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Question 1 - CIA 1193 III-69 - Learning Curves

Management of a bookkeeping company observed that the average time spent to perform identical tasks using a new
software package decreases as the number of tasks performed increases. The following information on the use of the
new software was collected.

Number of Tasks Total Time to Average Time

Performed Perform All Tasks To Perform Each Task
1 10 minutes 10 minutes
2 18 minutes 9 minutes
4 32.4 minutes 8.1 minutes

If this learning effect continues, what is the average time to perform each of the first eight tasks?

A. 5.90 minutes.
B. 6.56 minutes.
C. 7.29 minutes.
D. 8.1 minutes.

Question 2 - CIA 595 IV-52 - Top-Level Planning and Analysis

A company had $500,000 of sales for the year just ended and is projecting sales of $600,000 for the coming year. For
every $1 increase in sales, 38 cents of additional financing is required for the purchase of additional assets. The
projected profit margin is 20%, and 60% of profits will be retained for reinvestment in the company. The amount of
additional external financing needed by the company in the coming year is

A. $110,000
B. $0
C. $86,000
D. $38,000

Question 3 - CMA 1280 5-15 - Probability

A car rental agency has a policy of replacing the tires on its car fleet as the tires wear out. Management wonders if there
would be any cost savings if the tires are periodically replaced at one time on its fleet of 500 cars. The technique the car
rental agency would find most useful is

A. Statistical sampling.
B. Learning curve techniques.
C. Linear programming.
D. Probability analysis.

Question 4 - CMA 1286 5-2 - Probability

Decisions are frequently classified as those made under certainty and those made under uncertainty. Certainty exists
when

A. The standard deviation of an event is greater than zero.

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B. There is more than one outcome for each possible action.

C. There is absolutely no doubt that an event will occur.
D. The probability of the event is less than 1.0.

Question 5 - CMA 1286 5-3 - Risk, Uncertainty and Expected Value

Expected value in decision analysis is

A. A standard deviation using the probabilities as weights.

B. An arithmetic mean using the probabilities as weights.
C. A measure of the difference between the best possible outcome and the outcome of the original decision.
D. The square root of the squared deviations.

Question 6 - CMA 1288 5-19 - Learning Curves

Moss Point Manufacturing recently completed and sold an order of 50 units that had costs as follows.

Direct materials $1,500

Direct labor (1,000 hours x $8.50) 8,500
Variable overhead (1,000 hours x $4.00)* 4,000
Fixed overhead** 1,400
$15,400

*Applied on the basis of direct labor hours.

**Applied at the rate of 10% of variable cost.

The company has now been requested to prepare a bid for 150 units of the same product.

If an 80% learning curve is applicable, Moss Point's total cost on this order would be estimated at

A. $41,800
B. $32,000.
C. $26,400.
D. $38,000.

Question 7 - CMA 1288 5-20 - Learning Curves

Moss Point Manufacturing recently completed and sold an order of 50 units which that had the following costs.

Direct materials $ 1,500

Direct labor (1,000 hours x $8.50) $ 8,500
Variable overhead (1,000 hours x $4.00)* $ 4,000
Fixed overhead ** $ 1,400
$15,400

* Applied on the basis of direct labor hours

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** Applied at the rate of 10% of variable cost

If Moss Point had experienced a 70% learning curve, the bid for the 150 units would

A. Be 10% lower than the total bid at an 80% learning curve.

B. Include increased fixed overhead costs.
C. Include 6.40 direct labor hours per unit at $8.50 per hour.
D. Show a 30% reduction in the total direct labor hours required with no learning curve.

Question 8 - CMA 1289 5-20 - Risk, Uncertainty and Expected Value

The College Honor Society sells hot pretzels at the home football games.

The frequency distribution of the demand for pretzels per game is presented as follows:

United Sales Volume Probability

2,000 pretzels .10
3,000 pretzels .15
4,000 pretzels .20
5,000 pretzels .35
6,000 pretzels .20

The pretzels are sold for $1.00 each, and the cost per pretzel is $.30. Any unsold pretzels are discarded because they
will be stale before the next home game.

The estimated demand for pretzels at the next home football game using an expected value approach is

A. 5,000 pretzels.
B. 4,400 pretzels.
C. Some amount other than those given.
D. 4,000 pretzels.

Question 9 - CMA 1289 5-22 - Probability

The College Honor Society sells hot pretzels at the home football games.

The frequency distribution of the demand for pretzels per game is presented as follows:

Unit Sales Volume Probability

2,000 pretzels .10
3,000 pretzels .15
4,000 pretzels .20
5,000 pretzels .35
6,000 pretzels .20

The pretzels are sold for $1.00 each, and the cost per pretzel is $.30. Any unsold pretzels are discarded because they
will be stale before the next home game.

The conditional profit per game of having 4,000 pretzels available but only selling 3,000 pretzels is

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A. $2,100.
B. Some amount other than those given.
C. $1,800.
D. $2,800.

Question 10 - CMA 1289 5-23 - Probability

The College Honor Society sells hot pretzels at the home football games.

The frequency distribution of the demand for pretzels per game is presented as follows:

Unit Sales Volume Probability

2,000 pretzels .10
3,000 pretzels .15
4,000 pretzels .20
5,000 pretzels .35
6,000 pretzels .20

The pretzels are sold for $1.00 each, and the cost per pretzel is $.30. Any unsold pretzels are discarded because they
will be stale before the next home game.

The conditional profit per game of having 4,000 pretzels available and selling all 4,000 pretzels is

A. $2,100.
B. Some amount other than those given.
C. $2,800.
D. $1,200.

Question 11 - CMA 1290 4-27 - Forecasting Techniques

In the standard regression equation y = a + bx, the letter b is best described as a(n)

A. Dependent variable.
B. Constant coefficient.
C. Variable coefficient.
D. Independent variable.

Question 12 - CMA 1291 4-27 - Forecasting Techniques

Automite Company is an automobile replacement parts dealer in a large metropolitan community. Automite is preparing
its sales forecast for the coming year. Data regarding both Automite's and industry sales of replacement parts as well as
both the used and new automobile sales in the community for the last 10 years have been accumulated. If Automite
wants to determine if its sales of replacement parts are patterned after the industry sales of replacement parts or to the
sales of used and new automobiles, the company would employ

A. Statistical sampling.
B. Time series analysis.

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C. Correlation and regression analysis.

D. Simulation techniques.

Question 13 - CMA 1292 4-21 - Probability

A beverage stand can sell either soft drinks or coffee on any given day. If the stand sells soft drinks and the weather is
hot, it will make $2,500; if the weather is cold, the profit will be $1,000. If the stand sells coffee and the weather is hot, it
will make $1,900; if the weather is cold, the profit will be $2,000. The probability of cold weather on a given day at this
time is 60%.

The expected payoff for selling coffee is

A. $1,960.
B. $2,200.
C. $3,900.
D. $1,360.

Question 14 - CMA 1293 4-23 - Risk, Uncertainty and Expected Value

The Madison Company has decided to introduce a new product. The company estimates that there is a 30 percent
probability that the product will contribute $700,000 to profits, a 30 percent probability that it will contribute $200,000, and
a 40 percent probability that the contribution will be a negative $400,000. The expected contribution of the new product is

A. $166,667.
B. $500,000.
C. $110,000.
D. $380,000.

Question 15 - CMA 1294 4-28 - Learning Curves

Seacraft Inc. received a request for a competitive bid for the sale of one of its unique boating products with a desired
modification. Seacraft is now in the process of manufacturing this product but with a slightly different modification for
another customer. These unique products are labor intensive and both will have long production runs. Which one of the
following methods should Seacraft use to estimate the cost of the new competitive bid?

A. Regression analysis.
B. Learning curve analysis.
C. Continuous probability simulation.
D. Expected value analysis.

Question 16 - CMA 683 5-17 - Risk, Uncertainty and Expected Value

CLT Company has three sales departments. Department A processes about 50% of CLT's sales, Department B about
30%, and Department C about 20%. In the past, Departments A, B, and C had error rates of about 2%, 5%, and 2.5%,
respectively. A random audit of the sales records yields a recording error of sufficient magnitude to distort the company's

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results. The probability that Department A is responsible for this error is

A. .17
B. .02
C. .33
D. .50

Question 17 - CMA 688 5-9 - Learning Curves

LCB, Inc. is preparing a bid to the Department of the Navy to produce engines for rescue boats. The company has
manufactured these engines for the Navy for the past 3 years, on an exclusive contract, and has experienced the
following costs:

Cumulative Cumulative Cumulative

Units Materials Labor
Produced Costs Costs
10 $ 60,000 $120,000
20 120,000 192,000
40 240,000 307,200

At LCB, variable overhead is applied on the basis of $1.00 per direct labor dollar. Based on historical costs, LCB knows
that the production of 40 engines will be allocated $100,000 of fixed overhead costs. The bid request is for an additional
40 units; all companies submitting bids are allowed to charge a maximum of 25% above full cost for each order. In order
to ensure that the company would not lose money on the project, LCB's minimum bid for the 40 units would be

A. $885,800
B. $760,800
C. $708,640
D. $608,640

Question 18 - CMA 689 5-17 - Risk, Uncertainty and Expected Value

A quantitative technique useful in projecting a firm's sales and profits is

A. Queuing theory.
B. Learning curves.
C. Probability distribution theory.
D. Gantt charting.

Question 19 - CMA 689 5-26 - Risk, Uncertainty and Expected Value

A company is considering three alternative machines to produce a new product. The cost structures (unit variable costs
plus avoidable fixed costs) for the three machines are shown as follows. The selling price is unaffected by the machine
used.

Single purpose machine $.60x + $20,000

Semi-automatic machine $.40x + $50,000

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Automatic machine $.20x + $120,000

The demand for units of the new product is described by the following probability distribution.

Demand Probability
200,000 .4
300,000 .3
400,000 .2
500,000 .1

Ignoring the time value of money, the expected cost of using the semi-automatic machine is

A. $250,000.
B. $210,000.
C. $170,000.
D. $130,000.

Question 20 - CMA 689 5-28 - Risk, Uncertainty and Expected Value

Refer to the profit payoff table below.

Demand in Units
0 2 4 6
Probability of Demand
Supply in Units 0.1 0.3 0.4 0.2
0 $0 $0 $0 $0
2 (80) 40 40 40
4 (160) (40) 80 80
6 (240) (120) 0 120

The expected profit when supply equals 4 units, is

A. $(10)
B. $80
C. $(40)
D. $20

Question 21 - CMA 690 5-21 - Sensitivity Analysis

Through the use of decision models, managers thoroughly analyze many alternatives and decide on the best alternative
for the company. Often the actual results achieved from a particular decision are not what was expected when the
decision was made. In addition, an alternative that was not selected would have actually been the best decision for the
company. The appropriate technique to analyze the alternatives by using expected inputs and altering them before a
decision is made is

A. Expected value analysis.

B. Sensitivity analysis.
C. Linear programming.
D. Program Evaluation Review Technique (PERT).

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Question 22 - CMA 690 5-22 - Learning Curves

High Tech Industries, Inc. is in the process of preparing a competitive bid for the sale of a customized product. High
Tech is currently manufacturing a comparable specialized component that is labor intensive with a long production run.
The method that High Tech should use to project the cost of manufacturing the proposed new customized product is

A. Regression analysis.
B. Learning curve analysis.
C. Expected value analysis.
D. Monte Carlo simulation.

Question 23 - CMA 692 4-4 - Risk, Uncertainty and Expected Value

The expected monetary value of an event

A. Is the profit forgone by not choosing the best alternative.

B. Is the absolute profit from a particular event.
C. Cannot be computed when there is uncertainty associated with the event.
D. Is equal to the payoff of the event times the probability the event will occur.

Question 24 - CMA 692 4-5 - Learning Curves

Lake Corporation manufactures specialty components for the electronics industry in a highly labor intensive
environment. Arc Electronics has asked Lake to bid on a component that Lake made for Arc last month. The previous
order was for 80 units and required 120 hours of direct labor to manufacture. Arc would now like 240 additional
components. Lake experiences an 80% learning curve on all of its jobs. The number of direct labor hours needed for
Lake to complete the 240 additional components is

A. 360.0.
B. 307.2.
C. 187.2.
D. 256.0.

Question 25 - CMA 697 4-22 - Risk, Uncertainty and Expected Value

Philip Enterprises, distributor of compact disks (CDs), is developing its budgeted cost of goods sold for 2011. Philip has
developed the following range of sales estimates and associated probabilities for the year:

Sales Estimate Probability

$60,000 25%
85,000 40
100,000 35

Philip's cost of goods sold averages 80% of sales. What is the expected value of Philip's 2011 budgeted cost of goods

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sold?

A. $84,000
B. $68,000
C. $85,000
D. $67,200

Question 26 - HOCK CMA-P1A5-01 - Top-Level Planning and Analysis

A profitable firm that is experiencing rapid sales growth will find that its need for external financing will

A. increase, because in order to increase sales, the firm must decrease its prices, which will lead to decreased profits
and decreased cash.
B. decrease, because the higher sales will lead to higher profits, and the added profits will provide more cash.
C. decrease, because more inventory will be sold and the decrease in inventory will generate additional cash.
D. increase, because of its need for additional investment in working capital and fixed assets to support the increased
sales.

Question 27 - HOCK CMA-P1A5-03 - Top-Level Planning and Analysis

A company's need for external financing depends on several factors. A factor that does not affect the company's need
for external financing is

A. The company's spontaneous assets-to-sales ratio.

B. The company's profit margin.
C. The company's retention ratio.
D. Rapid sales growth.

Question 28 - HOCK CMA-P1A5-08 - Top-Level Planning and Analysis

The balance sheet and income statement of the Grow 'n' Glow Manufacturing Company during the past year are as
follows (000 omitted):

BALANCE SHEET
Assets Liabilities
Cash $ 9,700 Accounts payable $ 3,000
Accounts receivable 15,300 Notes payable 10,000
Inventory 18,500 Accrued liabilities 6,000
Total current assets $ 43,500 Total current liabilities $ 27,900

Held-to-maturity securities $ 45,600 Long-term debt $ 35,600

Net fixed assets 32,200 Total liabilities $ 54,600
Total long-term assets $ 77,800
Equity
Total assets $121,300 Common stock $ 10,000

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Additional paid-in capital 30,000

Retained earnings 26,700
Total equity $ 66,700

Total liabilities & equity $121,300

INCOME STATEMENT
Net sales $100,000
Cost of goods sold 66,200
Gross profit $ 33,800

Selling expense 16,400

General & admin. expense 11,200
Operating income $ 6,200

Net interest expense $ 1,200

Net income before tax $ 5,000
Taxes @ 35% 1,750
Net income $ 3,250

The company paid dividends during the past year of $975. During the past year, fixed assets were being used at 85% of
capacity. In all other respects, the company was operating at full capacity.

Assuming the company's dividend policy is that dividends will grow at a rate of 4% per year, by what percentage could
next year's sales increase over the past year's sales without the company needing to increase its fixed assets?

A. 27.4%
B. 17.6%
C. 67.8%
D. 15%

Question 29 - HOCK CMA-P1A5-09 - Top-Level Planning and Analysis

The balance sheet and income statement of the Grow 'n' Glow Manufacturing Company during the past year are as
follows (000 omitted):

BALANCE SHEET
Assets Liabilities
Cash $ 9,700 Accounts payable $ 3,000
Accounts receivable 15,300 Notes payable 10,000
Inventory 18,500 Accrued liabilities 6,000
Total current assets $ 43,500 Total current liabilities $ 19,000

Held-to-maturity securities $ 45,600 Long-term debt $ 35,600

Net fixed assets 32,200 Total liabilities $ 54,600
Total long-term assets $ 77,800
Equity

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Total assets $121,300 Common stock $ 10,000

Additional paid-in capital 30,000
Retained earnings 26,700
Total equity $ 66,700

Total liabilities & equity $121,300

INCOME STATEMENT
Net sales $100,000
Cost of goods sold 66,200
Gross profit $ 33,800

Selling expense 16,400

General & admin. expense 11,200
EBIT $ 6,200
Net interest expense $ 1,200
EBT $ 5,000
Taxes @ 35% 1,750
Net income $ 3,250

The company paid dividends during the past year of $975. During the past year, fixed assets were being used at 85% of
capacity. In all other respects, the company was operating at full capacity.

The company's dividend policy is that dividends will grow at a rate of 4% per year. The past year's interest rate on debt
was 5% on short-term debt and 7% on long-term debt. The held-to-maturity securities earn 4% return and are not
expected to change next year.

Sales for next year are projected to increase at the rate of 15%. Using the Forecasted Financial Statement approach,
how much additional financing will the company need next year? For the interest expense calculations, use the
beginning balance of outstanding loans and an interest rate that is 0.5% higher than the past year's interest rates.

(Hint: Since the company is operating at 100% of capacity in all respects except for fixed assets, and since
held-to-maturity securities are not expected to change, all incomes and expenses and all assets except for
held-to-maturity securities and fixed assets will increase by the same amount for the next year. To determine whether
fixed assets will increase and if so, by how much, determine how much sales could increase without requiring additional
fixed asset purchases and then compare that with forecasted sales for next year.)

A. $1,448
B. $455
C. $5,175
D. $2,462

Question 30 - HOCK CMA-P1A5-11 - Top-Level Planning and Analysis

The management of the Grow 'n' Glow Manufacturing Company expects a 10% increase in sales for the coming year
and has prepared the following pro forma balance sheet and income statement (000 omitted):

BALANCE SHEET
Assets Liabilities

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Cash $ 10,670 Accounts payable $ 3,300

Accounts receivable 16,830 Notes payable 10,000
Inventory 20,350 Accrued liabilities 6,600
Total current assets $ 47,850 Total current liabilities $ 19,900

Held-to-maturity securities $ 45,600 Long-term debt $ 35,600

Net fixed assets 32,200 Total liabilities $ 55,500
Total long-term assets $ 77,800
Equity
Total assets $125,650 Common stock $ 10,000
Additional paid-in capital 30,000
Retained earnings 29,212
Total equity $ 69,212

Total liabilities & equity $124,712

Additional funds needed $ 938
INCOME STATEMENT
Net sales $110,000
Cost of goods sold 72,820
Gross profit $ 37,180

Selling expense 18,040

General & admin. expense 12,320
EBIT $ 6,820
Net interest expense $ 1,396
EBT $ 5,424
Taxes @ 35% 1,898
Net income $ 3,526
Dividends 1,014
Addition to retained earnings $ 2,512

The financial analysts have been comparing the company's forecasted operating ratios with industry averages. The
industry average for the inventory turnover ratio is 4 times. If Grow 'n' Glow's inventory turnover ratio next year were to
match the industry average, what would the company's position be with respect to additional funds needed or additional
funds available?

A. The company would need to borrow only $643 instead of $938.

B. The company would need to borrow only $295 instead of $938.
C. The company would have $1,207 additional funds available to use to either pay down its loans or invest instead of
needing to borrow.
D. The company would have $2,145 additional funds available to use to either pay down its loans or invest instead of
needing to borrow.

Question 31 - HOCK CMA-P1A5-12 - Top-Level Planning and Analysis

Below are a year-end actual balance sheet for Year 1 and pro forma balance sheet and income statement for Year 2 for
the Grow 'n' Glow Manufacturing Company (000 omitted).

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BALANCE SHEET YEAR 1-ACTUAL BALANCE SHEET YEAR 2-PRO FORMA

Assets Assets
Cash $ 9,700 Cash $ 10,670
Accounts receivable 15,300 Accounts receivable 16,830
Inventory (incl. $820 depr.) 18,500 Inventory (incl. $950 depr.) 20,350
Total current assets $ 43,500 Total current assets $ 47,850

Held-to-maturity securities $ 45,600 Held-to-maturity securities $ 45,600

Net fixed assets 32,200 Net fixed assets 35,000
Total long-term assets $ 77,800 Total long-term assets $ 80,600

Total assets $121,300 Total assets $128,450

Liabilities Liabilities
Accounts payable $ 3,000 Accounts payable $ 3,300
Notes payable 10,000 Notes payable (incl. addtl. fds. needed) 13,738
Accrued liabilities 6,000 Accrued liabilities 6,600
Total current liabilities $ 19,000 Total current liabilities $ 23,638

Long-term debt 35,600 Long-term debt 35,600

Total liabilities $ 54,600 Total liabilities $ 59,238

Equity Equity
Common stock $ 10,000 Common stock $ 10,000
Additional paid-in capital 30,000 Additional paid-in capital 30,000
Retained earnings 26,700 Retained earnings 29,212
Total equity $ 66,700 Total equity $ 69,212

Total liabilities & equity $121,300 Total liabilities & equity $128,450

INCOME STATEMENT YEAR 2-PRO FORMA

Net sales $110,000

Cost of goods sold (incl. $3,200 depr.) 72,82
Gross profit $ 37,180

Selling expense 18,040

General & admin. exp. (incl. $395 depr.) 12,320
EBIT $ 6,820
Net interest expense 1,396
EBT $ 5,424
Taxes @ 35% 1,898
Net income $ 3,526
Dividends 1,014
Addition to retained earnings $ 2,512

On the pro forma Statement of Cash flows, what is the company's net cash flow from operating activities, using the
indirect method?

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A. $4,771
B. $5,591
C. $4.641
D. $6,541

Question 32 - IMA 08 P1-138 - Forecasting Techniques

Dawson Manufacturing developed the following multiple regression equation, utilizing many years of data, and uses it to
model, or estimate, the cost of its product.
Cost = FC + (a × L) + (b × M)

Where: FC = fixed costs

L= Labor rate per hour
M= Material cost per pound

Which one of the following changes would have the greatest impact on invalidating the results of this model?

A. A significant change in labor productivity.

B. A large drop in material costs as a result of purchasing the material from a foreign source.
C. A significant reduction in factory overheads, which are a component of fixed costs.
D. Renegotiation of the union contract calling for much higher wage rates.

Question 33 - IMA 08 P1-139 - Forecasting Techniques

In order to analyze sales as a function of advertising expenses, the sales manager of Smith Company developed a
simple regression model. The model included the following equation, which was based on 32 monthly observations of
sales and advertising expenses with a related coefficient of determination of .90.
S = $10,000 + $2.50A

S = Sales
A = Advertising expenses

If Smith Company's advertising expenses in one month amounted to $1,000, the related point estimate of sales would be

A. $12,250.
B. $12,500.
C. $2,500.
D. $11,250.

Question 34 - IMA 08 P1-140 - Forecasting Techniques

The results of regressing Y against X are as follows.

Coefficient
Intercept 5.23
Slope 1.54

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When the value of X is 10, the estimated value of Y is

A. 6.77
B. 53.84
C. 20.63
D. 8.05

Question 35 - IMA 08 P1-152 - Forecasting Techniques

Sales of big-screen televisions have grown steadily during the past five years. A dealer predicted that the demand for
February would be 148 televisions. Actual demand in February was 158 televisiions. If the dealer is using exponential
smoothing to forecast demand and the smoothing constant is alpha = 0.3, the demand forecast for March, using the
exponential smoothing model, will be

A. 153 televisions.
B. 151 televisions.
C. 158 televisions.
D. 148 televisions.

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