Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control

(6 questions)

[8] Gleim #: 6.10.202 -- Source: CMA 0408 2-036

Netco’s sales budget for the coming year is as follows.

Item Volume in Units Sales Price Sales Revenue

1 200,000 $50 $10,000,000
2 150,000 10 1,500,000
3 300,000 30 9,000,000
Total sales revenue $20,500,000

Items 1 and 3 are different models of the same product. Item 2 is a complement to Item 1.
Past experience indicates that the sales volume of Item 2 relative to the sales volume of
Item 1 is fairly constant. Netco is considering a 10% price increase for the coming year
for Item 1, which will cause sales of Item 1 to decline by 20%, while simultaneously
causing sales of Item 3 to increase by 5%. If Netco institutes the price increase for Item 1,
total sales revenue will decrease by

A. $1,050,000
B. $850,000
C. $750,000
D. $550,000

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 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(6 questions)

Answer (A) is correct. First, the changes in sales volume can be calculated:

Unit Volume Unit Unit Volume

Before Price Change After Price
Item Change Factor Change
1 200,000 × 0.80 = 160,000
2 150,000 × 0.80 = 120,000
3 300,000 × 1.05 = 315,000

Next, the changes in unit price:

Price
Price Before Change Price After
Item Price Change Factor Price Change
1 $50 × 1.10 = $55
2 10 × 1.00 = 10
3 30 × 1.00 = 30

Third, the total sales revenue resulting from the changes in volume and price:

Unit Volume Price After Sales Revenue

After Price Price After Price
Item Change Change Change
1 160,000 × $55 = $8,800,000
2 120,000 × 10 = 1,200,000
3 315,000 × 30 = 9,450,000
$19,450,000

The decrease in Netco’s total revenue after the price change will therefore be $1,050,000
($20,500,000 – $19,450,000).
Answer (B) is incorrect. The amount of $850,000 results from increasing the price of
Item 3 rather than the volume.
Answer (C) is incorrect. The amount of $750,000 results from failing to reduce the unit
volume of Item 2 in tandem with the reduction in Item 1.
Answer (D) is incorrect. Total sales revenue will decrease by $1,050,000.

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 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(6 questions)

[Fact Pattern #1]

Super Drive, a computer disk storage and back-up company, uses accrual accounting. The
company’s Statement of Financial Position for the year ended November 30 is as follows:

Super Drive
Statement of Financial Position
as of November 30

Assets Liabilities and Stockholders’ Equity

Cash $ 52,000 Accounts payable $ 175,000
Accounts receivable, net 150,000 Common stock 900,000
Inventory 315,000 Retained earnings 442,000
Property, plant, and equipment 1,000,000 Total liabilities and
Total assets $1,517,000 stockholders’ equity $1,517,000

Additional information regarding Super Drive’s operations include the following:

Sales are budgeted at $520,000 for December and $500,000 for January of the next year.
Collections are expected to be 60% in the month of sale and 40% in the month following
the sale.
Eighty percent of the disk drive components are purchased in the month prior to the
month of sale, and 20% are purchased in the month of sale. Purchased components are
40% of the cost of goods sold.
Payment for the components is made in the month following the purchase.
Cost of goods sold is 80% of sales.

[9] Gleim #: 6.10.203 -- Source: CMA 1294 3-8

(Refers to Fact Pattern #1)

Super Drive’s projected balance in accounts payable on December 31 is

A. $161,280
B. $326,400
C. $166,400
D. $416,000

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 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(6 questions)

Answer (A) is correct. Payments are made in the month following purchase. The
balance in accounts payable on November 30 is $175,000; this amount will be paid in
December. The account is credited for purchases of a portion of components to be used
for sales in December (20% of December components) and for sales in January (80% of
January components). Cost of goods sold is 80% of sales, and components are 40% of
cost of goods sold. Thus, December component needs are $166,400 ($520,000 sales ×
80% × 40%), and January component needs are $160,000 ($500,000 sales × 80% ×
40%). The December purchases of December component needs equal $33,280
($166,400 × 20%). December purchases of January component needs are $128,000
($160,000 × 80%). Hence, the total of December purchases (ending balance in accounts
payable) equals $161,280 ($33,280 + $128,000).
Answer (B) is incorrect. The sum of the component needs for December and January
equals $326,400.
Answer (C) is incorrect. December component needs equals $166,400.
Answer (D) is incorrect. Cost of sales for December equals $416,000.

[10] Gleim #: 6.10.204 -- Source: CMA 1294 3-9

(Refers to Fact Pattern #1)

Super Drive’s projected gross profit for the month ending December 31 is

A. $416,000
B. $104,000
C. $134,000
D. $536,000

Answer (A) is incorrect. Cost of goods sold is $416,000 (80% of sales).

Answer (B) is correct. Given that cost of goods sold is 80% of sales, gross profit is
20% of sales. Consequently, pro forma gross profit is $104,000 ($520,000 × 20%).
Answer (C) is incorrect. The amount of $134,000 equals 20% of the sum of
November receivables and December sales.
Answer (D) is incorrect. Gross profit cannot be greater than sales.

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 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(6 questions)

[Fact Pattern #2]

Kelly Company is a retail sporting goods store that uses accrual accounting for its records.
Facts regarding Kelly’s operations are as follows:

Sales are budgeted at $220,000 for December Year 1 and $200,000 for January Year 2.
Collections are expected to be 60% in the month of sale and 38% in the month following
the sale.
Gross margin is 25% of sales.
A total of 80% of the merchandise held for resale is purchased in the month prior to the
month of sale and 20% is purchased in the month of sale. Payment for merchandise is
made in the month following the purchase.
Other expected monthly expenses to be paid in cash are $22,600.
Annual depreciation is $216,000.
Below is Kelly Company’s statement of financial position at November 30, Year 1.

Assets
Cash $ 22,000
Accounts receivable (net of $4,000
allowance for uncollectible accounts) 76,000
Inventory 132,000
Property, plant, and equipment (net of
$680,000 accumulated depreciation) 870,000
Total assets $1,100,000

Liabilities and Stockholders’ Equity

Accounts payable $ 162,000
Common stock 800,000
Retained earnings 138,000
Total liabilities and stockholders’ equity $1,100,000

[11] Gleim #: 6.10.205 -- Source: CMA 1283 4-23

(Refers to Fact Pattern #2)

Kelly’s pro forma income (loss) before income taxes for December Year 1 is

A. $32,400
B. $28,000
C. $10,000
D. Some amount other than those given.

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 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(6 questions)

Answer (A) is incorrect. The amount of $32,400 does not reflect depreciation or bad
debt expense.
Answer (B) is incorrect. The amount of $28,000 does not consider depreciation.
Answer (C) is correct. Sales are budgeted at $220,000. Given that cost of goods sold is
75% of sales, or $165,000, gross profit is $55,000. Deduct cash expenses of $22,600,
depreciation of $18,000 ($216,000 ÷ 12), and bad debt expense of $4,400 ($220,000 ×
.02). This leaves an income of $10,000.
Answer (D) is incorrect. The correct amount is given in one of the other answer choices.

[12] Gleim #: 6.10.206 -- Source: CMA 1283 4-24

(Refers to Fact Pattern #2)

Kelly’s projected balance in accounts payable on December 31, Year 1, is

A. $162,000
B. $204,000
C. $153,000
D. Some amount other than those given.

Answer (A) is incorrect. The accounts payable balance on November 30 is

$162,000.
Answer (B) is incorrect. Estimated purchases in December at the company’s selling
prices equals $204,000.
Answer (C) is correct. The balance is equal to the purchases made during
December since all purchases are paid for in the month following purchase.
Purchases for December is given as 20% of December’s sales and 80% of January’s
sales. Thus, of the $220,000 of merchandise sold during December, 20%, or
$44,000, would have been purchased during the month. January’s sales are expected
to be $200,000, so 80% of that amount, or $160,000, would have been purchased
during December. December purchases are thus estimated as $204,000 at the
company’s selling prices. The merchandise costs only 75% of the marked selling
prices, however. Therefore, the balance in the purchases account at month-end is
projected to be $153,000 ($204,000 × 75%).
Answer (D) is incorrect. The correct amount is given in one of the other answer
choices.

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 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(6 questions)

[13] Gleim #: 6.10.207 -- Source: CMA 1283 4-25

(Refers to Fact Pattern #2)
Kelly’s projected balance in inventory on December 31, Year 1, is

A. $160,000
B. $120,000
C. $153,000
D. $150,000

Answer (A) is incorrect. Ending inventory at the company’s selling prices equals
$160,000.
Answer (B) is correct. The inventory is expected to be 80% of January’s needs.
Projected January sales of $200,000 × 80% = $160,000. Thus, the ending inventory
would be goods that the company could sell for $160,000. Given a gross margin of
25%, cost would only be 75% of sales, and ending inventory would be $120,000
($160,000 × 75%).
Answer (C) is incorrect. The projected balance in accounts payable is $153,000.
Answer (D) is incorrect. The ending inventory would be $150,000 if 100% of
January’s needs are purchased in December.

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