2010 SampleEntranceExam

2010 Sample
Entrance Examination
(Time Allowed: 4 hours)
Notes:
i) All answers must be indicated on the multiple-choice answer sheet. Work done
on the question paper and examination foolscap will NOT be marked.
ii) Included in the examination envelope is a supplement consisting of formulae and

tables. It is a standard supplement that may be useful for answering questions on
this paper.
iii) Examination materials must NOT BE REMOVED from the examination

writing centre. All examination materials (i.e. answer sheet, used and unused
foolscap sheets, envelope, supplement and question paper) must be submitted
to the presiding officer before you leave the examination room.
Updated June 2010
© 2010 The Society of Management Accountants of Canada. All rights reserved.

®/™ Registered Trade-Marks/Trade-Marks are owned by The Society of Management Accountants of Canada.
No part of this document may be reproduced in any form without the permission of the copyright holder.
2010 Sample Entrance Examination
TABLE OF CONTENTS
Examination:
Instructions ........................................................................................ 1
Questions ........................................................................................... 3
Solution:
Summary ......................................................................................... 46
Solutions .......................................................................................... 47
Supplement of Formulae and Tables .................................................... 81

* This supplement is provided to all candidates with the examination.
© 2010 The Society of Management Accountants of Canada. All rights reserved.

®/™ Registered Trade-Marks/Trade-Marks are owned by The Society of Management Accountants of Canada.
No part of this document may be reproduced in any form without the permission of the copyright holder.
INSTRUCTIONS:
Use the multiple-choice answer sheet provided to record your answers to the questions.
Be sure to enter your four-digit envelope number on the multiple-choice answer sheet.
Select the BEST answer for each of the following 116 questions and record your
answer on the multiple-choice answer sheet by blackening the appropriate answer
space (i.e. oval) with a soft lead (HB) pencil. Answer all questions. Mark ONLY ONE
ANSWER for each question.
Sample Question:
189. (-) Market research and public relations costs are
a) engineered variable costs.

b) discretionary variable costs.
c) committed fixed costs.
d) discretionary fixed costs.
e) engineered fixed costs.
Assuming you select choice d) for your answer, you should blacken the “d” space on
line 189 in the “ANSWERS” area of the multiple-choice answer sheet as shown below:
189 a b c d e
Question Weighting:
Your performance will be based on the total weighted value of the questions answered
correctly. Note that all questions are assigned the same weight, except for those
specified with a plus (+) sign (i.e. has a higher weight) or minus (-) sign (i.e. has a lower
weight). In the above example, there is a minus sign at the beginning of the question,
signifying that the question has a lower weighted value than the average question.
Singular Versus Plural Phrasing:
For simplicity of wording, all questions are phrased as though there is a single correct
answer, even when there are multiple correct answers. For example, the correct answer
to a question that is worded, “Which of the following is...,” may be the choice that refers
to two or more of the other choices, e.g. “Both a) and b) above.”
CMA Canada 1
Calculator Policy and Supplement
The following models of calculators are authorized for use on the Entrance Examination
effective January 2008:
Texas Instruments TI BA II Plus (including the Professional model)
Hewlett Packard HP 10bII (or HP 10Bii)
Sharp EL-738C (EL-738)
The supplement accompanying the Entrance Examination contains present value

tables.
2 CMA Canada
Strategic Management
1. (-) The main purpose of a company’s mission statement is to provide a context and
direction for
a) legislative lobby groups.

b) product/market/technology areas.
c) inside claimants of the company.
d) outside claimants of the company.
e) strategy formulation.
2. Continuous strategy evaluation is important for companies today because
a) international markets are fluctuating.

b) product development life cycles are shorter.
c) foreign competition is strong.
d) both a) and b) above.
e) all of a), b) and c) above.
3. (-) A diversification strategy focuses on
a) existing customers and existing products and services.

b) existing customers and new products and services.
c) new customers and existing products and services.
d) new customers and new products and services.
e) none of the above.
4. Which of the following statements about barriers to entry is FALSE?
a) It determines the extent of the threat of new entrants to existing competitors.

b) It typically includes economies of scale, product differentiation, and capital costs.
c) It cannot be created by government policy.
d) Customer loyalty is typically not a factor in creating a barrier to entry.
e) Both c) and d) above.
5. Which of the following best describes the concept of a distinctive competence?
a) The technical know-how that a company uses to create leading edge product
features.
b) Something a company does very well relative to competitors.
c) A primary activity that the company uses to create value for customers.
d) The ability of a company to perform an activity consistently well and at an acceptable
cost.
e) Something a company does well relative to other internal activities.
CMA Canada 3
6. In completing a SWOT (strengths, weaknesses, opportunities, threats) analysis, which of

the following is NOT an example of an external threat?
a) Growing bargaining power of the company’s suppliers.

b) Weakening brand image in relation to competitors.
c) Shifting of buyer preferences to a competing industry.
d) Election of a new federal government.
e) Higher than expected inflation rate.
7. In which of the following situations would a joint venture strategy be LEAST useful?
a) The available opportunity is very complex and risky.

b) Broader knowledge and skills are needed in a new industry.
c) The supply chain is short and established.
d) It is difficult to gain access into a foreign market.
e) Two relatively small companies are having difficulty competing with a large company.
8. Research in the widget industry has revealed that:

i) there are many manufacturers where the smaller manufacturers compete on
product differentiation and high quality, whereas the larger companies compete
on price and availability;
ii) the raw materials required for this industry are plentiful and provided by many
suppliers;
iii) the manufacturing process is highly labour intensive, mainly consisting of low-
skilled labour.
Based on these findings, what can be concluded about the widget industry?
a) Entry barriers in this industry are high.

b) Consumer bargaining power is high.
c) Supplier bargaining power is low.
d) Rivalry among competing suppliers in this industry is low.
e) Consumers place more value on product quality than price in this industry.
9. A company that currently competes in a single industry is seeking to reduce its

dependency on that industry by expanding into other industries. This company is using a
a) forward integration strategy.

b) diversification strategy.
c) horizontal integration strategy.
d) differentiation strategy.
e) backward integration strategy.
4 CMA Canada
10. Which of the following statements about the implementation of balanced scorecard in an
organization is correct?
a) The scorecard should include only four performance perspectives, including learning
and growth, internal business process, customers and financial.
b) Performance perspectives and indicators included in an organization’s corporate
scorecard, divisional scorecard and individual employee scorecard should be
identical.
c) Performance perspectives and indicators of critical success factors should be driven
by the organization’s mission, vision, and strategy.
d) The scorecard should include a balanced set of financial, quantitative, objective, and
lagging indicators.
e) The cause-and-effect relationship among the different performance perspectives
must be precise and tested.
Risk Management and Governance

11. When internal controls are implemented in an organization, there is often resistance
from individuals. One way to minimize resistance to internal controls is to
a) have an open forum for employees to suggest implementation methods.

b) ensure support from ownership and the Board of Directors.
c) assign the task of implementing the controls to an impartial staff person who has no
direct relationship or authority over the affected individuals.
e) both b) and c) above.
12. Which of the following is NOT a typical role of an audit committee?
a) Decide which public accounting firm to retain.

b) Resolve conflicts between the public accounting firm and management.
c) Discuss and review findings of internal audits.
d) Delegate audit responsibilities to senior management.
e) Determine the scope of services of the public accounting firm.
13. The main purpose of an internal control system within an organization is to
a) provide timely and relevant information to the organization about its goals and
objectives.
b) safeguard the assets within the organization.
c) confirm the reliability and integrity of information within the organization.
d) ensure efficient use of resources.
e) ensure the behaviour of employees are consistent with organizational objectives and
strategies.
CMA Canada 5
14. Effective internal control in a small company that has an insufficient number of
employees to permit proper division of responsibilities can best be enhanced by
a) employment of temporary personnel to aid the separation of duties.

b) the continuous review of all aspects of the business by the owner of the business,
including the output of the accounting system.
c) engaging an outside accountant to perform the monthly accounting duties.
d) delegation of a full, clear-cut responsibility to each employee for the functions
assigned to each.
e) ensuring that the accounting function takes precedence over all other functions in the
business.
15. The role or duties of the board of directors of public companies has become increasingly
important since the passing of legislation such as Sarbanes-Oxley in the United States
and the Canadian Securities Administrators Multi-Lateral Instruments. Which of the
following is NOT a role of the board of directors?
a) Overseeing the company’s direction, strategy, and business approaches.

b) Aligning key executive and board remuneration with shorter-term interests of the
company and its shareholders.
c) Evaluating the calibre of senior executives’ strategy-making and strategy-executing
skills.
d) Monitoring the effectiveness of the company’s governance practices.
e) Ensuring the integrity of the corporation’s accounting and financial reporting systems.
16. John works for a small company and is responsible for making disbursements by cheque
and also to reconcile the monthly bank statements. Which of the following best describes
the control impact of this arrangement?
a) This arrangement improves the companies control over the cash account.
b) John is in a position to make and conceal unauthorized payments.
c) John is able to make unauthorized adjustments to the cash account.
d) Internal control is enhanced because John has two opportunities to discover
inappropriate disbursements.
e) There is no negative impact since this is best practice for small companies.
17. The internal auditors of an organization should
a) identify areas of risk that need to be addressed in the control systems.

b) continuously monitor and maintain the control systems.
c) appoint the external auditors.
6 CMA Canada
18. Which of the following is an INVALID concept of internal control?
a) Once a control risk is identified, it is necessary to adopt an internal control to mitigate

the risk.
b) The recorded accountability for assets should be compared with the existing assets
at reasonable intervals and appropriate action should be taken if there are
differences.
c) Accounting control procedures may appropriately be applied on a test basis in some
circumstances.
d) Procedures designed to detect errors and irregularities should be performed by
persons other than those who are in a position to perpetrate them.
e) Internal control should be the responsibility of every member of senior management.
19. A Canadian exporting company wishes to reduce the risk of the Canadian dollar
dropping in value relative to the foreign currency (FC) of its customers. However, it
wants to retain the flexibility to benefit from any possible future increases in value of the
Canadian dollar relative to the FC. Which of the following strategies should the company
use with respect to the FC?
a) Buy a forward contract.

b) Buy FC.
c) Buy an option.
d) Both b) and c) will equally mitigate risk.
e) None of the above.
20. A pharmaceutical company is considering investing in 3 new drugs. It estimates that

cash flows from any 1 drug will last 10 years and its cost of capital is 20%.
Probability of
Government Approval Development Annual Cash Flow
of the Drug Costs (if the drug is approved)
Drug H 30% $6,000,000 $6,500,000
Drug I 40% $5,800,000 $4,450,000
Drug J 20% $6,800,000 $9,500,000
Based on this information, how should the projects be prioritized?
a) Drug J, then Drug I, then Drug H.

b) Drug H, then Drug I, then Drug J.
c) Drug I, then Drug J, then Drug H.
d) Drug H, then Drug J, then Drug I.
e) Drug I, then Drug H, then Drug J.
CMA Canada 7
Performance Management
21. A company manufactures two products, Y and Q. Each product requires the following
processing:
Process I Process II
Y 2 hours 1 hour
Q 4 hours 3 hours
The available time for processing the two products is 100 hours per week in Process I
and 90 hours per week in Process II. The contribution margin is $5 per unit of Y and $7
per unit of Q. The company would like to maximize profits, but the time availability of
these two processes have constrained the number of units that can be produced.
Applying the linear programming technique, how would the objective function be
expressed?
a) Maximize contribution margin = 5/3Y + 7/7Q

b) Maximize contribution margin = 100/(2Y + 4Q) + 90/(Y + 3Q)
c) Maximize contribution margin = 5Y + 7Q
d) Maximize contribution margin = (2Y x 5) + (4Q x 7) + (4Y x 5) + (3Q x 7)
e) Balance constraints: 5/2Y + 7/4Q = 5/1Y + 7/3Q
8 CMA Canada
The following data pertains to questions 22 and 23.

Green Wood Ltd. produces two lumber products from a joint milling process. A standard
production run incurs joint costs of $300,000 and results in 60,000 units of product A and 90,000
units of product B. Product A sells for $2 per unit and product B sells for $4 per unit.
22. Assuming no further processing work is done after the split-off point, the amount of joint
cost allocated to product A using the relative sales value method would be
a) $75,000.
b) $180,000.
c) $100,000.
d) $225,000.
e) $120,000.
23. (+) Assume that product B must be further processed at a cost of $200,000 per
production run. During the process, 10,000 units are lost. These spoiled units have no
discernible value. The remaining units of product B are saleable at $10 per unit. Assume
also that product A must be further processed at a cost of $100,000 per production run
and then sold for $5 per unit. No units of product A are lost in this process.
Using the net realizable value method, the completed cost assigned to each unit of
product B would be
a) $2.92.
b) $5.63.
c) $5.00.
d) $5.31.
e) $4.75.
_____________________
24. At the end of the financial year, the cost accountant finds that the actual expenses for
fixed factory overhead exceed the budgeted amounts by $15,000. If the decision is
made to close out the balance remaining in the manufacturing overhead account to cost
of goods sold, what would be the effect on the company’s financial results?
a) A decrease in cost of goods manufactured.

b) An increase in operating income.
c) A decrease in gross profit.
d) A decrease in contribution margin.
e) An increase in cost of ending inventory.
CMA Canada 9
25. (+) ZZ Co. has two production departments, A and B, and two service departments,
information technology (IT) and maintenance. The service department costs are
allocated to departments based on number of computer hours used for IT and the
department size in square metres for maintenance.
Department Computer Hours Square Metres Direct Costs

A 2,000 2,200 $ 925,000
B 1,500 4,000 600,000
IT 300 400 80,000
Maintenance 200 200 30,000
Total 4,000 6,800 $1,635,000
Assuming ZZ Co. uses the direct allocation method, what is the total cost of
Department A after allocating the service department costs (rounded to the nearest
dollar)?
a) $1,048,167
b) $981,359
c) $982,647
d) $974,706
e) $978,243
10 CMA Canada
26. JYD Inc. is introducing a new product next year. Costs pertaining to this product are
budgeted as follows:
Variable manufacturing costs per unit $89.00

Variable selling expenses per unit $22.50
Variable administration expenses per unit $10.90
Fixed manufacturing costs $870,000
Fixed selling expenses $545,000
Fixed administration expenses $275,000
The marketing department estimates the following sales at various selling prices:
Price Volume
$180 59,000
$170 75,000
$160 90,000
$150 120,000
$140 145,000
In order to maximize profits, what price should JYD Inc. set for the new product?
a) $180
b) $170
c) $160
d) $150
e) $140
CMA Canada 11
The following information pertains to questions 27 and 28.

ABC Company manufactures widgets and uses a standard process costing system. During
production, two different types of materials are used: 100% of material XY is added at the
beginning of the production process; 60% of material RT is added halfway through the
production process while the remaining 40% is added when the widget is 90% converted.
Conversion costs are added uniformly throughout the entire production process. Quality testing
is conducted at 90% conversion just prior to adding the remaining amount of material RT and
rejected units are accounted for as spoilage.
For Year 5, the standard costs per equivalent unit for material XY, material RT and conversion
costs are $15.00, $21.00 and $9.00, respectively. Production data for May Year 5 are as
follows:
Work in process inventory, May 1, Year 5 (95% converted) 5,500 units

Started in production 8,800 units
Completed production 9,100 units
Work in process inventory, May 31, Year 5 (60% converted) 5,000 units
27. (+) The amount of spoilage costs for May is:
a) $ 7,140.
b) $ 9,000.
c) $10,710.
d) $ 8,820.
e) $ 7,320.
28. The value of work-in-process inventory at May 31 is
a) $225,000.
b) $165,000.
c) $207,000.
d) $183,000.
e) $161,250.
12 CMA Canada
29. HEB Ltd. manufactures widgets. In the production of the widgets, two different types of
materials are used: 100% of Material K is added at the beginning of the production
process; 100% of Material Z is added when the widget is 60% converted. Conversion
costs are added uniformly throughout the entire production process. Quality testing is
conducted at the 60% conversion point prior to adding Material Z. Rejected units at
quality testing are accounted for as spoilage.
Production data for June, Year 15, are as follows:
Work-in-process inventory, June 1, Year 15 (50% converted) 600 units

Started in production 8,900 units
Completed production 9,100 units
Work-in-process inventory, June 30, Year 15 (90% converted) 250 units
(+) Assume HEB Ltd. uses a first-in, first-out (FIFO) process costing system. The
equivalent units of production for conversion costs for June are
a) 8,965.
b) 9,415.
c) 9,115
d) 9,500.
e) 9,175.
30. (+) Yabco Inc. produces three design types of product X: A, B, and C. The budgeted
gross margin per unit for Year 5 is as follows:
A B C
Price $400 $250 $150
Direct materials 100 80 40
Direct labour 50 50 50
Variable overhead 60 40 10
Fixed overhead 20 20 20
230 190 120
Gross margin per unit $170 $ 60 $ 30
The fixed overhead allocation rate is based on the Year 4 sales of 5,000 units of A,
10,000 units of B and 20,000 units of C.
In addition, the budgeted total administration costs for Year 5 amount to $500,000, all of
which are fixed costs. Assuming the sales mix in Year 5 will be the same as in Year 4,
what is the breakeven sales volume for Year 5 (rounded up to the nearest 10 units)?
a) 8,540 units
b) 2,180 units
c) 11,250 units
d) 8,840 units
e) 15,280 units
CMA Canada 13
31. The following represents the budgeted and actual manufacturing data for LPT Ltd. for
Year 3:
Budget Actual
Units of direct materials 65,000 units 75,000 units
Direct labour hours 100,000 hours 120,000 hours
Machine hours 60,000 hours 70,000 hours
Direct materials $325,000 $380,000
Direct labour $275,000 $340,000
Overhead $300,000 $320,000
Assuming overhead is applied based on direct labour hours, by how much was overhead
overapplied or underapplied in Year 3?
a) $40,000 overapplied
b) $70,000 underapplied
c) $20,000 underapplied
d) $60,000 overapplied
e) $10,000 underapplied
32. Enterprise Resource Planning (ERP) has been around since the early 1990s. A
successful ERP
a) is a back office function.

b) can extend to include suppliers.
c) runs off a single database.
d) changes the way a company does business.
e) all of the above.
14 CMA Canada
33. (+) AUP Ltd. produces three chemicals from a joint process. The three chemicals can be
sold immediately after the split-off point. One of the chemicals, Chemical O, can be
further processed and sold as Chemical O3. In addition to the main chemicals, a by-
product emerges from the joint process. This by-product must be disposed of at the end
of the joint process. During August, 5,000 litres of inputs were processed in the joint
process and 1,000 litres of Chemical O were further refined to produce 1,000 litres of
Chemical O3. The following are data regarding production and sales for the month of
August:
Chemical
A D O O3 By-product
Selling price per litre $200 $120 $150 $225 $0
Total output at split-off 1,200 2,200 1,500 100
Sales during August 900 2,100 1,400 950 0
There were no inventories of any of the chemicals at the beginning of August. During the
month, the joint processing costs incurred by the company amounted to $480,000 and
the additional costs to produce Chemical O3 amounted to $40,000.
Using the estimated net realizable value method of joint cost allocation, the total joint
costs for August allocated to Chemical O (rounded to the nearest hundred dollars) is
a) $116,200.
b) $ 47,100.
c) $ 44,800.
d) $ 49,000.
e) $ 62,200.
CMA Canada 15

DBS Ltd. produces a single product. For the current year, budgeted sales volume is 90,000
units and budgeted production volume is 100,000 units. The following standards were used in
preparing the current year’s budget:
Selling price $200 per unit

Direct materials $70 per unit
Direct labour hours 1.5 hours per unit
Direct labour rate $20 per hour
Variable manufacturing overhead rate $18 per direct labour hour
Variable selling and administration costs $6 per unit
Fixed manufacturing overhead $2,800,000 per year
Fixed selling and administration $300,000 per year
34. Assuming DBS Ltd. uses standard variable (direct) costing, what is its budgeted net
profit for the current year?
a) $3,600,000
b) $2,930,000
c) $3,740,000
d) $1,660,000
e) $3,210,000
35. If DBS Ltd. changes from standard variable costing to standard absorption costing, by
what amount would budgeted net profit for the current year change?
a) $311,111 increase
b) $311,111 decrease
c) no change
d) $280,000 increase
e) $280,000 decrease

YEH Manufacturing Company produces two models of lawnmowers: Standard and Extreme.
Yalena Yoon, Manager of Marketing and Sales, estimates that YEH can sell between 6,000 and
15,000 units of either product during the upcoming year, Year 8. The following information has
been provided by the accounting department:
Standard Extreme
Expected selling price $280 $350
Standard cost per unit:
Direct materials $ 80 $100
Direct labour (@$20 per hour) 20 40
Variable overhead (@$10 per DLH) 10 20
Fixed overhead (@$30 per DLH) 30 60
Standard cost per unit $140 $220
16 CMA Canada
Direct labour is a variable manufacturing cost and factory workers are paid by the hour. An
annual practical capacity of 24,000 direct labour hours (DLH) is used in establishing the
manufacturing overhead rates. Plant capacity allows up to a maximum of 30,000 direct labour
hours. Overtime pay above and beyond the practical capacity is 1½ times regular pay and a
maximum of 6,000 direct labour hours is allowed for overtime under the union contract. YEH
also has a hiring freeze policy for Year 8. Variable selling and administrative costs are $10 per
unit for each of the Standard and Extreme model, and the total fixed selling and administrative
costs budgeted for Year 8 are $480,000. Fixed manufacturing overhead as well as fixed selling
and administrative costs budgeted for Year 8 will not be affected by the production plan.
CP Hardware Store, a national chain, approaches YEH and increases its order of the Standard
Model from 1,000 units to 4,000 units for Year 8, and a price discount of 5% is given on the
order. Ms Yoon revises her sales forecasts for the Standard model from 12,000 units to 15,000
units (including the CP order) and the Extreme model from 12,000 units to 10,000 units,
respectively, to reflect changes in the industry’s economic condition.
36. (+) YEH should accept the CP order of 4,000 units as net income will increase by:
a) $438,000.
b) $ 78,000.
c) $108,000.
d) $154,000.
e) $168,000.
37. (+) Because of changes in consumers’ preference, YEH decides to focus its labour
capacity on the production of the Extreme model first. Ms Yoon revises her sales
forecast of the Extreme model to 12,000 units for Year 8, and the remaining capacity will
be used to manufacture the Standard model. In Year 8, YEH should produce 12,000
units of the Extreme model
a) for a budgeted income of $960,000.

b) and 6,000 units of the Standard model for a budgeted income of $1,920,000.
c) and 6,000 units of the Standard model for a budgeted income of $1,860,000.
d) for a budgeted income of $1,080,000.
e) and 6,000 units of the Standard model of a budgeted income of $1,720,000.
_____________________________
38. Which one of the following statements about the cost hierarchies of activity-based
costing is correct?
a) Engineering costs incurred to change product designs is a facility-sustaining cost.

b) If the cost of an activity increases with each hour of machine time, it is an input-level
cost.
c) The cost of resources used each time in setting up the machine for a production run
is a batch-level cost.
d) The compensation for a quality engineer, who is responsible for continuous quality
improvement projects implemented in the plant, is a product-sustaining cost.
e) The cost of hiring security for the plant is a product-sustaining cost.
CMA Canada 17
39. Which of the following descriptions of pricing is correct?
a) Target price, a cost-based price, is the estimated price for a product or service that
potential customers will pay.
b) Peak-load pricing is the practice of charging a lower price for the same product or
service when demand approaches physical capacity limits.
c) Collusive pricing, which is in compliance with regulations, occurs when companies in
an industry conspire in their pricing and output decisions to achieve a price above
the competitive price.
d) Predatory pricing or dumping occurs when a company sells a product in a foreign
country at a price below the market value in its home country and this action
materially injures or threatens to materially injure an industry in the foreign country.
e) Discriminatory pricing occurs when a company charges different customers different
prices for a product because of differences in the costs of manufacturing, marketing
and distributing the product.
40. CCN Inc. manufactures hockey sticks, and expected sales for the four quarters of Year 6
are as follows:
Quarter Units
First 115,000
Second 27,000
Third 122,000
Fourth 138,000
The company generally maintains an ending finished goods inventory volume of 15% of
the next quarter’s sales volume and it keeps no work-in-process inventory. The hockey
stick sells for $55 and the standard cost of production is $24 per unit.
What will be the budgeted cost of goods manufactured for the third quarter of Year 6?
a) $2,870,400
b) $2,928,000
c) $3,782,000
d) $2,985,600
e) $3,424,800
18 CMA Canada

JH Plastics uses a standard costing system and predetermined overhead rates in determining
product costs. The standard cost per unit of Product K is as follows:
Direct materials ($6.00 x 2 kg) $12.00

Direct labour ($24.00 x 0.5 direct labour hour) 12.00
Variable overhead ($10.00 x 0.3 machine hour) 3.00
Fixed overhead ($20.00 x 1 machine hour) 20.00
$47.00
Predetermined overhead rates are based on a practical capacity of 12,000 machine hours per
month.
In July, 35,000 kg of direct materials, 7,500 direct labour hours, and 5,000 machine hours were
used in producing 15,900 units of Product K.
41. Which of the following variances for July is unfavourable?
a) Direct materials quantity (usage) variance.

b) Direct labour efficiency variance.
c) Variable overhead efficiency variance.
d) Both a) and c) above.
e) Both b) and c) above.
42. (+) Assume that actual total overhead incurred in July is $365,500 and the fixed
overhead spending variance is $15,000 favourable. What is the variable overhead
spending variance?
a) $ 90,500 favourable.
b) $ 5,500 unfavourable.
c) $236,000 unfavourable.
d) $ 9,500 favourable.
e) $140,500 favourable.
CMA Canada 19

A company manufactures two types of sports balls: baseballs and soccer balls. Both types of
balls pass through the processes involving cutting and stitching.
The baseballs sell for $5.40 each and the soccer balls sell for $9.55 each. There is an unlimited
market for the baseballs, but the retailer demand for soccer balls is limited to 25,000 balls per
year. Factory operations of each process are limited to 10,000 hours per year. Direct labour is
$10 per hour. Variable overhead is applied based on total processing hours at $2 per hour.
Direct materials cost $1 and $2.25 per ball for baseballs and soccer balls, respectively.
Processing hours per ball are as follows:
Cutting Stitching Total

Baseball 0.1 0.1 0.2
Soccer ball 0.2 0.3 0.5
43. Which of the following would be an appropriate objective function in determining the
production mix that would maximize total contribution?
a) Maximize $5.40 baseball + $9.55 soccer ball

b) Maximize $3.40 baseball + $7.75 soccer ball
c) Maximize $2.00 baseball + $1.30 soccer ball
d) Maximize $2.40 baseball + $2.30 soccer ball
e) Maximize $4.40 baseball + $7.30 soccer ball
44. Assume that, to maximize total contribution, the company should maximize its
production of soccer balls. How many units of baseballs can be produced?
a) 6,500
b) 35,000
c) Zero
d) 25,000
e) 50,000
_____________________
45. Manufacturing costs incurred in April to produce 500 units of a product were as follows:
$3,000 for direct materials, $2,000 for direct labour, $4,000 for variable overhead and
$6,000 for fixed overhead.
Assuming the manufacturing cost behaviour in May will be the same as that in April and
that 400 units will be produced in May, what would be the manufacturing cost per unit in
May?
a) $34.50
b) $33.00
c) $35.00
d) $37.50
e) $30.00
20 CMA Canada
46. Company RT would like to increase overall sales by marketing its current product to new
markets. This market-product approach is best described as a
a) market development strategy.

b) market penetration strategy.
c) differentiation strategy.
d) product development strategy.
e) diversification strategy.
Performance Measurement
47. A balanced scorecard is a multi-faceted performance evaluation system that is tied in to
a company’s strategy. Measures that evaluate innovation in operations, such as creating
new services for customers, relate mainly to which component of the balanced
scorecard?
a) Financial perspective.
b) Customer perspective.
c) Internal business process perspective.
d) Learning and growth perspective.
48. Job design strategies can be used to improve employee motivation. One strategy that is
designed to give employees more autonomy and responsibility over the work that they
do is called
a) job enrichment.
b) job rotation.
c) job sharing.
d) job enlargement.
e) mutual goal setting.
49. In his first week of employment, an employee completed projects beyond his job
description. Since then, the employee stopped completing extra projects and his
performance was marginal. This resulted in an overall favourable performance review for
the employee. This is an example of the employee taking advantage of which of the
following perceptual errors?
a) Primacy effect.
b) Recency effect.
c) Projection.
d) Halo effect.
e) Self-fulfilling prophecy.
CMA Canada 21

The operating data for XYZ Company’s three investments centres are as follows:
Operating Income
Before Taxes Total Assets Total Liabilities
North $50,000 $450,000 $225,000
South $40,000 $375,000 $275,000
West $65,000 $475,000 $110,000
XYZ Company requires a minimum return on investment (ROI) of 10% in evaluating the
performance of the investment centres. There is a new proposal which requires an investment
of $80,000 with an expected operating income before taxes of $10,000.
50. If the managers are awarded increasing bonuses for increasing investment centre ROI
above 10%, which manager would be most motivated to accept the proposal?
a) North.
b) South.
c) West.
d) Both a) and b) above.
e) All of a), b), and c) above.
51. If the managers’ bonuses are determined using residual income (RI), the manager of
which investment centre would be motivated to accept the proposal?
a) North.
b) South.
c) West.
d) Both a) and c) above.
e) All of a), b) and c) above.
_____________________
52. Residual income is a better measure for performance evaluation of an investment center
manager than return on investment because
a) the problems associated with measuring the asset base are eliminated.
b) desirable investment decisions will not be neglected by high-return divisions.
c) only the gross book value of assets needs to be calculated.
d) returns do not increase as assets are depreciated.
e) the arguments over the implicit cost of interest are eliminated.
22 CMA Canada
53. (-) Various theories of motivation recognize that achievement and self actualization are
high level needs that motivate employee performance. To encourage employees to
strive towards higher achievement, a manager should
a) develop recognition programs.

b) set challenging goals jointly with employees.
c) provide periodic feedback on their performance.
d) both a) and c) above.
54. Which of the following statements about performance measures is INCORRECT?
a) Return on investment is a productivity measure for evaluating performance of

investment centres, e.g. strategic business unit.
b) Revenue per sales person is a partial factor productivity measure for evaluating
performance of revenue centres, e.g. sales department.
c) Units of output per direct labour hour is a partial factor productivity measure for
evaluating performance of engineered expense centres, e.g. production department.
d) Units of output per dollar of production resources is a partial factor productivity
measure for evaluating performance of engineered expense centres, e.g. production
department.
e) Number of patents per R&D employee is a partial factor productivity measure for
evaluating performance of discretionary expense centres, e.g. research and
development (R&D) department.
55. Data for two divisions that are treated as investment centres are as follows
Division X Division Y
(000's) (000's)
Revenue $35,000 $65,000
Net income $15,000 $22,000
Average total investment $79,000 $130,000
The company’s balanced scorecard includes a target minimum rate of return of 18% for
all investments. In evaluating the performance of these divisions, it can be concluded
that
a) Division X performed better because both its return on investment and residual
income are higher.
b) Division Y performed better because its net income is higher.
c) Division Y performed better because its return on investment is higher.
d) Division X did not meet the target minimum rate of return.
e) Both divisions met the target minimum rate of return.
CMA Canada 23
56. RG Inc. operates as a decentralized multidivisional company. The West Division

purchases most of its assembly parts from the East Division who currently have
sufficient excess capacity to meet the West Division’s parts requirements. The East
Division’s incremental costs for manufacturing the parts is $50 per unit and the current
market price is $90. Assuming the divisions are treated as profit centres, which of the
following statements is true?
a) The minimum transfer price the East Division is willing to accept on sales to the West
Division is $50.
b) The minimum transfer price the East Division is willing to accept on sales to the West
Division is $90.
c) The maximum transfer price the West Division is willing to pay on purchases from
the East Division is $90.
d) Both b) and c) above.
e) Both a) and c) above.
57. Leather Division is transferring 12,000 units of leather to the Stitching Division. Costing
from the Leather Division is as follows
Direct Material $150,000

Direct Labour 36,000
Variable Overhead 24,000
Variable Selling and Admin 60,000
Total Variable Costs $270,000
Fixed Overhead $165,000
Fixed Selling and Admin 65,000
Total Fixed Costs $230,000
Total Costs $500,000
Selling Price per Unit $80
Based on absorption costing, the 12,000 units of leather would be transferred at a total
cost of
a) $351,000.
b) $435,000.
c) $375,000.
d) $500,000.
e) $210,000.
24 CMA Canada
58. An electrician is working on a new building among various other tradespeople and is
paid an individual bonus based on the number of fixtures installed within a specified
period of time. The benefit(s) of including this incentive based on individual performance
includes
a) improved individual output.

b) increased cooperation among employees.
c) higher quality of installation.
d) Both a) and b).
59. After an analysis of a company's operations, it was evident that department performance
varied and that every department worked independently to achieve departmental
objectives. The company would like to improve overall product output which would
require improvement from all departments. To achieve this improvement, the
organization should
a) introduce an employee stock program.

b) develop a wage structure.
c) increase the employee bonus program.
d) launch a plant-wide incentive plan.
60. (+) OKP Corporation has the following results for two of its divisions.
West Division Coastal Division

Revenues $1,850,000 $3,500,000
Operating income $510,000 $750,000
Average operating assets $2,180,000 $2,525,000
Total liabilities $980,000 $1,055,000
Target Rate of Return 15% 18%
After analysis of these results, you conclude that
a) The Coastal Division outperformed the West Division because they have a higher
profit margin.
b) The Coastal Division outperformed the West Division because they generated a
better return on investment and residual income.
c) The West Division performed better because it required fewer assets to achieve its
targets.
d) The West Division outperformed the Coastal Division because they carried fewer
liabilities.
e) The divisions performed equally.
CMA Canada 25
61. Which of the following statements is (are) true?
a) Responsibility accounting is a system that measures the actions (actual results)

against the plans (budgets) of each responsibility centre.
b) Responsibility accounting associates financial items with managers who have the
most knowledge and information about the specific items if and only if they have the
ability to exercise control.
c) Controllability is absolute as managers have the ability to exercise full control on their
responsibility centre’s activities.
d) Both (a) and (b).
e) All of (a), (b), and (c).
62. An employee is motivated to work harder because he believes more effort leads to better
performance which would then lead to better rewards. This belief is based on which
motivational theory?
a) Theory Y/Theory X
b) Maslow's hierarchy of needs
c) Expectancy Theory
d) Motivation-Hygiene
e) Equity Theory
63. (-) Incentives for ethical behaviour comes from several sources. An incentive that
motivates employees to comply with company ethical standards would be best described
as an incentive that is
a) professional-based.
b) organization-based.
c) individual-based.
d) market-based.
e) regulatory-based.
Financial Management
64. Why does the Capital Asset Pricing Model (CAPM) NOT value unsystematic risk?
a) The CAPM assumes that investors are risk neutral, and not risk averse.
b) The CAPM assumes that investors will be holding anywhere from one security to the
entire market of securities.
c) The CAPM assumes that unsystematic risk represents that aspect of financial risk
which is unique to that security and not related to the financial risk of the market.
d) The CAPM assumes that unsystematic risk can be eliminated in a well-diversified
portfolio.
e) The CAPM only values systematic risk.
26 CMA Canada
65. (+) BG Corporation is considering a bid to take over SM Limited. Should the takeover
occur, BG Corporation would benefit from SM Limited's before-tax operating cash flows
of:
i) $500,000 per year for the first three years,
ii) $700,000 per year from the fourth year into perpetuity, and
iii) $225,000 per year of synergistic savings before taxes in perpetuity.
Assume that the cash flows occur at the end of each year, the tax rate is 40% for both
companies, and BG Corporation’s after-tax required rate of return is 13%. What is the
maximum amount that BG Corporation should be willing to pay to take over SM
Corporation (rounded to the nearest thousand dollars)?
a) $7,666,000
b) $2,947,000
c) $1,909,000
d) $6,643,000
e) $3,986,000
66. (-) Normally, the issuance of a stock dividend of one share for every ten shares currently
held will
a) increase shareholders’ equity.

b) decrease future earnings per share.
c) cause the market price of the shares to fall.
d) cause the market price of the shares to increase.
e) do both b) and c) above.
67. The following table sets out the aging schedule for a firm’s accounts receivables. What is
the average collection period?
Aging Schedule
Age of Account % of Total Value of Sales
Cash Sales 20%
20 days 40%
60 days 40%
a) 32 days
b) 40 days
c) 60 days
d) 24 days
e) 27 days
CMA Canada 27
68. A profitable company buys a depreciable class 8 asset (i.e. 20% CCA rate) for $500,000
at the beginning of Year 1. The company uses straight-line amortization for capital
assets. This asset has an expected useful life of 8 years and has an estimated residual
value of $50,000 at the end of 8 years. At the beginning of Year 3, the company sold this
asset, which was the last asset in this class held by the company, for $370,000. What is
the effect of this sale on the company’s Year 3 taxable income?
a) $46,000 recapture
b) $17,500 terminal loss
c) $50,000 recapture
d) $80,000 terminal loss
e) $10,000 recapture
69. XYZ company recently issued rights to raise financing. The shares are currently trading
for $18 per share on the TSX. The subscription price for the rights offering is $14 per
share and an investor will require 3 rights to purchase one share. The value of one right
is
a) $12.00.
b) $1.67.
c) $1.00.
d) $0.
e) $4.00.
70. (+) HTY Inc. has the following capital structure:
Current liabilities $950,000

Long-term debt $1,300,000
Preferred shares $2,920,000
Common equity $5,780,000
The long-term debt consists of a single bond issue paying 7.5% interest annually. These
bonds currently yield 6.5% in the market. The current cost of the preferred shares is 6%.
The current cost of the common shares is 15%. The company’s tax rate is 40%. What is
HTY Inc.’s weighted average cost of capital (rounded to the nearest tenth of a percent)?
a) 10.3%
b) 10.9%
c) 6.8%
d) 9.2%
e) 11.3%
28 CMA Canada
71. An investor purchased $50,000 worth of newly-issued, 12-year, 10% bonds on

December 31, Year 4, for $46,750. The interest payment dates are June 30 and
December 31 each year. On January 1, Year 12, the investor decided to sell his bonds.
The annual yield for similar bonds in the marketplace is 8%. How much money will the
investor receive for his bonds (rounded to the nearest ten dollars)?
a) $50,000
b) $75,000
c) $33,800
d) $54,080
e) $70,780
72. LPY Ltd. has cash of $500,000 that will be used to create an investment portfolio. The
portfolio will be invested evenly in two assets: an equity investment that has a beta of
1.70 and a risk-free, interest bearing certificate. The current risk-free rate in the market
is 3% and the expected market return is 9%. What return should LPY Ltd. expect to
earn on its portfolio?
a) $ 7,500
b) $30,000
c) $33,000
d) $66,000
e) $40,500
73. Management constantly makes decisions regarding financial leverage. Which of the
following ratios would management NOT consider in estimating financial leverage?
a) Contribution margin
b) Debt-to-equity ratio
c) The difference between Return on Equity and Return on Assets
d) Debt-to-asset ratio
e) Times Interest Earned
74. A company is considering investing $750,000 into either:

i) Investment A with a quoted interest of 13.0% compounded semi-annually.
ii) Investment B with a quoted interest of 12.25% compounded daily.
iii) Investment C with a quoted interest of 12.5% compounded quarterly.
Which investment(s) should the company choose?
a) Only A.
b) Only B.
c) Only C.
d) Either A or B.
e) Any of the three as they all have the same effective annual rate.
CMA Canada 29
75. The following information relates to Reward Inc (RI), a Canadian Controlled Private
Corporation (CCPC):
Refundable Dividend Tax on Hand (RDTOH) balance

January 1, Year 9 $20,000
Refundable portion of part I tax for Year 9 $ 5,000
Part IV tax payable for Year 9 $ 8,000
Cash dividends paid to shareholders in Year 9 $24,000
Taxable stock dividends paid to shareholders in Year 9 $15,000
The dividend refund that RI is entitled to for Year 9 is
a) $33,000.
b) $20,000.
c) $13,000.
d) $ 8,000.
e) $ 5,000.
76. A company is considering the following projects:
W X Y
Annual after-tax cash inflows $620,000 $1,000,000 $2,000,000
Initial Project Cost $2,000,000 $5,000,000 $10,000,000
Discount rate 9% 11% 13%
Project life 4 years 5 years 7 years
Based only on profitability index, which project(s) should the company invest in?
a) Only W.
b) Only X.
c) Only Y.
d) Both W and Y.
e) All three projects.
30 CMA Canada
77. A company requires new equipment with a 5-year life and is considering the following
equipment options:
Operating
Lease Buy
Equipment Price $4,000,000
After-tax annual lease payment $550,000
Lease term 5 years
Annual CCA (straight-line basis) $600,000
Salvage value after 5 years $1,000,000
The first lease payment would be due on delivery and the remaining lease payments are
due at the beginning of the year. The company's after-tax cost of borrowing is 6% and its
tax rate is 40%. Based on this information and ignoring the half-year rule, the net present
value of leasing the equipment is (rounded to the nearest thousand)
a) ($ 580,000).
b) $ 28,000.
c) ($ 214,000).
d) ($1,730,000).
e) $ 797,000.
78. A bond with a BBB rating is best described as
a) a junk bond.
b) an investment grade bond.
c) a bond with a lower yield than an AA graded bond.
d) very highly speculative.
e) a bond sold only on high-yield US markets.
79. A portfolio is equally made up of three stocks with the following projections
Expected Return
Probability Stock V Stock W Stock X
Bull market 0.30 15% 18% 10%
Bear market 0.70 8% 2% 9%
What is the expected return on this portfolio?
a) 14.3%
b) 8.7%
c) 4.2%
d) 10.3%
e) 8.0%
CMA Canada 31
80. (+) A company is introducing 30-day credit terms for customers with the expectation that
annual sales will increase from $700,000 to $775,000. To finance this investment in
receivables, the company will use its line of credit, which has a 5% rate of interest. It
estimates that it would have to hire an AR clerk for $45,000 and incur annual bad debt of
$20,000. If the company's tax rate is 40%, what is the NPV of extending credit (rounded
to the nearest hundred)?
a) $ 56,300
b) $136,300
c) ($ 53,700)
d) $ 10,000
e) $200,000
81. A company has the following information from Year 12.
Sales price per unit $250

Units sold 25,000
Variable costs per unit $110
Fixed costs $725,000
Common equity $890,000
Tax rate 40%
Given the above information, what is the degree of operating leverage?
a) 3.93
b) 4.83
c) 2.25
d) 1.26
e) 0.76
82. TTE Inc. plans to issue preferred shares to raise capital. Each preferred share will be
issued with a par value of $500 and a cumulative dividend of $35. The preferred shares
will result in underwriting expenses of $15 per share. The underwriting expenses are tax
deductible and TTE’s tax rate is 40%.
If TTE Inc. decided to issue these preferred shares, which one of the following
represents the cost of the preferred shares?
a) 7.00%
b) 4.52%
c) 7.13%
d) 4.20%
e) 7.21%
32 CMA Canada
Financial Reporting
83. HIJ Ltd. has five operating segments all producing different products with the following
results:
Total Operating Profits Total Total

Segments Revenues (Losses) Assets Liabilities
Q $ 50 $ 4 $ 100 $150
R 50 3 75 100
S 160 10 350 175
T 270 25 500 275
U 40 2 125 60
Total $570 $44 $1,150 $760
Based on the quantitative thresholds, which segment(s) would be reported separately?
a) T only.
b) S and T only.
c) S, T and U only.
d) Q, R and U only.
e) All segments would report separately.
84. On March 1, Year 8, Muchmoney Inc. purchases 25% of the outstanding shares of FD
Ltd. for $5,000,000. On August 31, Year 8 FD announces and pays a cash dividend of
$100,000 and an annual net income of $400,000. What is the balance in the investment
in FD Ltd. account on Muchmoney Inc.'s records on August 31, Year 8?
a) $5,000,000
b) $5,075,000
c) $5,500,000
d) $5,100,000
e) $5,200,000
85. As a result of a water leak during July, a portion of XYZ Ltd’s inventory was damaged.
After assessing the damaged goods, the following values were determined on July 31.
Net Realizable
Item Units Cost per Unit Value per Unit
A 5,000 $25 $15
B 3,000 $35 $30
C 2,000 $80 $85
What inventory value should be reported at July 31?
a) $400,000
b) $335,000
c) $390,000
d) $325,000
e) $430,000
CMA Canada 33
86. The following selected amounts are taken from an adjusted trial balance.
Sales $500,000
Sales discounts $ 10,000
Cost of goods sold $245,000
Accrued liabilities $ 12,000
Allowance for doubtful accounts $ 8,000
Operating expenses $125,000
Contributed surplus $ 20,000
Unrealized holding gain $ 5,000
Based on the information above, comprehensive income would be
a) $ 62,000.
b) $ 70,000.
c) $ 85,000.
d) $145,000.
e) $125,000.
87. (+) The following information relates to Senior Ltd.’s defined benefit pension plan:
Service costs for Year 20 $120,000

Interest on accrued benefits (projected benefit obligation) in Year 20 $250,000
Return on pension fund assets for Year 20 $174,000
Pension benefits paid to retirees in Year 20 $50,000
What was Senior Ltd.’s net pension expense for Year 20?
a) $251,000
b) $196,000
c) $ 76,000
d) $126,000
e) $ 44,000
88. HUL Ltd. owns 10,000 shares of ML Company. To minimize market risk, HUL purchased
an option to sell the ML shares. Three months later, HUL sold the ML shares for a gain.
How should the option be recorded at the time the shares of ML were sold?
a) Since there was a gain, the option does not need to be recorded.
b) The option remains in Other Comprehensive Income.
c) The option is only recorded at the time of purchase.
d) The loss on the option is recorded at the same time as the sale of the ML shares.
e) The option remains a liability until adjustment at fiscal year end.
34 CMA Canada
89. Company K purchased 35% of the outstanding shares of Company W giving Company K
significant influence over Company W. How would this investment be classified?
a) Held-to-maturity
b) Available-for-sale
c) Strategic
d) Fair Value through Profit and Loss
e) Temporary
90. Which one of the following accounting treatments for inventory is appropriate?
a) Telco Phones is creating their first batch of cell phones and the entire fiscal year has
been geared towards production only. It is planning on using either the LIFO or
weighted-average methods to account for their inventory for fiscal year and beyond.
b) PA Corp had $20,000 in inventory as at December 31, 2008. In May 2009, PA Corp
wrote down their inventory to its net realizable value of $13,000. In June 2009, the
inventory was back in favour, resulting in a new net realizable value of $26,000. PA
Corp reversed the inventory impairment loss, and recorded inventory at the new
value of $26,000.
c) Auto Pro Ltd. had an abnormal amount of wasted material during their production of
certain transmissions. Auto Pro Ltd. included these abnormal costs into inventory
because management believes that the cost of the goods will still be recovered by
future sales.
d) Texas Utensils had adopted a policy to test their inventory for the lower of cost and
market, whereby the market is defined as replacement cost.
e) During fiscal 2008, LR Corp wrote down their inventory to a net realizable value of
$30,000. The original cost of the inventory was $40,000. In June 2009, the inventory
was back in favour, resulting in a new net realizable value of $45,000. LR Corp
reversed the inventory impairment loss recorded in fiscal 2008 and recorded the
inventory cost at $40,000.
91. Which of the following qualitative characteristics of accounting information provides the
connection between the users of the financial information and the decisions they make?
a) Relevance
b) Understandability.
c) Completeness.
d) Reliability.
e) Neutrality.
CMA Canada 35
92. TCH Inc.’s year-end long-term debt and shareholders’ equity at December 31, Year 5,
consisted of the following:
Convertible bonds; 7% interest; issued at par June 30, Year 5;

maturing June 30, Year 10 (each $1,000 bond is convertible $9,985,000
into 150 common shares)
Common shares; 1,000,000 issued $5,000,000
Preferred shares; 6% cumulative; 35,000 issued; no dividend
$875,000
in arrears
Retained earnings $1,800,000
In Year 5, TCH Inc. reported net income after taxes of $5,000,000 (assume a 40% tax
rate). At the end of Year 5, a common dividend of $0.10 per share was declared and
paid.
What is TCH Inc.’s basic earnings per share for Year 5 (rounded to the nearest cent)?
a) $5.00
b) $4.97
c) $4.83
d) $2.83
e) $4.95
93. On April 15, Year 5, SFC Inc. consigned 80 units of Product A to HGL Inc. Each unit cost
SFC Inc. $450 to produce and it cost $1,000 to ship the consigned units to HGL Inc. On
December 31, Year 5, HGL Inc. reported that it had sold 40 units for $800 each, and
remitted to SFC Inc. the proceeds of sales, less a 15% commission, and $850 in delivery
costs to customers. What profit on the consigned sales will SFC Inc. report for Year 5?
a) $7,850
b) $15,700
c) $26,350
d) $7,350
e) $13,500
94. On January 1, Year 9, ABC Inc. issued $500,000 of 10% bonds due in ten years, with
semi-annual interest payments of $25,000 payable on June 30 and December 31 each
year. Investors are willing to accept an annual interest rate of 6% (compounded semi-
annually). What will be the amount of the premium on bonds payable on January 1,
Year 10, assuming the effective interest method is used to amortize premiums and
discounts (rounded to the nearest hundred dollars)?
a) $136,100
b) $137,300
c) $ 20,000
d) $148,900
e) $147,000
36 CMA Canada
95. Under IFRS, intangible assets that may be capitalized include
a) internally generated goodwill.

b) internally developed brands.
c) overhead costs related to development activities.
d) borrowing costs related to research activities.
96. (+) FRC Ltd. is a foreign subsidiary of a Canadian company. At the end of the first fiscal
year (December 31), the following balances appeared on FRC Ltd.’s financial
statements denominated in the host country’s foreign currency (FC):
Accounts receivable (A/R) 85,000 FC

Sales 960,000 FC
Purchases 625,000 FC
Amortization expense 45,000 FC
Inventory (FIFO basis) 55,000 FC
Other Information:
1) Accounts receivable (A/R) relates to sales that occurred evenly over the 4th quarter.
2) The goods in inventory at year end were purchased evenly over the 4th quarter.
3) Sales, purchases and expenses occurred evenly throughout the year.
4) Exchange rates were as follows:
1 FC = $ CDN
January 1 0.85
December 31 0.70
Average for the year 0.82
Average for the 4th quarter 0.73
If the functional currency is the foreign currency (FC), the amounts that should appear
on the current year’s translated financial statements of FRC Ltd. (in Canadian dollars)
are
a) A/R $59,500, cost of goods sold $472,350, amortization expense $38,250.

b) A/R $69,700, cost of goods sold $467,400, amortization expense $36,900.
c) A/R $62,050, cost of goods sold $416,100, amortization expense $32,850.
d) A/R $59,500, cost of goods sold $467,400, amortization expense $36,900.
e) A/R $59,500, cost of goods sold $399,000, amortization expense $31,500.
97. Which of the following actions would result in an improvement in a company’s cash total
debt coverage ratio?
a) Selling surplus equipment for cash.

b) Acquiring an asset through a capital/finance lease.
c) Capitalizing product development costs.
d) Changing from declining balance to straight line depreciation on its equipment.
CMA Canada 37
The following information pertains to questions 98 to 100.

Company A, a retail chain, has the following financial data (in thousands of dollars) for Years 12
and 11:
Year 12 Year 11
Cash $ 34,100 $ 24,600
Accounts receivable 57,300 52,000
Inventory 114,800 120,500
Property, plant and equipment (net) 372,800 365,200
$579,000 $562,300
Accounts payable $ 50,410 $ 46,400

Other current liabilities 61,400 39,800
Long-term liabilities 205,100 210,500
Preferred shares 75,000 75,000
Common shares 151,400 151,400
Retained earnings 35,690 39,200
$579,000 $562,300
Sales $273,000 $235,700

Cost of goods sold (40% fixed) 144,000 103,500
Salary expense 48,100 54,900
Amortization expenses 16,900 14,600
Other expenses (50% fixed) 13,200 11,300
Interest expense 20,100 18,800
Income tax expense 9,210 9,780
Total expenses 251,510 212,880
Net income $ 21,490 $ 22,820
Preferred dividends paid $10,000 $10,000

Common dividends paid $15,000 $30,000
98. What is Company A’s gross margin ratio for Year 12?
a) 65.9%
b) 7.9%
c) 18.6%
d) 47.3%
e) None of the above
38 CMA Canada
99. What is Company A’s inventory turnover ratio for Year 12?
a) 2.32 times
b) 1.22 times
c) 0.82 times
d) 2.43 times
e) 0.61 times
100. What is Company A’s quick ratio for Year 12?
a) 1.81
b) 1.22
c) 0.82
d) 1.84
e) 0.65
_________________________
101. During Year 8, TIL Construction Ltd. started a construction job with a contract price of $2
million. The initial estimated profit on the project was $800,000. The job was completed
in Year 10 and the following information is available:
Year 8 Year 9 Year 10

Costs incurred to date $300,000 $775,000 $1,405,000
Estimated costs to complete 950,000 625,000 0
Billings to date 400,000 800,000 2,000,000
Collections to date 370,000 780,000 1,900,000
According to IAS 11, what is the profit that would have been recognized for the year
ended December 31, Year 9?
a) $ 25,000
b) $332,142
c) $152,100
d) $316,666
e) $ 84,000
CMA Canada 39
102. (+) Nu-Row Co. is a manufacturing company with the following transactions during
Year 10:
1) Earned net income of $1,000,000.

2) Sold a piece of manufacturing equipment for $1,000,000 and recorded a loss of
$50,000.
3) Took out a $200,000 bank loan.
4) Inventory decreased from $390,000 to $350,000.
5) Declared dividends of $40,000 on Dec. 15, Year 10, to be paid on Jan. 5,
Year 11.
6) Accounts payable decreased by $110,000.
7) Purchased equipment in exchange for $25,000 cash and furniture valued at
$15,000.
8) Mortgage payments totalled $470,000.
9) Recorded amortization of $95,000.
10) Sold $500,000 in 5% convertible bonds.
What would be the net increase in cash from operating activities reported on the Cash
Flow Statement for the year ended Year 10?
a) $1,135,000
b) $1,060,000
c) $ 930,000
d) $1,075,000
e) $ 995,000
103. VB Ltd. has agreed to lease a piece of equipment for $15,000 per year over 10 years
with the first payment due January 1, Year 10. At the end of the lease, the equipment will
have a market value of $20,000 and VB Ltd. can purchase the equipment for $8,000.
The interest rate implicit in the lease contract is 4% and the fair value of the equipment is
$115,000.
According to IAS 17, what asset amount should VB Ltd. record for this lease on
January 1, Year 10?
a) $131,933
b) $115,000
c) $107,000
d) $121,665
e) $0 since this is an operating lease.
40 CMA Canada
104. (+) PL Recreation, a not-for-profit organization, received the following in Year 2:
i) $250,000 of unrestricted grants for the general fund.

ii) $100,000 of endowments to be maintained indefinitely.
iii) $6,000 of interest income from the endowment investments (all endowment
interest earned is unrestricted).
During Year 2:
i) $50,000 of restricted donations received at the end of Year 1 was spent on

equipment at the beginning of Year 2. The equipment has a useful life of five
years with no expected salvage value.
ii) $35,000 spent on Year 2 general operating activities.
PL Recreation uses the deferral method of accounting for contributions and does not set
up a separate fund for restricted donations for equipment. What is the total amount that
PL Recreation should report as revenue in the statement of operations for Year 2?
a) $400,000
b) $266,000
c) $350,000
d) $356,000
e) $191,000
105. Prior to year-end adjusting entries, WRX Ltd. has the following available for sale
investment information.
Original Cost Carrying Value Current Market Value

Investment LP $ 50,000 $ 65,000 $105,000
Investment HW $ 40,000 $ 55,000 $ 60,000
Investment EB $ 60,000 $ 65,000 $ 40,000
Total $150,000 $185,000 $205,000
To adjust for the change in market values, the year-end journal entry to the Other
Comprehensive Income account should be
a) $35,000.
b) $45,000.
c) $55,000.
d) $20,000.
e) $25,000.
106. A preferred share that gives the investor the right to sell the shares back to the issuer is
best described as:
a) retractable.
b) floating rate.
c) hybrid.
d) cumulative.
e) convertible.
CMA Canada 41
107. Criteria to determine if development costs can be capitalized include:
a) the intangible asset is technically feasible.

b) the ability to use or sell the intangible asset.
c) reliable, measurable expenditures attributable to the intangible asset.
d) adequate, available resources to complete the development.
108. When assets are acquired as a donation or gift a company is required to record that
asset at fair value. If that donation is made by an owner or shareholder, what account
should be credited?
a) Contributed Surplus – Donated Capital.

b) Other Comprehensive Income.
c) Revenue.
d) Only b) and c) are acceptable.
e) a), b) and c) are acceptable.
109. PLT Ltd. has calculated its basic EPS at $6.00 at the end of Year 8. It also has the
following outstanding debt and equity information.
i) $1,000,000 in 8% convertible bonds. Each $1,000 bond could be converted to

7 common shares.
ii) 30,000 outstanding stock options awarded at the start of Year 8 to executives at
PLT with an exercise price of $45. During the year, the price of PLT stock reached
a high of $40 on December 1, Year 8.
iii) 50,000 convertible preferred shares issued at the start of year 8, each with a $50
annual dividend, cumulative and paid at the end of each year. Each preferred
share could be converted to 20 common shares.
The corporate tax rate is 40%. Which of the above items would dilute the basic EPS?
a) i) only
b) ii) only
c) iii) only
d) i) and ii) only
e) All of i), ii) and iii)
42 CMA Canada
Cross Competency
The following information pertains to questions 110 and 111

Hightow Ltd. is replacing its computer equipment network that was purchased four years ago
with a new network. The original cost of the current equipment was $350,000 and was being
amortized on a straight-line basis over five years.
The purchase price of the new equipment is $250,000 with a salvage value zero at the end of
four years. The new machine will be amortized over four years on a straight-line basis. Both
machines belong to asset pool class 46 with a maximum capital cost allowance (CCA) rate of
30%. The corporate tax rate is 40%.
110. (-) The original cost of the current equipment would be classified as a
a) conversion cost.
b) period cost.
c) sunk cost.
d) relevant cost.
e) product cost.
111. If Hightow Ltd. uses a discount rate of 14%, what is the present value of the CCA tax
shield from the new equipment (rounded to the nearest ten dollars)?
a) $89,590
b) $75,000
c) $52,140
d) $64,000
e) $25,600
CMA Canada 43
The following information pertains to questions 112 to 114

112. Brook Ltd. is a large national company that operates in the manufacturing industry. It is
looking to grow revenues by purchasing Smallfirm Ltd., a small, private consulting firm.
The latest annual financial information on Smallfirm Ltd. is as follows:
Revenue $880,000
EBITD $290,000
Basic EPS $8.50
Net Assets $975,000
Shares Outstanding 10,000
Dividends Paid $2.00
Research has shown that the price-earnings ratio for companies like Smallfirm Ltd. is
16.5. Based on that ratio, what is the value of Smallfirm Ltd.?
a) $1,402,500
b) $975,000
c) $850,000
d) $4,785,000
e) $880,000
113. Brook Ltd. decided to purchase all outstanding shares of Smallfirm Ltd. to enter new
markets and achieve its growth targets. This growth strategy would be best described as
a) horizontal growth.
b) organic growth.
c) a joint venture.
d) conglomerate diversification.
e) vertical growth.
114. Brook Ltd. gained some land through the acquisition of Smallfirm. In the fourth year after
acquisition, Brook Ltd. sold an excess piece of land that resulted in a capital gain of
$50,000. It anticipates that it will sell a second piece of land that will result in a capital
loss of $10,000. Good tax planning would suggest the company should declare a capital
dividend
a) before the sale of the second property.

b) after the sale of the second property.
c) before the end of the upcoming fiscal year.
d) after the end of the upcoming fiscal year.
e) only if it has taxable income for the upcoming year.
44 CMA Canada
The following information pertains to questions 115 to 116.

JH Fashions leases a retail store in a shopping center. In order to sell its inventory, JH pays its
staff a 3% commission on gross sales. John Henry, owner of JH Fashions, expects a 25%
return on investment and annual fixed costs of $225,000. John invested $300,000 to start up
JH Fashions.
115. JH Fashions has no variable costs, except for cost of goods, and sells clothing at a 55%
gross margin. What revenue does JH need to generate to break even (rounded up to the
nearest hundred dollars)?
a) $500,000
b) $387,900
c) $292,200
d) $409,100
e) $432,700
116. How much revenue does JH Fashions need to generate to achieve John’s required
return on investment of 25% (rounded up to the nearest hundred dollars)?
a) $432,700
b) $577,000
c) $545,500
d) $714,300
e) $517,300
End of Exam
CMA Canada 45
Solution Summary
1 e 40 d 79 b
2 e 41 d 80 b
3 d 42 a 81 d
4 e 43 c 82 c
5 b 44 d 83 c
6 b 45 b 84 b
7 c 46 a 85 d
8 c 47 c 86 e
9 b 48 a 87 b
10 c 49 a 88 d
11 d 50 d 89 c
12 d 51 e 90 e
13 e 52 b 91 a
14 b 53 e 92 e
15 b 54 d 93 a
16 b 55 a 94 b
17 a 56 e 95 c
18 a 57 c 96 d
19 c 58 a 97 c
20 b 59 d 98 d
21 c 60 b 99 b
22 a 61 d 100 c
23 d 62 c 101 c
24 c 63 b 102 d
25 b 64 d 103 b
26 b 65 e 104 b
27 a 66 e 105 d
28 b 67 a 106 a
29 c 68 e 107 e
30 e 69 c 108 a
31 a 70 b 109 c
32 e 71 d 110 c
33 b 72 e 111 d
34 b 73 a 112 a
35 d 74 a 113 d
36 d 75 c 114 a
37 c 76 a 115 e
38 c 77 c 116 b
39 d 78 b
46 CMA Canada
Solutions
1. Answer: e.
A mission statement may or may not cover legislative lobby groups, depending on the
type of business the company is engaged in. Although choices b), c) and d) are
embodied in a mission statement, its ultimate purpose is to integrate b), c) and d) into
the company’s strategy formulation process.
2. Answer: e.
Strategy evaluation is important because organizations face dynamic environments in
which key external and internal factors often change quickly and dramatically. Examples
of this include greater fluctuations in the world economies (choice a), shorter times
required to develop (choice b) and get products into the marketplace to maintain a
competitive advantage, and dealing with foreign competitors such as India and China
who are much stronger (choice c) than they were in the past. Therefore, since choices
a), b) and c) are all reasons that strategy evaluation is more important for companies
today, choice e) is correct and choice d) is incorrect.
3. Answer: d.
A diversification strategy focuses on diversifying into new markets, which involve new
customers and new products and services.
4. Answer: e.
The extent of the threat of new entrants to existing competitors in a market depends on
barriers to entry (choice a) and the expected reaction of existing competitors to new
entrants. Barriers to entry include government policies (choice c), brand preference and
customer loyalty (choice d), economies of scale, product differentiation, and capital costs
(choice b), among others. Therefore, choice e) is the correct answer.
5. Answer: b.
A distinctive competence is a core competence that is competitively superior.
Choice a) Technical know-how is a resource that can be used to create a competitive

advantage.
Choice c) This describes an activity in the value chain that could be a core competence
or a distinctive competence or a company competence.
Choice d) This describes a company competence, which may or may not be a
distinctive competence.
Choice e) This describes a core competence.
6. Answer: b.
Weakening brand image in relation to competitors is an internal weakness, not an
external threat. Choices a), c), d) and e) are all examples of external threats.
7. Answer: c.
Joint ventures are useful when the supply chain is long and uncertain (not short and
established). Choices a), b), d) and e) represent situations where a joint venture strategy
would be beneficial.
CMA Canada 47
8. Answer: c.
Although there is no shortage of the raw material, and many suppliers, the supplier
bargaining power is low.
Choice a) There are many companies in the industry and the skill level of the labour is
low. These are all indicators that there are low barriers to entry. The only
barrier in evidence is the limited number of suppliers of the raw material.
However, because there appears to be no shortage of the material, this is
likely not a significant barrier to entry.
Choice b) There is no indication of brand loyalty nor consumers readily switching
brands so consumer bargaining power cannot be clearly identified.
Choice d) With a high number of competitors and plentiful raw materials, rivalry would
be high.
Choice e) There is evidence that a few consumers place more value on quality than
price (i.e. some of the smaller companies use quality as a competitive
advantage); however, it appears that the majority of consumers place more
value on price than quality (i.e. the larger companies compete on price and
there is low brand loyalty).
9. Answer: b.
Diversification strategies strive to reduce the dependency of the firm on a single industry
or single class of product or service.
Choice a) A forward integration strategy would be expanding to gain control over its
distribution (not supply) chain.
Choice c) A horizontal integration strategy would involve strengthening its presence in
the current industry internally (e.g. through research and development) or
externally (e.g. acquiring a competitor).
Choice d) Differentiation strategies emphasize creating value through the uniqueness of
the good or services being provided.
Choice e) Vertical integration involves gaining control over a function in the value chain
that was previously performed by a supplier (backward integration) or by a
distributor (forward integration). Gaining control of the supply chain is an
example of backward integration.
48 CMA Canada
10. Answer: c.
Performance perspectives and indicators of critical success factors should be driven by
the organization’s mission, vision, and strategy.
Choice a) There are organizations, e.g. the Faculty of Health Sciences, University of
Newcastle, in which their balanced scorecard include more than four
performance perspectives: Our People: Learning, Growth and Innovation;
Our Financial Sustainability and Accountability; Our Partners; Our Internal
Processes; and Our Students and Community.
Choice b) The performance perspectives of an organization’s corporate scorecard,
divisional scorecard and individual employee scorecard can be identical but
the performance indicators are not necessarily the same. For example, return
on investment is the financial indicator for the corporation while sales revenue
is the financial indicator for the sales manager.
Choice d) The scorecard should include a balanced set of financial and nonfinancial,
quantitative and qualitative, objective and subjective, as well as leading and
lagging indicators.
Choice e) The cause-and-effect relationship is not necessarily precise and may not be
tested.
CMA Canada 49
11. Answer: d.
There are various ways to deal with resistance to internal controls, such as the following:
1. Augment the total company image by establishing an overall company reputation for
competence and integrity throughout the organization.
2. Provide adequate rationale for the controls. Controls are better received if there is
some understanding of the objectives of the control process and how it needs to
operate.
3. Communicate and present the controls in a courteous manner and provide affected
individuals the opportunity to question them and adjust to them. [Therefore choice a)
is correct.]
4. Ensure that the controls are sponsored by a sufficiently high level of authority.
People especially resent controls that are imposed by persons not believed to have
the authority to impose them.
5. Allow affected individuals the opportunity to participate in the formulation of the
control itself. Although it is often not practical for all parties who are subject to control
to be able to participate in the formulation of the control itself, the further the
organization moves in that direction, the greater will be the acceptance of the control.
As such, the participation of the responsible manager with his superiors in setting the
controls would significantly contribute to minimizing resistance to controls.
[Therefore, choice b) is correct.]
6. Administer the control in a manner that is not arbitrary and demonstrates an
understanding of the problems involved.
Both choices a) and b) would minimize resistant to internal controls; therefore, choice d)
is the correct answer.
Choice c) – Individuals are less likely to accept controls if they feel that the person
imposing the controls does not have sufficient authority. Line workers would feel that a
staff person does not have the authority or sufficient understanding of the operational
challenges to set or implement the controls.
Choice e) – This choice is not correct because choice c) is incorrect.
12. Answer: d.
One purpose of the audit committee is to keep management and auditors independent.
Hence, they would not delegate audit responsibilities to management.
Choice a), b), c), e) are all typical duties performed by an audit committee.
13. Answer: e.
a) to d) are all parts of internal control but in a broader sense, internal control is mainly
concerned with how policies and procedures affect the total effectiveness of the
management process and consistency with the organizations objectives and strategies.
50 CMA Canada
14. Answer: b.
The most effective means of mitigating the risks resulting from having insufficient
employees for proper division of responsibilities is the continuous review by the owner of
all aspects of the business.
Choice a) Hiring temporary personnel would be helpful, but would not be as effective as
owner involvement in all aspects of the business.
Choice c) Relying on one accountant, either internal or external, to handle all aspects of
accounting and cash handling is at great risk.
Choice d) Delegation of clear-cut responsibilities would not mitigate the initial risks
resulting from improper division of responsibilities.
Choice e) Although the accounting function is important for internal control, it would
likely not be efficient or effective to shift priorities from the operating
functions.
15. Answer: b.
The board of directors has many roles or duties including overseeing the company’s
direction, strategy, and business approaches (choice a); evaluating the calibre of senior
executives’ strategy-making and strategy-executing skills (choice c); monitoring the
effectiveness of the company’s governance practices (choice d); and, ensuring the
integrity of the corporation’s accounting and financial reporting systems (choice e). Key
executives and board remuneration should be aligned with the longer-term interests
rather than the shorter-term interests of the company and shareholders. Therefore,
choice b) as stated is not correct and is the answer.
16. Answer: b.
Independent reconciliation of bank accounts is necessary for effective internal control.
Persons involved in making disbursements or receiving payments should not reconcile
the bank statement with the accounting records. Segregating these functions reduce the
opportunity for perpetrating and concealing an irregularity.
Choice a) is incorrect because someone who does not have custody of assets (i.e. does
not make disbursements by cheque) should reconcile the bank statements to
accounting records.
Choice c) is incorrect because there is no indication that the treasurer has access to the
accounting records and thus have the ability to make unauthorized
adjustments to the cash account.
Choice d) is incorrect because effective control measures would provide the two
opportunities to two different persons in positions of responsibility (e.g. the
treasurer and the controller).
Choice e) is incorrect because best practice in this case is to segregate these functions.
CMA Canada 51
17. Answer: a.
The internal auditors are responsible for examining and evaluating the effectiveness of
other functions within the organization. These responsibilities include assessing the
control systems, identifying areas of risk that need to be addressed in the control
system, and making recommendations for improving the internal control process.
Choice b) The responsibility for monitoring and maintaining internal controls is part of
management’s overall responsibility for the ongoing activities of the business
– it is not the internal auditor’s responsibility.
Choice c) The board of directors or the audit committee is responsible for appointing the
external auditors, not the internal auditors.
18. Answer: a.
When a control risk is identified, it is necessary to determine the cost of implementing
and maintaining the controls that would mitigate the risk. It is not always cost-effective to
adopt the controls. Choices b), c), d) and e) are all valid concepts of internal control.
19. Answer: c.
Buying an option gives the buyer the opportunity, but not the obligation, to buy FC at a
given price in the future. If the Canadian dollar increases in value, the company can let
the option expire.
Buying a forward contract in FC (choice a), and buying FC (choice b) tie the Canadian
company into a commitment which it cannot get out of if the Canadian dollar increases in
value.
20. Answer: b.
Correct order based on greatest NPV.
(A) (D)
Potential (B) PVIFA (F)
Annual Prob. of (C) = (20%, (E) = Development NPV
Cash Flow Success (A) * (B) 10yrs) (C) * (D) Costs =(E) – (F)
Drug H $6,500,000 30% 1,950,000 4.193 8,176,350 $6,000,000 $2,176,350
Drug I $4,450,000 40% 1,780,000 4.193 7,463,540 $5,800,000 $1,663,540
Drug J $9,500,000 20% 1,900,000 4.193 7,966,700 $6,800,000 $1,166,700
Choice a), c), d), e) – see solution
52 CMA Canada
21. Answer: c.
The objective function would be to maximize the contribution margin, which is correctly
expressed in choice c: Contribution margin = 5Y + 7Q.
Choice a) This divides contribution margin by total hours of processing.

Choice b) This combines the two processing constraints.
Choice d) This incorrectly applies the contribution margin to the number of units
processed in each process and then sums them.
Choice e) This equates the contribution margin per constraint.
22. Answer: a.
Using the relative sales value method, joint costs would be allocated to product A as
follows:
($2 × 60,000)/[($2 × 60,000) + ($4 × 90,000)] × $300,000

= $120,000/$480,000 × $300,000
= $75,000
23. Answer: d.
The net realizable value method allocates joint costs on the basis of relative estimated
net realizable value. The cost of each unit of product B would be calculated as follows:
Total cost = $200,000 + {$300,000 × [80,000 × $10 - $200,000]/[(60,000 × $5
- $100,000) + (80,000 × $10 - $200,000)]}
= $200,000 + {$300,000 × $600,000/($200,000 + $600,000)}
= $425,000
Cost per unit = $425,000/80,000 = $5.31
24. Answer: c.
The decision to close the excess of actual cost over budgeted costs to cost of goods
sold would result in an increase in cost of goods sold and a decrease in gross profit. The
cost of goods manufactured would increase, the operating income would decrease and
there would be no effect on contribution margin or ending inventory.
25. Answer: b.
Department A costs = Direct costs + IT allocated costs + Maintenance allocated costs
= $925,000 + [2,000/(2,000 + 1,500)] x $80,000) + [(2,200/(2,200 + 4,000)] x $30,000)
= $925,000 + $45,714 + $10,645 = $981,359
Choice a) Used Department B hours & sq.m. in the denominators: = $925,000 +

(2,000/1,500 x $80,000) + (2,200/4,000 x $30,000) = $925,000 + $106,667 +
$16,500 = $1,048,167
Choice c) Used total hours and sq.m. in the denominators and used Department B
sq.m. for maintenance: = $925,000 + (2,000/4,000 x $80,000)
+ (4,000/6,800 x $30,000) = $925,000 + $40,000 + $17,647 = $982,647
Choice d) Used total hours and sq.m. in the denominators: = $925,000 +
(2,000/4,000 x $80,000) + (2,200/6,800 x $30,000) = $925,000 + $40,000 +
$9,706 = $974,706
Choice e) Adjusted the denominators by the other service department’s usage/size:
= $925,000 + [2,000/(4,000 - 300)] x $80,000) + [2,200/(6,800 - 200)]
x $30,000) = $925,000 + $43,243 + $10,000 = $978,243
CMA Canada 53
26. Answer: b.
Price Var. Cost/Unit CM/Unit Volume Monthly CM
a) $180 $122.40 $57.60 59,000 $3,398,400
b) $170 $122.40 $47.60 75,000 $3,570,000
c) $160 $122.40 $37.60 90,000 $3,384,000
d) $150 $122.40 $27.60 120,000 $3,312,000
e) $140 $122.40 $17.60 145,000 $2,552,000
Total fixed costs for this product = $870,000 + $545,000 + $275,000 = $1,690,000. The
contribution margin at each price is enough to cover fixed costs. The highest expected
monthly income would occur at a price of $170 per unit (i.e. $3,570,000 - $1,690,000
= $1,880,000).
27. Answer: a.
Spoiled units = 5,500 + 8,800 – 9,100 – 5,000 = 200 units
Spoilage costs = ($15 x 200) + ($21 x 60% x 200) + ($9 x 90% x 200) = $7,140
Choice b) Ignores percentages

($15 x 200) + ($21 x 200) + ($9 x 200) = $9,000
Choice c) Incorrectly calculates spoiled units
9,100-8,800 = 300
($15 x 300) + ($21 x 60% x 300) + ($9 x 90% x 300) = $10,710
Choice d) Incorrectly includes 100% of all material costs
($15 x 200) + ($21 x 200) + ($9 x 90% x 200) = $8,820
Choice e) Incorrectly includes 100% of all conversion costs
($15 x 200) + ($21 x 60% x 200) + ($9 x 200) = $7,320
28. Answer: b.
Actual Percentage Cost
units complete per EU
Material XY 5,000 100% $15.00 $75,000
Material RT 5,000 60% $21.00 $63,000
Conversion costs 5,000 60% $9.00 $27,000
Total value $165,000
Choice a) Assumes 100% complete in inventory:

5,000 x ($15+$21+$9) = $225,000
Choice c) Assumes 100% of material RT:
5,000 x ($15+$21) + ($27,000) = $207,000
Choice d) Assumes 100% of conversion costs:
5,000 x ($15+$9) + $63,000 = $183,000
Choice e) Assumes 95% of material XY:
5,000 x 95% x $15 + $63,000 + $27,000 = $161,250
54 CMA Canada
29. Answer: c.
Units Conversion Cost

Beginning work in process 600 300
Units started and completed 8,500 8,500
Spoiled units * 150 90
Ending work in process 250 225
Total units accounted for 9,500 9,115
* 9,100 + 250 + spoiled units = 600 + 8,900

Spoiled units = 150
30. Answer: e.
Total fixed costs: [$20(5,000 + 10,000 + 20,000)] + $500,000 = $1,200,000
Contribution margin per unit:
A = $400 - ($100 + $50 + $60) = $190
B = $250 - ($80 + $50 + $40) = $80
C = $150 - ($40 + $50 + $10) = $50
Weighted average contribution margin per unit:
[($190 x 1) + ($80 x 2) + ($50 x 4)]/(1 + 2 + 4) = ($190 + $160 + $200)/7
= $550/7 = $78.57
Breakeven volume = $1,200,000/$78.57 = 15,280 (rounded)
Choice a) Uses gross margin per unit:

$500,000/{[($170 x 1) + ($60 x 2) + ($30 x 4)]/7} = $500,000/($410/7) = 8,540
Choice b) Uses groups of 7: $1,200,000/$550 = 2,180
Choice c) Uses mix of 1:1:1:
$1,200,000/[($190 + $80 + $50)/3] = $1,200,000/($320/3) = 11,250
Choice d) Uses variable cost per unit:
$1,200,000/{[($210 x 1) + ($170 x 2) + ($100 x 4)]/7} = $1,200,000/($950/7) =
8,840
31. Answer: a.
Budgeted overhead application rate = $300,000/100,000 hours = $3/hour
Applied overhead = 120,000 hours x $3 = $360,000
$320,000 actual - $360,000 applied = $40,000 overapplied
Choice b) Uses actual direct labour hours to determine the overhead rate and uses
budgeted activity for applied overhead: $320,000 - [($300,000/120,000) x
100,000] = $320,000 - $250,000 = $70,000 underapplied
Choice c) Uses total budgeted overhead instead of applied overhead: $320,000 -
$300,000 = $20,000 underapplied
Choice d) Uses budgeted instead of actual overhead: $300,000 - $360,000 applied
= $60,000 overapplied
Choice e) Uses applied direct labour instead of overhead: $340,000 -
($275,000/100,000 x 120,000) = $340,000 - $330,000 = $10,000
underapplied
CMA Canada 55
32. Answer: e.
All of the items listed are present in a successful ERP.
Choice a) Because an ERP deals with internal processes and not directly with
customers, it is considered back office.
Choice b) Systems can extend beyond the organization.
Choice c) This is one of the goals of ERP to have all of the information in one place and
accessible to all.
Choice d) In order to achieve success the business must change to take advantage of
the ERP system.
33. Answer: b.
A D O O3 Total
Sales price $200 $120 $150 $225
Produced (litres) 1,200 2,200 500 1,000 4,900
Final sales value $240,000 $264,000 $75,000 $225,000 $804,000
Less separable $40,000 $40,000
costs
Net realizable sales $240,000 $264,000 $75,000 $185,000 $764,000
value
Weighting 31.41% 34.55% 9.82% 24.21% 100%
Joint cost allocated $150,785 $165,864 $47,120 $116,230 $480,000
(rounded)
34. Answer: b.
Budgeted profit = [($200 - $70 - $30 - $27 - $6) x 90,000] - ($2,800,000 + $300,000)
= $6,030,000 - $3,100,000 = $2,930,000
Choice a) Uses 100,000 units instead of 90,000 units for sales: ($67 x 100,000) -
$3,100,000 = $3,600,000.
Choice c) Does not multiply variable overhead by 1.5 direct labour hours: [($200 - $70 -
$30 - $18 - $6) x 90,000] - $2,010,000 = $6,840,000 - $3,100,000 =
$3,740,000
Choice d) Uses 90,000 units for sales and 100,000 units for manufacturing costs (i.e. no
inventory): [($200 - $6) x 90,000] - [($70 + $30 + $27) x 100,000] -
$3,100,000 = $12,700,000 - $3,100,000 = $1,660,000
Choice e) Uses absorption costing: Fixed manufacturing rate = $2,800,000/100,000 =
$28 per unit; Budgeted profit = [($200 - $70 - $30 - $27 - $28 - $6) x 90,000] -
$300,000 = $3,510,000 - $300,000 = $3,210,000.
56 CMA Canada
35. Answer: d.
$28/unit fixed manufacturing overhead x 10,000 units ending inventory = $280,000
increase in net profit ($3,210,000 using absorption costing - $2,930,000 using variable
costing = $280,000 increase in net profit).
Choice a) ($28 x 100,000 units ÷ 90,000) x 10,000 increase in inventory = $311,111

increase.
Choice b) Same as b) except assumed that budgeted net profit would decrease.
Choice c) Incorrectly assumes that the net profit would be the same.
Choice e) Correct amount, wrong direction: $280,000 decrease.
36. Answer: d.
The Standard and Extreme models require 1 DLH and 2 DLH per unit in production,
respectively. Contribution margin per unit:
Standard (CP): $280 - $110 - $10 – 5% x $280 = $146 (for CP order)
Standard: $280 - $110 - $10 = $160 (between 6,000 and 15,000 units)
Extreme: $350 - $160 - $10 = $180 (without overtime)
Extreme (OT): $350 – ($160 + 2DLH x 50% x $20) - $10 = $160 (with overtime)
Contribution margin per DLH:
Standard (CP): $146/ 1 DLH = $146 per DLH
Standard: $160 / 1 DLH = $160 per DLH
Extreme: $180 / 2 DLH = $ 90 per DLH
Extreme (OT): $160 / 2 DLH = $ 80 per DLH
Optimal production plan without CP order:
Standard: 12,000 units 12,000 DLH
Extreme: 6,000 units 12,000 DLH
Extreme (OT): 3,000 units 6,000 DLH
Revised production plan with CP order:
Standard: 11,000 units 11,000 DLH
Standard (CP): 4,000 units 4,000 DLH
Extreme (OT): 3,000 units 6,000 DLH
Change in operating income with CP order
= -1,000 units x $160 + 4,000 units x $146 – 1,500 units x $180
= $154,000
The CP order should be accepted with an increase in income of $154,000.
Choice a) Increase in income with 3,000 units of Std model to CP

= 3,000 units x $146 = $438,000
Choice b) Increase in income with 3,000 units of Std model to CP
= 3,000 units x $146 – 2,000 units x $180 = $78,000
Choice c) Increase in income with 3,000 units of Std model to CP, using gross margin
= 3,000 units x ($280 - $140 - $10 – 5%x$280) – 2,000 units x ($350 - $220 -
$10) = $108,000
Choice e) Increase in income with 3,000 units of Std model to CP, using gross margin
= 3,000 units x ($280 - $140 - $10 – 5% x $280) – 1,500 units x ($350 - $220
- $10) = $168,000
CMA Canada 57
37. Answer: c.
Total fixed manufacturing overhead = $30 x 24,000 = $720,000
Total fixed selling and administrative costs = $480,000
Total fixed costs = $1,200,000
The Standard and Extreme models require 1 DLH and 2 DLH per unit in production,
respectively.
Production plan and DLH requirement:
Standard (OT): 6,000 units 6,000 DLH (with overtime)
Contribution margin per unit:
Standard (OT): $280 - ($110 + 1 DLH x 50% x $20) - $10 = $150 (with overtime)
Extreme: $350 - $160 - $10 = $180 (without overtime)
Operating income = 12,000 units x $180 + 6,000 units x $150 - $1,200,000
= $1,860,000
Choice a) Operating income = 12,000 units x $180 – $1,200,000

= $960,000
Choice b) Operating income = 12,000 units x $180 + 6,000 units x $160 - $1,200,000
= $1,920,000
Choice d) Operating income = 12,000 units x ($350 - $220 - $10) + 6,000 units x ($280
- $140 – 1 DLH x 50% x $20 - $10) - $480,000
= $1,680,000 (using gross margin per unit)
Choice e) Operating income = 12,000 units x ($350 - $220 - $10) + 6,000 units x ($280
- $140 - $10) - $480,000
= $1,740,000 (using gross margin per unit)
38. Answer: c.
Setup resources, which are used each time when the machine is set up to produce a
batch, is a batch-level cost.
Choice a) Engineering costs incurred to change product designs are a product-

sustaining cost.
Choice b) If the cost of an activity increases with each hour of machine time used in
production, it is an output-level cost.
Choice d) The compensation for a quality engineer, who is responsible for continuous
quality improvement projects that affect all production in the plant, is a facility-
sustaining cost.
Choice e) The cost of hiring security for the plant is a facility-sustaining cost.
58 CMA Canada
39. Answer: d.
Predatory pricing or dumping occurs when a company sells a product in a foreign
country at a price below the market value in its home country and this action materially
injures or threatens to materially injure an industry in the foreign country.
Choice a) Target price is a market-based price. It is the estimated price for a product or
service that potential customers will pay.
Choice b) Peak-load pricing is the practice of charging a higher price for the same
product or service when demand approaches physical capacity limits.
Choice c) Collusive pricing is illegal and it occurs when companies in an industry
conspire in their pricing and output decisions to achieve a price above the
competitive price.
Choice e) Discriminatory pricing occurs when a company charges some customers a
higher price than is charged to other customers for the same product in which
the costs of manufacturing, marketing and distributing the product to different
customers are the same.
40. Answer: d.
Third quarter cost of goods manufactured:
Budgeted sales in units 122,000

+ Target ending inventory (15% x 138,000) 20,700
142,700
- Beginning inventory (15% x 122,000) -18,300
Units to be produced 124,400
x Standard cost of production x $24
Budgeted cost of goods manufactured $2,985,600
Choice a) Assumes ending inventory is 15% of current month’s production:

[122,000 + (15% x 122,000) – (15% x 138,000)] = 119,600 x $24 =
$2,870,400.
Choice b) Assumes cost of goods manufactured is the same as cost of goods sold:
122,000 x $24 = $2,928,000.
Choice c) Uses contribution margin instead of production costs: 122,000 x $31 =
$3,782,000.
Choice e) Ignores ending inventory: 142,700 x $24 = $3,424,800.
41. Answer: d.
Direct materials quantity variance = $6 x (35,000 – 2 x 15,900) = $19,200 unfavourable
Direct labour efficiency variance = $24 x (7,500 – 0.5 x 15,900) = $10,800 favourable
Variable overhead efficiency variance = $10 x (5,000 – 0.3 x 15,900) =
$2,300 unfavourable
Both direct materials quantity variance and variable overhead efficiency variance are
unfavourable, i.e. (a) and (c) are TRUE.
Choice a), b), c) and e) - see solution.
CMA Canada 59
42. Answer: a.
Budgeted total fixed overhead = $20 x 12,000 MCH = $240,000
Actual total fixed overhead = $240,000 - $15,000 favourable = $225,000
Actual total variable overhead = $365,500 - $225,000 = $140,500
Variable overhead spending variance = $140,500 - [$10 x 5,000] = $90,500 (F)
Choice b) Does not adjust for the fixed overhead spending variance
Budgeted total fixed overhead = $20 x 12,000 MCH = $240,000
Variable overhead spending variance = $125,500 - $10 x 12,000 = $5,500
unfavourable
Choice c) Used the denominator activity level to determined budgeted total fixed
overhead:
Budgeted total fixed overhead = $20 x 0.1 MCH x 12,000 = $24,000
Actual total fixed overhead = $24,000 - $15,000 unfavourable = $9,000
unfavourable
Choice d) Added rather than deducted the fixed overhead spending variance:
Actual total fixed overhead = $240,000 + $15,000 favourable = $255,000
favourable
Choice e) Assumes variable overhead is favourable.
43. Answer: c.
Baseball Soccer ball
Selling price $5.40 $9.55
Direct material 1.00 2.25
Direct labour @ $10/cutting hr. 2.00 5.00
Variable overhead @ $2 per total hours 0.40 1.00
Total variable costs 3.40 8.25
Contribution margin per unit $2.00 $1.30
Therefore, the objective function is to maximize $2.00 baseball + $1.30 soccer ball.
44. Answer: d.
Cutting hours constraint:
10,000 - (.2 x 25,000) = 5,000 cutting hours available
5,000 ÷ 0.1 = 50,000 baseballs can be produced
Stitching hours constraint:

10,000 - (.3 x 25,000) = 2,500 stitching hours available
2,500 ÷ 0.1 = 25,000 baseballs can be produced
From the above, we see that the stitching hours constraint is binding; therefore, only
25,000 baseballs can be produced.
60 CMA Canada
45. Answer: b.
($3,000 + $2,000 + $4,000) ÷ 500 + ($6,000 ÷ 400) = $18.00 + $15.00 = $33.00
Choice a) ($3,000 + $2,000 + $4,000) ÷ 400 + ($6,000 ÷ 500) = $34.50

Choice b) ($3,000 + $2,000) ÷ 500 + ($4,000 + $6,000) ÷ 400 = $35.00
Choice c) ($3,000 + $2,000 + $4,000 + $6,000) ÷ 400 = $37.50
Choice d) ($3,000 + $2,000 + $4,000 + $6,000) ÷ 500 = $30
46. Answer: a.
This is the description of a market development strategy.
Choice b) This strategy takes current products and tries to sell more to the current
market.
Choice c) This is an overall strategy that companies use to separate themselves from
the competition.
Choice d) This strategy takes new products to existing markets.
Choice e) This strategy takes new products to new markets.
47. Answer: c.
The internal business process perspective focuses on internal operations that further
both the customer perspective and the value perspective. It comprises three principal
sub-processes: the innovation process, the operations process and post-sales services.
Measures that evaluate a company’s ability to create products, services and processes
that will meet the needs of customers relate mainly to the internal business process
perspective.
Choice a) Measures such as operating income, economic value added or revenue

growth relate to the financial perspectives.
Choice b) Measures such as market share and customer satisfaction relate to the
customer perspective.
Choice d) Measures such as employee skill levels or employee turnover relate to the
learning and growth perspectives.
Choice e) There are only four perspectives to a balanced scorecard.
48. Answer: a.
Job enrichment adds tasks to employees’ jobs, allowing them to assume more
responsibility and accountability for planning, organizing, controlling and evaluating their
own work. It is based on the idea that motivation is increased when the job provides
opportunities for recognition, responsibility, advancement, achievement and personal
growth.
CMA Canada 61
49. Answer: a.
The primacy effect is where we quickly form an opinion about persons based on the first
information we receive about them. In the performance review, the initial good
performance was given more weight than the overall marginal performance.
Choice b) The recency effect is a perceptual error in which the most recent information
dominates our perception about a person.
Choice c) Projection bias occurs when we believe that other people hold the same
beliefs and attitudes that we do.
Choice d) The halo effect is when our general impression of a person, usually based on
a prominent characteristic, biases our perception of other characteristics of
that person.
Choice e) Self-fulfilling prophecy is a phenomenon in which an observer’s expectations
of someone cause that person to act in a way consistent with the observer’s
expectations.
50. Answer: d.
The current return on investment without the investment proposal for each division is as
follows:
North ($50,000 ÷ $450,000) = 11.1%
South ($40,000 ÷ $375,000) = 10.7%
West ($65,000 ÷ $475,000) = 13.7%
Return on investment on investment proposal: ($10,000 ÷ $80,000) = 12.5%
The ROI for each division with the investment proposal would be as follows:
North ($50,000 + $10,000) ÷ ($450,000 + $80,000) = 11.3%
South ($40,000 + $10,000) ÷ ($375,000 + $80,000) = 11.0%
West ($65,000 + $10,000) ÷ ($475,000 + $80,000) = 13.5%
Since the investment will improve the ROI for both North and South, those managers
would be motivated to accept the investment.
51. Answer: e.
As long as the residual income for the investment proposal is positive, all the managers
should be willing to accept the proposal.
The residual income on the proposal is [$10,000 - ($80,000 x 10%)] = $2,000.
Therefore, all three managers would be willing to accept the investment proposal.
52. Answer: b.
The objective of maximizing return on investment may induce managers of highly
profitable divisions to reject projects that, from the viewpoint of the organization as a
whole, should be accepted. Using residual income would avoid this motivation – as long
as the project earns a rate of return in excess of the required return for investments,
divisional managers would be motivated to accept the project. Choices a), c) and d) all
pertain to the asset base used in the calculation – the problems involved in asset base
are the same for calculating residual income as they are for calculating return on
investment. The implicit cost of interest (choice e) is not an argument related to
management performance evaluation measures.
62 CMA Canada
53. Answer: e.
Achievement motivation does not work well when employees are performing routine or
boring tasks, or where there is no competition. The development of recognition programs
would motivate employees to strive towards higher achievement; therefore, choice a) is
correct. High achievers like to set their own goals that are challenging, but achievable;
they avoid extremely difficult goals (i.e. goals that require a significant amount of luck
rather than ability); therefore, choice b) is correct. High achievers prefer tasks that
provide immediate feedback; therefore, choice c) is correct. Consequently, choice e) is
the correct answer.
54. Answer: d.
Production resources include direct materials, direct labour and other manufacturing
overhead. Thus, units of output per dollar of production resources is a total factor
productivity measure.
Choice a) Return on investment is computed as the ratio of income to assets. Assets

are the inputs used to generate income, a comprehensive output measure.
Return on investment is a productivity measure.
Choice b) Sales persons, who are the input, are directly involved in generating sales
revenue, which is the output. Revenue per sales person is a partial factor
productivity measure.
Choice c) Units of output per direct labour hour is a partial factor productivity measure.
Choice e) R&D employees, who are the input, are directly involved in the development
of new products and services, which are the output. Patents granted for these
new products and services are a measure of output of the R&D department.
Number of patents per R&D employee is a partial factor productivity measure.
55. Answer: a.
ROI Division X = $15,000 ÷ $79,000 = 18.99%
ROI Division Y = $22,000 ÷ $130,000 = 16.9%
RI Division X = $15,000 - ($79,000 x .18) = $780

RI Division Y = $22,000 - ($130,000 x .18) = ($1,400)
Division X met the target minimum rate of return of 18% and has a higher ROI and RI.
Choice b) Division Y’s net income was higher, but because its investment was also
greater, it did not perform as well as Division X.
Choice c) Division Y’s return on investment was lower than that of Division X.
Choice d) Division X met the 18% target rate of return.
Choice e) Only Division X met the 18% target rate of return.
CMA Canada 63
56. Answer: e
Since the East Division has excess capacity, there is no opportunity cost for transferring
the parts to the West Division up to full capacity. Thus, the minimum transfer price
acceptable to the East Division is the incremental costs for manufacturing the parts, $50
per part (choice a). If East Division were operating at full capacity, there would be
opportunity costs associated transferring to the West Division and the minimum
acceptable transfer price would $90. On the other hand, since the West Division can
purchase the parts for $90 in the market, this is the maximum transfer price the West
Division is willing to pay (choice c). Since choices a) and c) are both correct and choice
b) is incorrect, the correct answer is choice e.
57. Answer: c.
Absorption cost in ’000s = $150 + $36 + $24 + $165 = $375,000
Choice a) Excludes variable overhead.

Choice b) Includes variable selling and administration in costing.
Choice d) Includes variable and fixed selling and administration in costing.
Choice e) Ignores fixed costs.
58. Answer: a.
Individual incentives encourage employees to exceed the standard to achieve their
bonus which leads to improved output.
Choice b) Individual incentives lead to pursuit of individual goals and away from
improved teamwork/cooperation.
Choice c) Given a prescribed period of time to complete the task, the electrician is
under time constraints which would lead to cutting corners in order to meet
the time constraint and achieve the incentive.
Choice d) b) is not a benefit.
Choice e) a) is a benefit.
59. Answer: d.
Although this will not address the varying performance, it will direct the efforts of all
employees towards a common goal of improved product output.
Choices
a) and c) These do not address the differences between departments nor the need for
overall improvement. It may increase the gaps in departmental performance.
Choice b) A wage structure creates a logical hierarchy of wages with more important
jobs paid more and does not address the overall goal of output improvement.
Choice e) d) is an appropriate recommendation.
64 CMA Canada
60. Answer: b.
West Coastal
ROI 510,000 ÷ 2,180,000 = 23.4% 750,000 ÷ 2,525,000 = 29.7%
RI 510,000 – (2,180,000 X 15%) = 750,000 – (2,525,000 X 18%) =
183,000 295,500
Profit Margin 510,000 ÷ 1,850,000 = 27.6% 750,000 ÷ 3,500,000 = 21.4%
Choice a) West has the better profit margin.

Choice c) Amount of assets is not a convincing performance measurement.
Choice d) Amount of liabilities is not a performance measurement.
61. Answer: d.
Both statements (a) and (b) are TRUE.
Choice a) The statement is not the only TRUE statement.

Choice b) The statement is not the only TRUE statement.
Choice c) Controllability is not absolute as managers only have the ability to exercise
some control on their responsibility centre’s activities. The statement is
FALSE.
Choice e) The statement (c) is FALSE.
62. Answer: c.
This theory maintains that performance will achieve a goal. Motivation is a combination
of effort, achievability of goals, and desire. An individual who has a particular goal must
practice a certain behaviour to achieve it.
Choice a) Theory Y suggests that people are fundamentally born good (conversely in
theory X: evil) and are thus naturally motivated (conversely: lazy) .
Choice b) People have multiple needs, loosely classifiable as physiological,
psychological, growth and transcendent needs. As one need is satisfied, then
another (higher) need becomes apparent.
Choice d) This proposes that intrinsic job factors motivate and extrinsic factors placate
employees.
Choice e) Equity theory of motivation suggests that people will compare outcomes for
themselves with others.
63. Answer: b.
This describes an organization-based incentive.
Choice a) This incentive is defined by professional associations, like a Code of

Conduct.
Choice c) This incentive pertains to one's ethical values to do the right thing.
Choice d) This is provided by markets imposing substantial costs on organizations that
engage in unethical behaviour.
Choice e) This is induced through regulations by imposing sanctions and fines for
unethical behaviour.
64. Answer: d.
The CAPM is based on a number of assumptions, including one that bases the price on
the investor holding a well-diversified portfolio (the market portfolio). It has been shown
that the vast majority of security-specific risk can be diversified away in such a portfolio.
CMA Canada 65
65. Answer: e.
The maximum amount that BG Corporation should be willing to pay for SM Corporation
is the present value of the incremental cash flows using a discount rate of 13%.
Year 1 to 3 – present value of operating after-tax cash flows from SM Corporation
= $500,000 x .6 x 2.361 = $708,300
Year 4 and beyond – present value of operating after-tax cash flows from SM
Corporation = ($700,000 x .6) ÷ .13 x .693 = $2,238,923
Present value of synergies = ($225,000 x .6) ÷ .13 = $1,038,462
Net present value = $708,300 + $2,238,923 + 1,038,462 = $3,985,685 =
$3,986,000 (rounded)
Choice a) Uses the values of the perpetuities at the beginning of Year 4 (i.e. they are
not discounted to the present): $708,300 + [($700,000) x .6]/.13 + $3,727,000
= $7,666,069 = $7,666,000 (rounded).
Choice b) Ignores the synergies of $225,000 per year: $708,300 + $2,238,923
= $2,947,223 = $2,947,000 (rounded).
Choice c) The synergies are subtracted from cash flows instead of added: $708,300 +
$2,238,923 - $1,038,462 = $1,908,761 = $1,909,000 (rounded).
Choice d) Uses before tax cash flows: ($500,000 x 2.361) + ($700,000 ÷ .13 x .693) +
($225,000 ÷ .13) = $1,180,500 + $3,731,538 + $1,730,769 = $6,642,807 =
$6,643,000 (rounded)
66. Answer: e.
A stock dividend is simply the distribution of additional shares to shareholders. It
represents a recapitalization of the company – a shareholder’s proportional ownership
remains unchanged. All other things being equal, the market price of the shares will drop
so that the total market value of a shareholder’s holdings stays the same and the
company’s total shareholders’ equity remains unchanged (i.e. new price equals old price
divided by 1.1). Because there are additional shares over which to distribute earnings,
the future earnings per share will drop.
67. Answer: a.
Average collection period = (.2 x 0) + (.4 x 20) + (.4 x 60) = 32 days.
Choice b) Average of 20 days and 60 days aging: (20 + 60)/2 = 40 days.

Choice c) Uses 60 days at 100%.
Choice d) Uses 60 days only: 60 days x 40% = 24 days.
Choice e) Uses the average of 0, 20 and 60 days: (0 + 20 + 60)/3 = 27 days
66 CMA Canada
68. Answer: e.
Capital cost allowance will be recaptured when the proceeds of disposition exceed
undepreciated capital cost (UCC) (i.e. when assets in a class have been over-
depreciated relative to their disposal value):
UCC at the end of Year 1 = $500,000 - ($500,000 x 20% x 50%) = $450,000.
UCC at the end of Year 2 = $450,000 x 80% = $360,000.
Proceeds of $370,000 - UCC of $360,000 = $10,000 recapture.
Choice a) Residual value is incorrectly deducted before calculating UCC:

$500,000 - $50,000 = $450,000
UCC at the end of Year 1 = $450,000 - ($450,000 x 20% x 50%) = $405,000
UCC at the end of Year 2 = $405,000 x 80% = $324,000
Proceeds of $370,000 - UCC of $324,000 = $46,000 recapture
Choice b) Incorrectly uses straight-line amortization and ignores half-year rule:
$500,000 - $50,000 = $450,000
Accumulated amortization = $450,000/8 x 2 = $112,500
NBV at the end of Year 2 = $500,000 - $112,500 = $387,500
Proceeds of $370,000 - NBV of $387,500 = $17,500 terminal loss
Choice c) Ignores the half-year rule:
UCC at the end of Year 1 = $500,000 - ($500,000 x 20%) = $400,000.
UCC at the end of Year 2 = $400,000 x 80% = $320,000.
Proceeds of $370,000 - UCC of $320,000 = $50,000 recapture
Choice d) Ignores CCA: $500,000 - $50,000 = $450,000
Proceeds of $370,000 - $450,000 = $80,000 terminal loss
69. Answer: c.
Vr = ($18-$14)/(3+1) = $1
Choice a) Incorrectly multiplies by the number of rights: 3 x ($18 - $14) = $12.

Choice b) Multiplies the cash required by the number of rights and divides by the
current value of the shares: ($14 x 3)/$18 = $2.33
Choice d) This is correct if the market price of a share is less than the subscription price
of a share with three rights.
Choice e) Ignores the number of rights: $18 - $14 = $4
CMA Canada 67
70. Answer: b.
After-tax cost of debt = 6.5% x (1 - .4) = 3.9%
Cost of preferred shares = 6%; Cost of common equity = 15%
Total long-term debt + equity = $1,300,000 + $2,920,000 + $5,780,000 = $10,000,000
WACC = (3.9% x 1.3/10) + (6% x 2.920 ÷ 10) + (15% x 5.780 ÷ 10)

= .507% + 1.752% + 8.67% = 10.929% = 10.9% (rounded)
Choice a) Includes current liabilities as part of debt: WACC = (3.9% x 2.25 ÷ 10.95) +
(6% x 2.920 ÷ 10.95) + (15% x 5.780 ÷ 10.95) = .8014% + 1.6% + 7.918% =
10.319 = 10.3% (rounded)
Choice c) Incorrectly converts cost of preferred (6% x (1 - 40%)) and cost of common
(15% x (1 – 40%)) to an after-tax cost:
WACC = (3.9% x 1.3 ÷ 10) + (3.6% x 2.92 ÷ 10) + (9% x 5.78 ÷ 10) = 6.76%
= 6.8% (rounded)
Choice d) Uses average of all three rates: (6.5 + 6 + 15) ÷ 3 = 9.167% = 9.2%
(rounded)
Choice e) Does not take after-tax cost of debt:
WACC = (6.5% x 1.3 ÷ 10) + (6% x 2.920 ÷ 10) + (15% x 5.780 ÷ 10)
= .845% + 1.752% + 8.67% = 11.267% = 11.3% (rounded)
71. Answer: d.
The price of the bond when it was issued is not relevant to the current market price. The
current market value is equal to the present value of the future cash flows, using 10
periods at 4%: ($50,000 x 0.676) + ($2,500 x 8.111) = $33,800 + $20,277 = $54,077.50
= $54,080 (rounded)
Choice a) Switches the coupon rate and the required rate: ($50,000 x 0.614) + ($2,500
x 7.722) = $30,700 + $19,305 = $50,005 = $50,000 (rounded)
Choice b) Uses the face value only. $50,000 + (10 x $2,500) = $75,000
Choice c) PV of bonds only: $50,000 x 0.676 = $33,800
Choice e) Does not use the present value on the principal: $50,000 + ($2,500 x 8.111) =
$50,000 + $20,277 = $70,277 = $70,780 (rounded)
72. Answer: e.
The expected return on the equity investment is calculated with the Capital Asset Pricing
Model (CAPM) = 3% + 1.7(6%) = 13.2%.
Expected return = $250,000 x 13.2% = $33,000.
The expected return on the interest bearing certificate is 3% x $250,000 = $7,500.
Therefore, the combined return of the portfolio is $40,500.
68 CMA Canada
73. Answer: a.
Financial leverage measures a company’s use of debt with fixed interest rates. The
contribution margin measures the degree of operating leverage (variable versus fixed
costs).
Choice b) Debt-to-equity ratio: Measures the extent of debt financing in comparison to

equity financing in a firm’s capital structure.
Choice c) Financial leverage ratio (ROE – ROA): The financial leverage ratio, as
measured by the difference between the Return on Equity and the Return on
Assets, is a measure of financial leverage employed. Leverage is positive
when the rate of return on the company’s assets exceeds the average after-
tax interest rate on its borrowed funds.
Choice d) Debt-to-asset ratio: Measures the extent of debt used to finance a firm’s
assets.
Choice e) Times Interest Earned: This shows how many times earnings will cover fixed-
interest payments on long-term debt.
74. Answer: a.
Effective interest rate = (1+Ratequoted/n)n -1
Investment A = (1 + .13/2)2 - 1 = 13.42%

Investment B = (1 + .1225 ÷ 365)365 - 1 = 13.03%
Investment C = (1 + .125 ÷ 4)4 - 1 = 13.10%
Since Investment A has the highest effective rate, the company should invest all her
money in A.
75. Answer: c.
Dividends ($24,000 + 15,000) x 1/3; cash and stock dividends are included in the
calculation
Choice a) $33,000 (ending balance RDTOH $20,000 + 5, 000 + 8,000)

Choice b) $20,000 (beginning balance in RDTOH)
Choice d) $8,000 (cash dividends x 1/3)
Choice e) $5,000 (stock dividends x 1/3)
76. Answer: a.
Profitability Index = PV cash inflows/PV cash outflows
Project W = [620(3.240)]/2,000 = 1.004
Project X = [1,000(3.696)]/5,000 = 0.7392
Project Y = [2,000(4.423)]/10,000 = 0.8846
Since project W has a profitability index greater than 1, it is the only project the
company should invest in.
CMA Canada 69
77. Answer: c.
NPV of the lease
= $4,000 - $550 - $550PVIFA6%,4 - ($600 x 40%)PVIFA6%,5 - $1,000PVIF6%,5
= $3,450 - $1,905.75 - $1,010.88 - $747
= - $213.63
Choice a) assumes lease payments are at the end of the year

Choice b) ignores salvage value
Choice d) ignores tax on CCA
Choice e) ignores CCA
78. Answer: b.
A BBB-graded bond is the lowest grade for an investment grade bond.
Choice a) Bonds rated below BBB are junk bonds.

Choice c) BBB bonds are more risky than AA bonds and as a result have higher yields.
Choice d) BBB bonds are adequate credit quality versus junk bonds which are much
more speculative.
Choice e) Generally junk bonds are sold on the high-yield US markets.
79. Answer: b.
Expected Return (V) = 15%(.30) + 8%(0.70) = 10.1%
Expected Return (W) = 18%(.30) + 2%(0.70) = 6.8%
Expected Return (X) = 10%(.30) + 9%(0.70) = 9.3%
Expected Return (Portfolio) = (1/3 x 10.1%) + (1/3 x 6.8%) + (1/3 x 9.3%) = 8.72%
Choice a) Only considers bull market.

Choice c) Only considers bear market.
Choice d) Takes average of all stocks.
Choice e) Takes average of the difference of stocks.
80. Answer: b.
Initial investment is the cash that will be tied up in receivables.
= 30 days X ($775,000 ÷ 365) = $63,699
Incremental before-tax cash flow = ($775,000-$700,000) - $20,000 - $45,000 = $10,000

After-tax = $10,000 x (1-40%) = $6,000
After-tax discount rate = 5% x (1-40%) = 3%
NPV = -$63,699 + ($6,000 ÷ 0.03) = $136,301
Choice a) Misses after-tax discount rate: -$63,699 + $6,000/5% = $56,301

Choice c) Does not discount incremental cash flow: -$63,699 + $10,000 = -$53,699
Choice d) Takes sales increase less additional costs = $75,000 - $45,000 - $20,000 =
$10,000
Choice e) Present value of d) = $10,000 ÷ .05 = $200,000
70 CMA Canada
81. Answer: d
DOL = [25,000 x ($250 - $110)] ÷ [25,000 x ($250 - $110) - $725,000] = 1.261
Choice a) uses equity in denominator: $3.5M/$890,000 = 3.93

Choice b) uses just fixed costs in dominator: $3.5M/$725,000 = 4.83
Choice c) uses gross sales in numerator: $6.25M/$2.775M = 2.25
Choice e) uses after-tax contribution margin in numerator: $2.1M/$2.775M = 0.76
82. Answer: c
The total cost of the preferred shares is calculated as follows:

Amount per share: $500
Underwriting costs: ($9) $15 x (1 - .40)
Net proceeds: $491
Dividend per share: $35
Cost per share: $35 / $491 = 7.128% ~ 7.13%
83. Answer: c.
An operating segment must only satisfy one of the following quantitative thresholds to be
considered a reportable segment.
(a) its reported revenue, including both sales to external customers and
intersegment sales or transfers, is 10 per cent or more of the combined revenue,
internal and external, of all operating segments;
(b) the absolute amount of its reported profit or loss is 10 per cent or more of the
greater, in absolute amount, of:
(i) the combined reported profit of all operating segments that did not report a
loss; or
(ii) the combined reported loss of all operating segments that did report a loss;
and
(c) its assets are 10 per cent or more of the combined assets of all operating
segments.
Choice a) S and T have revenues greater than 10% of combined revenues.

Choice b) U has assets greater than 10% of combined assets.
Choice d) Liabilities have to impact on quantitative thresholds.
Choice e) Therefore, S, T and U should report separately.
84. Answer: b.
Because Muchmoney owns 25%, it has significant influence, so the equity method is
used.
Initial investment: $5,000,000 DR

Net Income: $ 100,000 DR (25% of $400,000)
Dividend paid: $ 25,000 CR (25% of $100,000)
$5,075,000
CMA Canada 71
85. Answer: d.
Cost Net Realizable Lower of Cost
Units per Unit Total Value per Unit Total and NRV
A 5,000 $25 $125,000 $15 $75,000 $75,000
B 3,000 $35 $105,000 $30 $90,000 $90,000
C 2,000 $80 $160,000 $85 $170,000 $160,000
$325,000
86. Answer: e.
Comprehensive Income includes Net Income plus Other Comprehensive Income that
bypasses net income but affects shareholders' equity.
The calculation includes: Sales - Sales Discounts - Cost of Goods Sold – Operating
expenses + Unrealized Holding Gain
(500 - 10 - 245 - 125 + 5 = 125)
Choice a) Fails to include the Unrealized Holding Gain and deducts the Allowance for
Doubtful Accounts as an expense ($75 – 5 – 8 = $62).
Choice b) Fails to include the Unrealized Holding Gain in the calculation ($75 – 5 =
$70).
Choice c) Fails to deduct the Sales Discount in the calculation ($75 + 10 = $85).
Choice d) Includes the contributed surplus ($125 + 20 = $145).
87. Answer: b.
Pension expense = service costs + interest on accrued benefits - return on pension fund
assets = $120,000 + $250,000 - $174,000 = $196,000.
88. Answer: d.
Accounting standards require that the gain/loss on a hedge be recorded in net income at
the same time that the gain/loss on the item being hedged is recognized.
89. Answer: c.
Strategic investments occur when we take a significant equity position in another
company and are in a position to either control the other company or significantly
influence its operational or financial policies.
Choices a), b), d) and e) are all non-strategic classifications.
72 CMA Canada
90. Answer: e.
IAS 2 - Inventory, allows for the reversal of a writedown in a subsequent period if the net
realizable value of the inventory increases, but not above the original cost.
In this case, inventory with an original cost of $40,000 was written down to $30,000 (loss
of $10,000). Once conditions changed, the inventory had a new NRV of $45,000 but LT
correctly recorded the inventory at its original cost.
Choice a) LIFO is no longer an appropriate cost flow formula. Therefore, this alternative
is inappropriate.
Choice b) The reversal of the writedown is limited to the amount of the original
writedown (i.e. cannot be greater than the original cost). Since PA Corp
reversed the writedown to $26,000, which is beyond the cost of $20,000 this
alternative is inappropriate.
Choice c) Abnormal amounts of wasted material, labour or other production costs are
not included in inventories (IAS 2. Para 16a).
Choice d) Inventory is valued at the lower of cost or net realizable value, not
replacement cost.
91. Answer: a
Relevance - information is relevant when it influences the economic decisions of users.
Choice b) Information is readily understandable by users.

Choice c) Completeness refers to the inclusion of all information within the bounds of
materiality and cost. An omission can cause information to be false or
misleading.
Choice d) Reliability is the qualitative concept that describes accounting information as
being verifiable and is a faithful representation of the underlying economic
reality.
Choice e) Neutrality means that information cannot be selected to favour one set of
stakeholders over another.
92. Answer: e.
Net income available for common shareholders = $5,000,000 - (6% x $875,000) =
$4,947,500
Basic EPS = net income available for common shareholder ÷ weighted average common
shares outstanding = $4,947,500/1,000,000 = $4.95
Choice a) Does not deduct preferred dividends: $5,000,000 ÷ 1,000,000 = $5.00

Choice b) Deducts taxes from dividends: [$5,000,000 - (6% x $975,000 x .6)] ÷
1,000,000 = $4,968,500 ÷ 1,000,000 = $4.97
Choice c) Calculates earnings per common and preferred share: $5,000,000 ÷
(1,000,000 + 35,000) = $4.83
Choice e) Uses fully diluted number of shares: 1,000,000 + ($9,985,000 ÷ 1,000,000 x
150 x ½) = 1,748,875 shares; EPS = $4,947,500 ÷ 1,748,875 = $2.83
CMA Canada 73
93. Answer: a.
Proceeds from sale of 40 units = [($800 - $120 commission) x 40] - $850 delivery costs
= $26,350
Cost of sales = ($450 x 40) + ($1,000 x 40/80) = $18,500
Profit from consignment sales = $26,350 - $18,500 = $7,850
Choice b) Assumes SFC Inc. records sales for all 80 units on consignment and accrues
the expected expenses associated with the unsold units: [($800 - $120 -
$450) x 80] - [$850 x 80/40] - $1,000 = $15,700.
Choice c) Remittance amount of ($800 - $120) x 40 - $850 = $26,350.
Choice d) Deducts full $1,000 shipping cost: $26,350 - [($450 x 40) + $1,000] = $7,350.
Choice e) Ignores the costs incurred by the consignee: ($800 - $450) x 40 - ($1,000 x
40/80) = $13,500.
94. Answer: b.
n = 18; i = 3%
Premium = (PV of $500,000 + PV of semi-annual interest of $25,000) - $500,000;
= [$500,000 x .587) + ($25,000 x 13.753)] - $500,000
= $293,500 + $343,825 - $500,000 = $137,325 = $137,300 (rounded)
95. Answer: c.
This is the only cost eligible for capitalization. It has future benefit and can be
distinguished from other costs and appropriately measured.
Choice a) This does not meet the criteria.

Choice b) This cannot be distinguished and measured – and is specifically excluded for
these reasons.
Choice d) Interest on development not research can be capitalized.
Choice e) See above.
74 CMA Canada
96. Answer: d.
In this case, its statements should be translated using the current rate method. Under
the current rate method, assets and liabilities should be translated using the December
31 exchange rate of 0.70 and income statement items should be translated using the
0.82 average rate for the year:
A/R = 85,000 FC x .70 = $59,500
Cost of goods sold = (625,000 FC - 55,000 FC) x .82 = 570,000 FC x .82 = $467,400.
Amortization expense = 45,000 FC x .82 = $36,900
Choice a) Uses the temporal method: Accounts receivable = 85,000 FC x .70

= $59,500; Cost of goods sold = (625,000 FC x 0.82) - (55,000 FC x 0.73)
= $472,350; Amortization expense = 45,000 FC x .85 = $38,250.
Choice b) Uses the average rate for the year: A/R = 85,000 FC x .82 = $69,700; Cost of
goods sold = (625,000 FC - 55,000 FC) x .82 = $467,400; Amortization
expense = 45,000 FC x .82 = $36,900
Choice c) Uses the average rate for the 4th quarter: A/R = 85,000 FC x .73 = $62,050;
Cost of goods sold = (625,000 FC - 55,000 FC) x .73 = $416,100;
Amortization expense = 45,000 FC x .73 = $32,850
Choice e) Uses current rate for all: A/R = 85,000 FC x .70 = $59,500; Cost of goods
sold = (625,000 FC - 55,000 FC) x .70 = $399,000; Amortization expense
= 45,000 FC x .70 = $31,500
97. Answer: c.
Candidates need to consider the impact of the items on cash flow from operations and/or
total liabilities. Cash total debt coverage = Cash provided by (used in) operations ÷
average total liabilities.
Capitalizing product development costs would not change total cash but would improve
cash from operations as cash would be classified as an investment rather than operating
expense.
Choice a) Selling surplus equipment for cash would improve cash but not cash from
operations.
Choice b) Acquiring an asset through a capital lease would increase liabilities as lease
capitalized. (Provides some symmetry with response c) as both involve
capitalization.)
Choice d) Changing from declining balance to straight-line depreciation on its
equipment would impact the add back on the cash flow statement but not the
net cash flow from operations.
98. Answer: d.
Gross margin ratio = (Sales – Cost of goods sold) ÷ Sales = ($273,000 - $144,000) ÷
$273,000 = $129,000 ÷ $273,000 = 47.3%
Choice a) Calculates contribution margin ratio:

[$273,000 - ($144,000 x 60%) – ($13,200 x 50%) ÷ $273,000 = 65.9%.
Choice b) Deducted all the expenses: ($273,000 – $251,510) ÷ $273,000 = 7.9%
Choice c) Uses operating income in the numerator:
($129,000 - $48,100 - $16,900 - $13,200) ÷ $273,000 = 18.6%.
CMA Canada 75
99. Answer: b.
Inventory turnover ratio = Cost of goods sold/Average inventory = $144,000 ÷
[($114,800 + $120,500) ÷ 2] = $144,000 ÷ $117,650 = 1.22 times
Choice a) Uses sales in the numerator: $273,000 ÷ $117,650 = 2.32 times

Choice c) Flips the numerator and the denominator = $117,650 ÷ $144,000
= 0.82 times
Choice d) Divides average inventory by average accounts payable:
$117,650 ÷ [($50,410 + $46,400) ÷ 2] = 2.43 times:
Choice e) Adds beginning and ending inventory in the denominator:
$144,000 ÷ ($114,800 + $120,500) = 0.62 times
100. Answer: c.
Quick ratio = Cash + accounts receivable/Accounts payable + Other current liabilities
= ($34,100 + $57,300)/($50,410 + $61,400) = $91,400/$111,810 = 0.82
Choice a) Uses accounts payable in the denominator: $91,400/$50,410 = 1.81

Choice b) Flips the numerator and the denominator = $111,810/$91,400 = 1.22
Choice d) Use current assets/current liabilities = ($91,400 + $114,800)/$111,810 = 1.84
Choice e) Uses current assets/total liabilities = ($91,400 + $114,800)/($111,810 +
$205,100) = 0.65
101. Answer: c.
Year 8 expected gross profit is $750,000 ($2M - $1.25M).
Therefore, recorded gross profit in Year 8 is $180,000 (24% of $750,000).
In Year 9, the total project costs was $775k + $625k = $1,400,000.

A total of 55.35% of the costs were incurred ($775k / $1,400k).
Expected gross profit is $600,000 ($2M - $1.40M).

Therefore, recorded gross profit in Year 9 is [(55.35% of $600,000) – 180,000] =
$152,100.
Choice a) Used the difference between the billings to date and the costs incurred to
date to determine the gross profit in each year. Year 8: $400,000 - $300,000;
Year 9: $800,000 - $775,000
Choice b) For Year 9, the gross of $332,142 represents 55.35% of $600,000, which
therefore does not deduct the portion of gross profit that was earned in Year
8 (i.e. $180,000).
Choice d) Does not adjust the total project costs for the new information obtained in
each year.
Year 8 – $300,000 / $1,200,000 = 25%; 25% of $800,000 = $200,000
Year 9 – $775,000 / $1,200,000 = 64.58%; 64.58% of $800,000 = $516,666
Less Year 8 gross profit of $200,000 = $316,666
Choice e) Uses billings to date as a metric to measure progress.
Year 8 - $400,000 / $2,000,000 = 20%; 20% of $750,000 = $150,000
Year 9 - $780,000 / $2,000,000 = 39%; 39% of $600,000 ($2,000,000 -
$775,000 - $625,000) = $234,000
Less gross profit in Year 8 of $150,000 = $84,000
76 CMA Canada
102. Answer: d
The amounts would be reported under operating activities on the Cash Flow Statement.
Net income earned $1,000,000

Add back amortization recorded 95,000
Add back decrease in inventory 40,000
Add back loss on equipment 50,000
Deduct decrease in accounts payable (110,000)
Increase (decrease) in cash from operating activities $1,075,000
Choice a) Does not include change in accounts payable.

Choice b) Incorrectly adds back cash used to purchase equipment.
Choice c) Ignores the amortization.
Choice e) Incorrectly deducts dividends declared.
103. Answer: b.
Value recorded is the lower of fair value or PV of minimum lease payments.
PV of minimum lease payments: $15,000 + $15,000 PV 9,4% + $8,000 PV 10,4%
= $131,933
Therefore, the lease is recorded as a $115,000 asset.
Choice a) Incorrectly uses the PV of the lease payments.

Choice c) Incorrect takes fair value less purchase price.
Choice d) Incorrectly calculates PV at the end of each year. $15,000 PV 10,4% =
$121,665 and uses that amount.
Choice e) Since there is a bargain purchase price, this is a finance lease.
CMA Canada 77
104. Answer: b.
Restricted contributions – Match revenues to expenses for the period; revenues to be
used against expenses for future periods should be deferred. The $50,000 received in
Year 1 was not recognized as revenue in Year 1, it was deferred. The amount of
revenue from this donation to be recognized in Year 2 will be equal to the amortization
expensed in Year 2. Therefore, recognize $10,000 ($50,000/5) of restricted contributions
in Year 2.
The entire $250,000 of unrestricted grants is recognized in Year 2.
The endowment contribution is not recognized as revenue on the statement of

operations; instead, it is recognized as a direct increase to net assets.
Unrestricted interest income from endowments is recognized as revenue in the period

that the interest is earned.
Therefore, for Year 5, revenue = $10,000 + $250,000 + $6,000 = $266,000.
Choice a) Recognizes all the restricted contributions including those deferred from Year
4: $250,000 + $100,000 + $50,000 = $400,000.
Choice c) Treats interest as a restricted revenue: $250,000 + $100,000 = $350,000.
Choice d) Includes all revenue received in Year 5: $250,000 + $100,000 + $6,000
= $356,000.
Choice e) Matches all revenue to expenses and includes the endowment: $50,000 +
$35,000 + $6,000 + $100,000= $191,000.
105. Answer: d.
As available for sale investments, the adjustment should be the difference between the
current market value and the carrying value ($185,000 - $205,000).
Choice a) Incorrectly uses the difference between carrying value and original cost.
Choice b) Incorrectly uses the difference between market value and carrying value for
LP and HW only.
Choice c) Incorrectly uses the difference between market value and original cost.
Choice e) Incorrectly uses the difference between market value and original cost for EB
only.
106. Answer: a.
This is the description of a retractable preferred share.
Choice b) This refers to a preferred share whose dividend is readjusted every three to
six months to be in line with current market interest rates.
Choice c) This refers to a security that is part equity and part debt.
Choice d) This refers to preferred shares that must receive dividends that are current
and in arrears before dividends are paid to common shares.
Choice e) This refers to preferred shares that can be converted to common shares.
107. Answer: e.
All of the choices are criteria to determine whether or not to capitalize development
costs.
78 CMA Canada
108. Answer: a
Since the contribution is made by an owner or shareholder, the account that is credited
would be a Contributed Surplus account, Donated Capital.
Choice b) Other comprehensive income or net income would be the correct answer if
the contribution were made by a non-owner. A contribution by a non-owner
meets the definition of an item of comprehensive income and can be included
in Other comprehensive income.
Choice c) Other comprehensive income or net income would be the correct answer if
the contribution were made by a non-owner. A contribution by a non-owner
meets the definition of an item of comprehensive income and can be included
in Net Income.
Choice d) A contribution by a non-owner meets the definition of an item of
comprehensive income and can be included in other comprehensive income
or net income, therefore b) or c) is acceptable if the contribution were from a
non-owner.
Choice e) This foil may be attractive if the student does not realize that there is a
difference in the treatment of donated assets depending on the source of the
donation.
109. Answer: c.
i) ($1,000,000 x 8%) (1-0.4) = $48,000
1,000 bonds x 7 = 7,000 common shares
$48,000/7,000 = $6.86 Æ NOT dilutive
ii) options are not in the money Æ NOT dilutive
iii) $50/20 common shares = $2.50 Æ dilutive
110. Answer: c.
The original cost of the old equipment is not relevant (choice d) to the decision to
dispose of it and purchase new equipment. Therefore, it is a sunk cost in this situation
(choice c). The amortization of the production equipment would be classified as a
product cost (choice e) as part of overhead rather than a period cost (choice b). The
costs have nothing to do with production so conversion cost is not correct (choice a).
Therefore, choice c) is correct.
111. Answer: d.
CdT ⎛ 1 + 0.5k ⎞
Present Value = ⎜ ⎟
(d + k ) ⎝ 1 + k ⎠
250,000x30%x40% ⎛ 1 + 0.5(14%) ⎞
= ⎜ ⎟ = 68,182 x 0.9386 = $63,995.62 = $64,000
(30% + 14%) ⎝ 1 + 14% ⎠
Choice a) uses old equipment cost of $350,000: = 89,593.64 = $89,590 (rounded)
Choice b) amortization for one year: = 30% of $250,000 = $75,000
Choice c) uses 40% in denominator = $52,144.44 = $52,140 (rounded)
Choice e) uses difference in equipment costs in numerator (i.e. $100,000) = $25,598.18
= $25,600 (rounded)
CMA Canada 79
112. Answer: a.
Fair share price = $8.50 x 16.5 = $140.25
Value = $140.25 x 10,000 shares = $1,402,500
Choice b) uses net assets

Choice c) uses EPS x shares outstanding
Choice d) uses EBITD x 16.5
Choice e) uses revenue
113. Answer: d.
The definition is diversifying into an industry unrelated to the current industry, which is
what Brook Ltd. is doing with Smallfirm.
Choice a) is achieved by expanding operations into other geographic locations and/or

increasing the range of products and services offered to current markets.
Choice b) is achieved by growing through existing channels in the existing industry.
Choice c) is often used to combine resources and expertise needed to develop a new
product or technology.
Choice e) is achieved by taking over a function previously provided by a supplier or
distributor.
114. Answer: a.
It is best to pay a capital dividend before the sale of the second property as the loss will
reduce the balance in the capital dividend account (CDA) that can be paid out tax free to
shareholders.
115. Answer: e.
Breakeven Revenue = FC/Contribution Margin %
= $225,000/(55%-3%) = $432,692 = $432,700 rounded
116. Answer: b.
ROI = income / investment
25% = income / $300,000 Î income = $75,000
Income = (revenue - inventory cost) - FC - commission

$75,000 = Revenue x 55% - $225,000 - 3% x Revenue
$300,000 = 0.52 x Revenue Î Revenue = $576,923 = $577,000 rounded
80 CMA Canada
Supplement of Formulae and Tables
Formulae
1. CAPITAL STRUCTURE
a) After-Tax Marginal Cost of Debt:

(1− T)I
kb = k(1− T) or
F
where k = interest rate
T = corporate tax rate
I = annual interest payment on debt
F = face value of debt
b) Cost of Preferred Shares:

Dp
kp =
NPp
where Dp = stated annual dividend payment on shares
NPp = net proceeds on preferred share issue
c) Cost of Common Equity:

i) Cost of Common Shares (Capitalization of Dividends with Constant
Growth Rate):
D1
ke = +g
NPe
where D1 = dividend expected for period 1
NPe = net proceeds on common share issue
g = annual long-term dividend growth rate
ii) Cost of Retained Earnings:
D1
kre = re = +g
Pe
where Pe = market price of a share
re = expected return on common equity
iii) Capital Asset Pricing Model:
(
Rj = Rf + β j Rm − Rf )
where Rj = expected rate of return on security j
Rf = risk-free rate
Rm = expected return for the market portfolio
βj = beta coefficient for security j (measure of
systematic risk)
CMA Canada 81
d) Weighted Average Cost of Capital:

⎛ B⎞ ⎛ P⎞ ⎛ E⎞
k = ⎜ ⎟ kb + ⎜ ⎟ kp + ⎜ ⎟ ke
⎝ V⎠ ⎝ V⎠ ⎝ V⎠
where B = amount of debt outstanding
P = amount of preferred shares outstanding
E = amount of common equity outstanding
V = B + P + E = total value of firm
2. PRESENT VALUE OF TAX SHIELD FOR AMORTIZABLE ASSETS
a) Present Value of Total Tax Shield from CCA for a New Asset
Ctd ⎛ 2 + k ⎞ CdT ⎛ 1 + 0.5k ⎞
Present Value = ⎜⎜ ⎟⎟ = ⎜ ⎟
(d + k ) ⎝ 2 (1 + k ) ⎠ (d + k ) ⎝ 1 + k ⎠
b) Present Value of Total Tax Shield from CCA for an Asset that is Not Newly
Acquired
⎛ dT ⎞
Present Value = UCC⎜ ⎟
⎝d +k ⎠
c) Present Value of Total Tax Shield Lost From Salvage
Sn ⎛ dT ⎞ Sn ⎛ dT ⎞
n ⎜ ⎟ or n −1 ⎜ ⎟, depending on cash
Present Value =
(1 + k ) ⎝ d + k ⎠ (1 + k ) ⎝ d + k ⎠
flow assumptions
Notation for above formulae:

C = net initial investment
UCC = undepreciated capital cost of asset
Sn = salvage value of asset realized at end of year n
T = corporate tax rate
k = discount rate or time value of money
d = maximum rate of capital cost allowance
n = total life of investment
82 CMA Canada
Table 1
Present Value of One Dollar Due at the End of n Years

1
P=
(1+ i) n
n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
01 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909
02 .980 .961 .943 .925 .907 .890 .873 .857 .842 .826
03 .971 .942 .915 .889 .864 .840 .816 .794 .772 .751
04 .961 .924 .888 .855 .823 .792 .763 .735 .708 .683
05 .951 .906 .863 .822 .784 .747 .713 .681 .650 .621
06 .942 .888 .837 .790 .746 .705 .666 .630 .596 .564
07 .933 .871 .813 .760 .711 .665 .623 .583 .547 .513
08 .923 .853 .789 .731 .677 .627 .582 .540 .502 .467
09 .914 .837 .766 .703 .645 .592 .544 .500 .460 .424
10 .905 .820 .744 .676 .614 .558 .508 .463 .422 .386
11 .896 .804 .722 .650 .585 .527 .475 .429 .388 .350
12 .887 .788 .701 .625 .557 .497 .444 .397 .356 .319
13 .879 .773 .681 .601 .530 .469 .415 .368 .326 .290
14 .870 .758 .661 .577 .505 .442 .388 .340 .299 .263
15 .861 .743 .642 .555 .481 .417 .362 .315 .275 .239
16 .853 .728 .623 .534 .458 .394 .339 .292 .252 .218
17 .844 .714 .605 .513 .436 .371 .317 .270 .231 .198
18 .836 .700 .587 .494 .416 .350 .296 .250 .212 .180
19 .828 .686 .570 .475 .396 .331 .277 .232 .194 .164
20 .820 .673 .554 .456 .377 .312 .258 .215 .178 .149
21 .811 .660 .538 .439 .359 .294 .242 .199 .164 .135
22 .803 .647 .522 .422 .342 .278 .226 .184 .150 .123
23 .795 .634 .507 .406 .326 .262 .211 .170 .138 .112
24 .788 .622 .492 .390 .310 .247 .197 .158 .126 .102
25 .780 .610 .478 .375 .295 .233 .184 .146 .116 .092
CMA Canada 83
Table 1 (cont’d)

1
P=
(1+ i) n
n 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
01 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
02 .812 .797 .783 .769 .756 .743 .731 .718 .706 .694
03 .731 .712 .693 .675 .658 .641 .624 .609 .593 .579
04 .659 .636 .613 .592 .572 .552 .534 .516 .499 .482
05 .593 .567 .543 .519 .497 .476 .456 .437 .419 .402
06 .535 .507 .480 .456 .432 .410 .390 .370 .352 .335
07 .482 .452 .425 .400 .376 .354 .333 .314 .296 .279
08 .434 .404 .376 .351 .327 .305 .285 .266 .249 .233
09 .391 .361 .333 .308 .284 .263 .243 .225 .209 .194
10 .352 .322 .295 .270 .247 .227 .208 .191 .176 .162
11 .317 .287 .261 .237 .215 .195 .178 .162 .148 .135
12 .286 .257 .231 .208 .187 .168 .152 .137 .124 .112
13 .258 .229 .204 .182 .163 .145 .130 .116 .104 .093
14 .232 .205 .181 .160 .141 .125 .111 .099 .088 .078
15 .209 .183 .160 .140 .123 .108 .095 .084 .074 .065
16 .188 .163 .142 .123 .107 .093 .081 .071 .062 .054
17 .170 .146 .125 .108 .093 .080 .069 .060 .052 .045
18 .153 .130 .111 .095 .081 .069 .059 .051 .044 .038
19 .138 .116 .098 .083 .070 .060 .051 .043 .037 .031
20 .124 .104 .087 .073 .061 .051 .043 .037 .031 .026
21 .112 .093 .077 .064 .053 .044 .037 .031 .026 .022
22 .101 .083 .068 .056 .046 .038 .032 .026 .022 .018
23 .091 .074 .060 .049 .040 .033 .027 .022 .018 .015
24 .082 .066 .053 .043 .035 .028 .023 .019 .015 .013
25 .074 .059 .047 .038 .030 .024 .020 .016 .013 .010
84 CMA Canada
Table 1 (cont’d)

1
P=
(1+ i) n
n 21% 22% 23% 24% 25% 26% 27% 28% 29% 30%
01 0.826 0.820 0.813 0.806 0.800 0.794 0.787 0.781 0.775 0.769
02 .683 .672 .661 .650 .640 .630 .620 .610 .601 .592
03 .564 .551 .537 .524 .512 .500 .488 .477 .466 .455
04 .467 .451 .437 .423 .410 .397 .384 .373 .361 .350
05 .386 .370 .355 .341 .328 .315 .303 .291 .280 .269
06 .319 .303 .289 .275 .262 .250 .238 .227 .217 .207
07 .263 .249 .235 .222 .210 .198 .188 .178 .168 .159
08 .218 .204 .191 .179 .168 .157 .148 .139 .130 .123
09 .180 .167 .155 .144 .134 .125 .116 .108 .101 .094
10 .149 .137 .126 .116 .107 .099 .092 .085 .078 .073
11 .123 .112 .103 .094 .086 .079 .072 .066 .061 .056
12 .102 .092 .083 .076 .069 .062 .057 .052 .047 .043
13 .084 .075 .068 .061 .055 .050 .045 .040 .037 .033
14 .069 .062 .055 .049 .044 .039 .035 .032 .028 .025
15 .057 .051 .045 .040 .035 .031 .028 .025 .022 .020
16 .047 .042 .036 .032 .028 .025 .022 .019 .017 .015
17 .039 .034 .030 .026 .023 .020 .017 .015 .013 .012
18 .032 .028 .024 .021 .018 .016 .014 .012 .010 .009
19 .027 .023 .020 .017 .014 .012 .011 .009 .008 .007
20 .022 .019 .016 .014 .012 .010 .008 .007 .006 .005
21 .018 .015 .013 .011 .009 .008 .007 .006 .005 .004
22 .015 .013 .011 .009 .007 .006 .005 .004 .004 .003
23 .012 .010 .009 .007 .006 .005 .004 .003 .003 .002
24 .010 .008 .007 .006 .005 .004 .003 .003 .002 .002
25 .009 .007 .006 .005 .004 .003 .003 .002 .002 .001
CMA Canada 85
Table 1 (cont’d)

1
P=
(1+ i) n
n 31% 32% 33% 34% 35% 36% 37% 38% 39% 40%
01 0.763 0.758 0.752 0.746 0.741 0.735 0.730 0.725 0.719 0.714
02 .583 .574 .565 .557 .549 .541 .533 .525 .518 .510
03 .445 .435 .425 .416 .406 .398 .389 .381 .372 .364
04 .340 .329 .320 .310 .301 .292 .284 .276 .268 .260
05 .259 .250 .240 .231 .223 .215 .207 .200 .193 .186
06 .198 .189 .181 .173 .165 .158 .151 .145 .139 .133
07 .151 .143 .136 .129 .122 .116 .110 .105 .100 .095
08 .115 .108 .102 .096 .091 .085 .081 .076 .072 .068
09 .088 .082 .077 .072 .067 .063 .059 .055 .052 .048
10 .067 .062 .058 .054 .050 .046 .043 .040 .037 .035
11 .051 .047 .043 .040 .037 .034 .031 .029 .027 .025
12 .039 .036 .033 .030 .027 .025 .023 .021 .019 .018
13 .030 .027 .025 .022 .020 .018 .017 .015 .014 .013
14 .023 .021 .018 .017 .015 .014 .012 .011 .010 .009
15 .017 .016 .014 .012 .011 .010 .009 .008 .007 .006
16 .013 .012 .010 .009 .008 .007 .006 .006 .005 .005
17 .010 .009 .008 .007 .006 .005 .005 .004 .004 .003
18 .008 .007 .006 .005 .005 .004 .003 .003 .003 .002
19 .006 .005 .004 .004 .003 .003 .003 .002 .002 .002
20 .005 .004 .003 .003 .002 .002 .002 .002 .001 .001
21 .003 .003 .003 .002 .002 .002 .001 .001 .001 .001
22 .003 .002 .002 .002 .001 .001 .001 .001 .001 .001
23 .002 .002 .001 .001 .001 .001 .001 .001 .001 .001
24 .002 .001 .001 .001 .001 .001 .001 .001 .001 .001
25 .001 .001 .001 .001 .001 .001 .001 .001 .001 .001
86 CMA Canada
Table 2
Present Value of One Dollar Per Year — n Years at i%

⎛ 1 ⎞
1− ⎜ ⎟
⎜ 1+ i n ⎟
⎝( ) ⎠
Pn =
i
n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
01 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909
02 1.970 1.942 1.914 1.886 1.859 1.833 1.808 1.783 1.759 1.736
03 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487
04 3.902 3.808 3.717 3.630 3.547 3.465 3.387 3.312 3.240 3.170
05 4.854 4.713 4.580 4.452 4.330 4.212 4.100 3.993 3.890 3.791
06 5.796 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355
07 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868
08 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335
09 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759
10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145
11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495
12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814
13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103
14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.224 7.786 7.367
15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.560 8.061 7.606
16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824
17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022
18 16.398 14.992 13.753 12.659 11.690 10.828 10.059 9.372 8.756 8.201
19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365
20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514
21 18.857 17.011 15.415 14.029 12.821 11.764 10.836 10.017 9.292 8.649
22 19.661 17.658 15.937 14.451 13.163 12.042 11.061 10.201 9.442 8.772
23 20.456 18.292 16.444 14.857 13.489 12.303 11.272 10.371 9.580 8.883
24 21.244 18.914 16.936 15.247 13.799 12.550 11.469 10.529 9.707 8.985
25 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077
CMA Canada 87
Table 2 (cont’d)

⎛ 1 ⎞
1− ⎜ ⎟
⎜ 1+ i n ⎟
⎝( ) ⎠
Pn =
i
n 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
01 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.848 0.840 0.833
02 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
03 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.107
04 3.102 3.037 2.975 2.914 2.855 2.798 2.743 2.690 2.639 2.589
05 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
06 4.231 4.111 3.998 3.889 3.785 3.685 3.589 3.498 3.410 3.326
07 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605
08 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837
09 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031
10 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.193
11 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.487 4.327
12 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439
13 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533
14 6.982 6.628 6.303 6.002 5.725 5.468 5.229 5.008 4.802 4.611
15 7.191 6.811 6.462 6.142 5.847 5.576 5.324 5.092 4.876 4.676
16 7.379 6.974 6.604 6.265 5.954 5.669 5.405 5.162 4.938 4.730
17 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775
18 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812
19 7.839 7.366 6.938 6.550 6.198 5.878 5.585 5.316 5.070 4.844
20 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870
21 8.075 7.562 7.102 6.687 6.313 5.973 5.665 5.384 5.127 4.891
22 8.176 7.645 7.170 6.743 6.359 6.011 5.696 5.410 5.149 4.909
23 8.266 7.718 7.230 6.792 6.399 6.044 5.723 5.432 5.167 4.925
24 8.348 7.784 7.283 6.835 6.434 6.073 5.747 5.451 5.182 4.937
25 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948
88 CMA Canada
Table 2 (cont’d)

⎛ 1 ⎞
1− ⎜ ⎟
⎜ 1+ i n ⎟
⎝( ) ⎠
Pn =
i
n 21% 22% 23% 24% 25% 26% 27% 28% 29% 30%
01 0.826 0.820 0.813 0.807 0.800 0.794 0.787 0.781 0.775 0.769
02 1.510 1.492 1.474 1.457 1.440 1.424 1.407 1.392 1.376 1.361
03 2.074 2.042 2.011 1.981 1.952 1.923 1.896 1.868 1.842 1.816
04 2.540 2.494 2.448 2.404 2.362 2.320 2.280 2.241 2.203 2.166
05 2.926 2.864 2.804 2.745 2.689 2.635 2.583 2.532 2.483 2.436
06 3.245 3.167 3.092 3.021 2.951 2.885 2.821 2.759 2.700 2.643
07 3.508 3.416 3.327 3.242 3.161 3.083 3.009 2.937 2.868 2.802
08 3.726 3.619 3.518 3.421 3.329 3.241 3.156 3.076 2.999 2.925
09 3.905 3.786 3.673 3.566 3.463 3.366 3.273 3.184 3.100 3.019
10 4.054 3.923 3.799 3.682 3.571 3.465 3.364 3.269 3.178 3.092
11 4.177 4.035 3.902 3.776 3.656 3.543 3.437 3.335 3.239 3.147
12 4.279 4.127 3.985 3.851 3.725 3.606 3.493 3.387 3.286 3.190
13 4.362 4.203 4.053 3.912 3.780 3.656 3.538 3.427 3.322 3.223
14 4.432 4.265 4.108 3.962 3.824 3.695 3.573 3.459 3.351 3.249
15 4.489 4.315 4.153 4.001 3.859 3.726 3.601 3.483 3.373 3.268
16 4.536 4.357 4.189 4.033 3.887 3.751 3.623 3.503 3.390 3.283
17 4.576 4.391 4.219 4.059 3.910 3.771 3.640 3.518 3.403 3.295
18 4.608 4.419 4.243 4.080 3.928 3.786 3.654 3.529 3.413 3.304
19 4.635 4.442 4.263 4.097 3.942 3.799 3.664 3.539 3.421 3.311
20 4.657 4.460 4.279 4.110 3.954 3.808 3.673 3.546 3.427 3.316
21 4.675 4.476 4.292 4.121 3.963 3.816 3.679 3.551 3.432 3.320
22 4.690 4.488 4.302 4.130 3.971 3.822 3.684 3.556 3.436 3.323
23 4.703 4.499 4.311 4.137 3.976 3.827 3.689 3.559 3.438 3.325
24 4.713 4.507 4.318 4.143 3.981 3.831 3.692 3.562 3.441 3.327
25 4.721 4.514 4.323 4.147 3.985 3.834 3.694 3.564 3.442 3.329
CMA Canada 89
Table 2 (cont’d)

⎛ 1 ⎞
1− ⎜ ⎟
⎜ 1+ i n ⎟
⎝( ) ⎠
Pn =
i
n 31% 32% 33% 34% 35% 36% 37% 38% 39% 40%
01 0.763 0.758 0.752 0.746 0.741 0.735 0.730 0.725 0.719 0.714
02 1.346 1.332 1.317 1.303 1.289 1.276 1.263 1.250 1.237 1.225
03 1.791 1.766 1.742 1.719 1.696 1.674 1.652 1.630 1.609 1.589
04 2.131 2.096 2.062 2.029 1.997 1.966 1.936 1.906 1.877 1.849
05 2.390 2.345 2.302 2.260 2.220 2.181 2.143 2.106 2.070 2.035
06 2.588 2.534 2.483 2.433 2.385 2.339 2.294 2.251 2.209 2.168
07 2.739 2.678 2.619 2.562 2.508 2.455 2.404 2.356 2.308 2.263
08 2.854 2.786 2.721 2.658 2.598 2.540 2.485 2.432 2.380 2.331
09 2.942 2.868 2.798 2.730 2.665 2.603 2.544 2.487 2.432 2.379
10 3.009 2.930 2.855 2.784 2.715 2.650 2.587 2.527 2.469 2.414
11 3.060 2.978 2.899 2.824 2.752 2.683 2.618 2.556 2.496 2.438
12 3.100 3.013 2.931 2.853 2.779 2.708 2.641 2.576 2.515 2.456
13 3.129 3.040 2.956 2.876 2.799 2.727 2.658 2.592 2.529 2.469
14 3.152 3.061 2.974 2.892 2.814 2.740 2.670 2.603 2.539 2.478
15 3.170 3.076 2.988 2.905 2.826 2.750 2.679 2.611 2.546 2.484
16 3.183 3.088 2.999 2.914 2.834 2.758 2.685 2.616 2.551 2.489
17 3.193 3.097 3.007 2.921 2.840 2.763 2.690 2.621 2.555 2.492
18 3.201 3.104 3.012 2.926 2.844 2.767 2.693 2.624 2.557 2.494
19 3.207 3.109 3.017 2.930 2.848 2.770 2.696 2.626 2.559 2.496
20 3.211 3.113 3.020 2.933 2.850 2.772 2.698 2.627 2.561 2.497
21 3.215 3.116 3.023 2.935 2.852 2.773 2.699 2.629 2.562 2.498
22 3.217 3.118 3.025 2.937 2.853 2.775 2.700 2.629 2.562 2.499
23 3.219 3.120 3.026 2.938 2.854 2.775 2.701 2.630 2.563 2.499
24 3.221 3.121 3.027 2.939 2.855 2.776 2.701 2.630 2.563 2.499
25 3.222 3.122 3.028 2.939 2.856 2.777 2.702 2.631 2.563 2.499
90 CMA Canada

2010 SampleEntranceExam

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2010 Sample

ii) Included in the examination envelope is a supplement consisting of formulae and

iii) Examination materials must NOT BE REMOVED from the examination

Updated June 2010

© 2010 The Society of Management Accountants of Canada. All rights reserved.

Supplement of Formulae and Tables .................................................... 81

© 2010 The Society of Management Accountants of Canada. All rights reserved.

189. (-) Market research and public relations costs are

a) engineered variable costs.

Singular Versus Plural Phrasing:

Calculator Policy and Supplement

Texas Instruments TI BA II Plus (including the Professional model)

Hewlett Packard HP 10bII (or HP 10Bii)

Sharp EL-738C (EL-738)

The supplement accompanying the Entrance Examination contains present value

a) legislative lobby groups.

2. Continuous strategy evaluation is important for companies today because

a) international markets are fluctuating.

3. (-) A diversification strategy focuses on

a) existing customers and existing products and services.

4. Which of the following statements about barriers to entry is FALSE?

a) It determines the extent of the threat of new entrants to existing competitors.

5. Which of the following best describes the concept of a distinctive competence?

6. In completing a SWOT (strengths, weaknesses, opportunities, threats) analysis, which of

a) Growing bargaining power of the company’s suppliers.

a) The available opportunity is very complex and risky.

8. Research in the widget industry has revealed that:

a) Entry barriers in this industry are high.

9. A company that currently competes in a single industry is seeking to reduce its

a) forward integration strategy.

Risk Management and Governance

a) have an open forum for employees to suggest implementation methods.

12. Which of the following is NOT a typical role of an audit committee?

a) Decide which public accounting firm to retain.

13. The main purpose of an internal control system within an organization is to

a) employment of temporary personnel to aid the separation of duties.

a) Overseeing the company’s direction, strategy, and business approaches.

17. The internal auditors of an organization should

a) identify areas of risk that need to be addressed in the control systems.

18. Which of the following is an INVALID concept of internal control?

a) Once a control risk is identified, it is necessary to adopt an internal control to mitigate

a) Buy a forward contract.

20. A pharmaceutical company is considering investing in 3 new drugs. It estimates that

Based on this information, how should the projects be prioritized?

a) Drug J, then Drug I, then Drug H.

a) Maximize contribution margin = 5/3Y + 7/7Q

The following data pertains to questions 22 and 23.

a) A decrease in cost of goods manufactured.

Department Computer Hours Square Metres Direct Costs

Variable manufacturing costs per unit $89.00

The following information pertains to questions 27 and 28.

Work in process inventory, May 1, Year 5 (95% converted) 5,500 units

27. (+) The amount of spoilage costs for May is:

28. The value of work-in-process inventory at May 31 is

Production data for June, Year 15, are as follows:

Work-in-process inventory, June 1, Year 15 (50% converted) 600 units

a) is a back office function.

The following information pertains to questions 34 and 35.

Selling price $200 per unit

The following information pertains to questions 36 and 37.

a) for a budgeted income of $960,000.

a) Engineering costs incurred to change product designs is a facility-sustaining cost.