25,000 / 11,000 = ?
3. Break-even Sales (in $000):
A. 28,000
B. 30,000
C. 32,000
D. 35,000
✅ Answer:
Fixed cost = 14,000
BE = 14,000 / 0.50 = ?
4. If sales increase 10%, operating income increases approximately:
A. 10%
B. 15%
C. 22.7%
D. 27%
✅ Answer:
10% × 2.27 = ****%
5. Setup cost per setup hour:
A. $150
B. $200
C. $250
D. $300
✅ Answer:
2,000,000 / 10,000
6. Inspection rate per hour:
A. $150
B. $200
C. $250
D. $300
✅ Answer:
3,000,000 / 15,000
7. Material handling rate per move:
A. $100
B. $120
C. $150
D. $180
✅ Answer:
3,000,000 / 20,000
8. CP product likely shows:
A. Overcosting under traditional system
B. Undercosting under traditional system
C. Same costing
D. No effect
✅ Answer:
High setup consumption → undercosted traditionally
9. Favorable DM Quantity variance likely indicates:
A. Higher quality materials
B. Efficient usage
C. Poor quality
D. Higher price
✅ Answer:
10. Unfavorable DM Price variance could be caused by:
A. Bulk discount
B. Better quality materials
C. Efficient purchasing
D. Lower grade material
✅ Answer:
11. Fixed OH volume variance arises due to:
A. Spending differences
B. Capacity utilization
C. Efficiency
D. Rate change
✅ Answer:
12. Operating margin:
A. 18%
B. 20%
C. 22%
D. 25%
✅ Answer:
11,000 / 50,000
13. Net profit margin:
A. 12.6%
B. 13%
C. 14%
D. 15%
✅ Answer:
14. NPV (approximate):
PV factor 12%, 5 years ≈ 3.605
A. Positive $268,000
B. Negative $500,000
C. Positive $1,000,000
D. Negative $1,200,000
PV inflows = 1.6M × 3.605 = 5.768M
• PV salvage (0.5 × 0.567) ≈ 0.284M
Total ≈ 6.052M
NPV ≈ 1.052M
Closest:
✅ Answer:
15. Project IRR likely:
A. < 12%
B. = 12%
C. > 12%
D. Cannot determine
✅ Answer:
16. Increase in defect rate primarily affects:
A. Financial perspective
B. Customer perspective
C. Internal process
D. Learning perspective
✅ Answer:
17. Training hours increase supports:
A. Short-term margin
B. Learning & Growth
C. Customer retention
D. Cost leadership
✅ Answer:
18. If CP discontinued, operating income would:
A. Increase if CP CM < allocated fixed cost
B. Decrease always
C. Remain same
D. Increase only if revenue increases
✅ Answer:
19. High DOL implies:
A. Low risk
B. Stable profit
C. Earnings volatility
D. Low fixed cost
✅ Answer:
20. Interest coverage ratio:
A. 4.5
B. 5.5
C. 6.5
D. 7.0
EBIT = 11,000
ICR = 11,000 / 2,000 =
✅ Answer:
21. ROI (Assume assets = 40,000):
A. 15.75%
B. 16%
C. 17%
D. 18%
6,300 / 40,000
✅ Answer:
22. Residual income (12% required return):
Required = 4,800
RI = 6,300 − 4,800 = 1,500
A. 1,200
B. 1,500
C. 1,700
D. 2,000
✅ Answer:
23. If variable cost ratio increases to 55%, CM ratio becomes:
A. 45%
B. 50%
C. 55%
D. 60%
✅ Answer:
24. Margin of safety:
Actual 50,000
BE 28,000
MOS = 22,000
MOS% = ** %
✅ Answer:
25. Best transfer pricing method for autonomy:
A. Cost-based
B. Market-based
C. Negotiated
D. Variable cost
✅ Answer:
26. If sales mix shifts toward CP, overall BE likely:
A. Increase
B. Decrease
C. Same
D. Zero
High complexity, lower margin
✅ Answer:
27. Ethical issue in variance manipulation relates to:
A. Integrity
B. Competence
C. Confidentiality
D. Credibility
✅ Answer:
28. If company automates production, likely impact:
A. Higher DOL
B. Lower fixed cost
C. Lower break-even
D. Lower risk
✅ Answer:
29. Defect increase with on-time improvement suggests:
A. Process imbalance
B. Better quality
C. Cost control success
D. Demand surge
✅ Answer:
30. Most strategic risk currently:
A. Liquidity
B. Quality deterioration
C. Interest burden
D. Tax rate
✅ Answer:
www.gmsisuccess.in
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