Certified Management Accountant (CMA)

The designation of Certified Management Accountant (CMA) signifies a blend of accounting and financial managerial skills that are not easy to obtain and are highly sought after in the industry. It signals that this professional can view situations from both an accounting angle and a financial management perspective. Individuals with the CMA designation earn on average $22,000 more a year than accountants who do not have the CMA credential.

Candidates must meet the following requirements in order to be eligible to take the CMA examination:

• Candidates must be members of the Institute of Management Accountants (IMA).
  
• Candidates must hold a bachelor's degree or higher from an accredited college or university.
  
• Candidates must have at least two uninterrupted years of work experience in managerial accounting or financial management.
  
• Entrance into the CMA program can be completed over a period of six months to three years.

The CMA examination has two parts. Part one assesses the candidate’s knowledge on the subject of financial planning, performance, and control; and part two focuses on financial decision-making.

• Each part must be taken separately, and part one must be passed before the candidate is permitted to take part two.
  
• Each part consists of 100 multiple-choice questions and two essay questions.
  
• Three hours is allotted for completion of the multiple-choice portion of the examination, and one hour is allotted for completion of the two essay questions.
  
• The essay portion of the test will be distributed a) after the three hours are up or the multiple-choice section has been completed, whichever comes first, and b) at least half of the multiple-choice questions are answered correctly.
  
• Once the essay portion has begun, the candidate cannot go back to the multiple-choice section.

A summarized outline for part one and part two of the CMA examination is presented below for review and to aid in test preparation:

Part I: Financial planning, performance, and control

• Planning, budgeting, and forecasting: 30 percent
  
• Performance management: 25 percent
  
• Cost management: 25 percent
  
• Internal controls: 15 percent
  
• Professional ethics: 5 percent

Part II: Financial decision-making

• Financial statement analysis: 25 percent
  
• Corporate finance: 25 percent
  
• Decision analysis and risk management: 25 percent
  
• Investment decisions: 20 percent
  Professional ethics: 5 percent

The CMA examination is offered in three windows of time throughout the year. Candidates may take the examination or part of the examination only once in any testing window.

Certified Management Accountant (CMA) Practice Questions

1. How does a budget containing inaccurate data impact an organization’s future performance?

a. The organization can forecast the effect of economic changes
b. The organization is unable to obtain financing and capital needs
c. The organization is unable to properly plan and set attainable goals
d. The organization can make adjustments the following year

2. Which information is needed to develop an effective budget?

a. Historical financial data, projected expenses, and anticipated revenues
b. Historical financial data only
c. Historical expenses and revenues
d. Projected expenses and anticipated revenues

3. Which budgeting method does not use performance data from prior years as the basis for budget figures?

a. Authoritative budgeting
b. Zero-based budgeting
c. Capital budgeting
d. Participative budgeting

4. What type of information is used when performing a regression analysis?

a. Production schedules
b. Projected sales or revenues
c. Return on investment
d. Interest rates

5. A learning curve…

a. shows the efficiencies gained from experience
b. uses historical data as a basis for forecasting
c. uses statistical techniques for forecasting
d. determines inefficiencies in the production process

Answers

1. C: The organization is unable to properly plan and set attainable goals. Because budgets play a key role in planning business operations, communicating organizational goals, organizing jobs and processes, and maintaining control, inaccurate budget data can have far-reaching adverse effects throughout the organization. Budgets help determine where to deploy resources needs, when new financing or capital expenditures are needed, and how to effectively manage inventory. Organizations use budgets to estimate earnings and spending during a specified period of time. Future budgets are based on previous financial records and are adjusted to reflect business and economic changes. Inaccurate data can cause inaccurate planning.

2. A: Historical financial data, projected expenses, and anticipated revenues. An effective budget starts with historical financial data at its base. It’s important to have accurate historical data and sound projected data so that benchmark figures can be used to evaluate success or failure. Projected expenses and anticipated revenues are used to adjust historical data to create a realistic budget that will meet the goals and objectives of the organization. Because budgets outline the expected income and costs, they communicate expected operational results. Companies use this as a blueprint to then assign accountability for tasks and identify the means by which goals would be achieved.

3. B: Zero-based budgeting. Zero-based budgeting disregards historical data and focuses only on data needed to produce future results. For each budget period, figures are determined based on the organization’s goals. Zero-based budgeting has proven effective as a tool for reducing budgetary slack, when implemented periodically, such as one out of every three or four years of the budget cycle. It is not necessary to use zero-based budgeting every year to reduce the occurrence of budgetary slack.

4. D: Interest rates. Regression analysis is a statistical method that measures the relationship between a dependent variable and a series of changing, or independent, variables. It would be helpful in determining how changing variables, such as interest rates and taxes, would affect the price of a variable like a financial investment. By measuring the historical changes of the independent variables in relation to the dependent variable, the future value of the dependent variable can be predicted. It has also been useful in predicting trends.

5. A: Shows the efficiencies gained from experience. A learning curve is a graphical depiction of the efficiencies gained from experience. It shows the relationship between the number of units produced and the time spent per unit. Learning curve analysis is used to make pricing decisions, schedule labor and production resources, develop capital budgets, and set wage rates. The theory is that cost per unit of output will decrease as learning and experience are gained. An individual learning a task will gradually become more efficient and less hesitant, thereby making fewer mistakes, learning to automate, and adjusting performance.