CMA Exam Part 1 Section B- PLanning,
Budgeting, and Forecasting
Exam 2023
Wishing-Well Inc., a chain of small convenience stores in Atlanta, Georgia,
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opened a store in a rapidly developing suburb to the north of the city. The marketing
manager of Wishing-Well believes that the suburb is a lucrative market, as the area has
several expensive homes and offices but does not have any other convenience stores
or supermarkets. Which of the following is likely to neutralize the opportunity offered by
the new market? - Answer-Abundant retail space is available for low rates in the suburb.
Upper management has a morale problem with middle management. Many middle
managers are getting poor performance appraisals, but these managers don't feel that
they are to blame. Which of the following could best help this company out of their
situation? - Answer-Separate uncontrollable costs from controllable costs and judge
managers only on the latter.
The SII Company's 20x7 balance sheet is below. Sales in 20x7 were $500,000 and are
expected to be $560,000 in 20x8. In addition, net income is expected to be $56,000 in
20x8. Assuming cash, accounts receivable, inventory, net fixed assets, accounts
payable, and other accruals remain the same percentage of sales in 20x8 as 20x7 and
long-term debt is the same in 20x8 as 20x7, what is the ending balance for common
equity on SII's 20x8 pro forma balance sheet?
Cash $ 25,000 Accounts receivable 60,000 Inventory 100,000 Net fixed assets 200,000
Total Assets $385,000 Accounts payable $ 30,000 Other accruals 40,000 Long-term
debt 50,000 Common equity 265,000 Total liabilities & equity $385,000 - Answer-
$302,800
Explanation: In 20x7 cash was 5% of sales ($25,000 ÷ $500,000), accounts receivable
was 12% of sales ($60,000 ÷ $500,000), inventory was 20% of sales ($100,000 ÷
$500,000), net fixed assets were 40% of sales ($200,000 ÷ $500,000), accounts
payable were 6% of sales ($30,000 ÷ $500,000), and other accruals were 8% of sales
($40,000 ÷ $500,000). If these percentages continue in 20x8, cash will be $28,000 (5%
× $560,000), accounts receivable will be $67,200 (12% × $560,000), inventory will be
$112,000 (20% × $560,000), net fixed assets will be $224,000 (40% × $560,000),
accounts payable will be $33,600 (6% × $560,000), and other accruals will be $44,800
(8% × $560,000). This results in total assets of $431,200. With long-term debt of
$50,000, total liabilities will be $128,400. This means common equity needs to be
$302,800 in order to make assets equal to liabilities and equity ($431,200 − $128,400).
A company wishes to prepare a budget that will enable it to compare the amount
actually spent to produce 10,000 units of output with the amount that should have been
spent to produce 10,000 units. Which budgeting system would be the most appropriate
system for this company to use? - Answer-
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