IMA CMA Exam Prep V. 3.0 Updates and Errata Notification For Participants in a Live-Instructor Course As of April 26, 2010

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1 IMA CMA Exam Prep V. 3.0 Updates and Errata Notification For Participants in a Live-Instructor Course As of April 26, 2010 The items below pertain to updates for the CMA Exam Prep Products (V 3.0) and cover items relevant to the Self Study Textbooks Part 1 and/or Part 2, and the Participant Guides Part 1 and/or Part 2. Each item is identified by product (such as Textbook Part 1 or 2), and the associated text page/slide number. Please review these items and adjust your materials to ensure complete information when preparing for the CMA exam. To ensure you are kept abreast of further changes, the updates and errata notification will be available on IMA s Professional Learning Center (PLC) with a posting date. You may access the notification by logging onto the PLC using your PLC Username and Password (for IMA members this is also your IMA member number and password). Once on the PLC and logged into your CMA Exam product, click the Resources tab to access the CMA Exam Prep Updates and Errata Notification. Please check our online system periodically to keep current with future updates. If you encounter other questions or suggestions, please contact us at ima@imanet.org. CMALS TEXTBOOK PART 1: Financial Planning, Performance and Control Page 55: Figure 1A-23 Under column 1, line Total cost of resin purchases, delete reference (see Fig. 2-10) Page 124: Paragraph near end of page starting with Continuing the prior example Change reference (see Figure 1B-5) to read (see Figure 1B-4) Page 140: Knowledge Check Answers: Cost and Variance Measures For answer #4, add reference (See Page 124) at end of question. Page 151: Knowledge Check: Responsibility Centers and Reporting Segments For question #3 under Description Column, change 3 rd description to read: May allow managers to manipulate how costs are allocated (description is not: Determines the relative proportions of costs for each party that shares a common cost, and allocates the costs by those percentages ) Page 185/186: Question 1B1-CQ08 Change Feedback: The correct answer is c: $33,000 favorable (not d: $33,000 unfavorable ). Add to last sentence in Feedback (top of pg. 186) so it reads: LRV = -$33,000 favorable which makes the labor price (rate) variance $33,000 favorable. Page 202: Under Figure 1C-4: Total Cost and the Effect of Capacity Limits Change second sentence in Structural Cost Drivers paragraph to read: There are four types of structural cost drivers: scale, experience level, technology, and complexity. 1

2 Page 328: The steps in TDRA (bottom of page) Change Step 3 in the TDRA process to read entity-level (not entry-level) controls Change Step 4 in the TDRA process to read entity-level (not entry-level) control failures. Page 404: Notes: Change Note [1] to read Direct labor overhead of $560,000 (not $156,000) / $80,000 total direct labor hours = $7.00 per direct labor hour. Page 420: Question 1B-ES05 Unit Cost Structure Change figure formats under Extraction Division and Pet Products Division Transfer price for clay Material cost Labor cost Overhead Extraction Division $ * Pet Products Division $ ** Total cost per unit $21.00 $35.00 *Overhead in the extraction division is 25% fixed and 75% variable. **Overhead in the Pet Products Division is 65% fixed and 35% variable. Page 441: Answer to Question 1B-ES05 (on previous page) Change Volume under Extraction Division and Pet Products Division to 500,000 (not 5000,000) in Answer B. Results of Using Market-Based Transfer Pricing Selling price Less variable costs Material cost Labor cost Overhead (variable) Transfer price Unit contribution margin Volume Total contribution margin Extraction Division $26.00 Pet Products Division $42.00 $4.00 $6.00 $2.00 $4.00 $8.25 * $2.45** $26.00 $7.75 $7.55 X 500,000 X 500,000 $3,875, $3,775, *Variable overhead = $11 x 75% = $8.25. **Variable overhead = $7 x 35% = $

3 CMALS TEXTBOOK PART 2: Financial Decision Making Page 2: First paragraph, 2 nd sentence Change sentence to read Financial statement analysis is performed (not performance) by stockholders and creditors, and Page 17: Formula for Quick (Acid-Test) Ratio Change formula in formula box to: Quick (Acid-Test) Ratio = Cash + Marketable Securities + Accounts Receivable Current Liabilities Note: The formula for the Quick (Acid-Test) Ratio that will be used on the CMA exam was changed after these materials were finalized. Pages 31/32: Knowledge Check Answers: Financial Performance Metrics Financial Ratios Change Answer #3 to reflect updated formula for quick (acid-test) ratio. Answer should read: XYC s acid-test ratio for Y2 is 1.27 (not 1.544); its acid-test ratio for Y1 is 1.34 (not 1.389) (see pg. 17) Update calculations: Y2: $24,628 + $429,949 Y1: $36,125 + $385,273 $358,821 $314,393 Note: The numerator for this formula should not include any prepaid expenses or accruals. Change answer references: Question #5 (pg. 29): Correct Answer is #7 (pg. 31) Question #6 (pg. 30): Correct Answer is #8 (pg. 31) Question #7 (pg. 30): Correct Answer is #9 (pg. 32) Question #8 (pg. 30): Correct Answer is #5 (pg. 31) Question #9 (pg. 30): Correct Answer is #6 (pg. 31) Page 85: Feedback to Q2A2-CQ29 Change P/E Ratio, year 2 = $60/ $3 = $20 (not $60/$2 = 20) Page 159: Knowledge Check Answers: Financial Instruments (starts on prior page) Change answer for #9 to d: moves inversely to market interest rate changes. (answer is not c: is independent of market interest rates). 3

4 Page 222: Figure 2B-24: NAL Calculation Delete 6,000 from row 6, column (3): Figure 2B-24: NAL Calculation End of Year Installed Asset Cost Lease Payment After-tax Depreciation Depreciation Tax Shield Additional After-tax Operating Costs If Owned NAL Cash Flows Except Salvage PV Lump Sum Present Value After-Tax Salvage.6 (20,000) PV Lump Sum Present Value Of Salvage NAL (1) (2) (3) (4) (5) (6) (7) = (2) (3) (5) + (6) (8) (9) = (7) x(8) (10) (10) (12) (13) = (9) (12) 0 $50,000 $6,000 $44, $44,000 $44, ,000 $10,000 $4,000 $450 9, ,006 9, ,000 16,000 6, , ,636 10, ,000 9,600 3, , ,888 7, ,000 5,760 2, , ,220 6, ,000 5,760 2, , ,867 5, ,880 1, $12,00 0 Column (3) = $10,000(1 tax rate) = $10,000(1 0.4) = 10,000(0.6) = $6,000 Column (5) numbers equal column (4) multiplied by the tax rate of 40%.43 2 $5,18 4 5,679 1,296 Page 259: Knowledge Check Answers: International Finance Answer to #1 is d: The exchange rate of U.S. dollars for euros has increased from 1.25 to 1.40 (answer is not b: The exchange rate of U.S. dollars for euros has decreased from 1.25 to 1.40). Page 292: Under Figure 2C-9: Budget Projections at Break-Even Change first sentence to read Using data from Figure 2C-9, the $10,500 (not $26,250) of total revenues is broken down between Product A and B as follows: 76.2% for A ($8,000/$10,500) (not $20,000/$26,250) and 23.8% for B ($2,500/$10,500) (not $6,250/$26,250). 4

5 Page 356: Question 2C1-CQ02 Change first sentence to read: Edwards Products has just developed a new product with a variable manufacturing cost of $30 per unit. Move up to Approach Z description, Rely on wholesalers to handle the product. Edwards would sell the new product to the wholesalers at $32 per unit and incur no selling expenses. Estimated annual sales would 14,000 units. Page 367: Question 2C3-CQ03 (starts on prior page) Change answer for The income elasticity of demand for LSTs to c. 1.8 (instead of 2.0) Change Feedback to read: The correct answer is: c. 1.8 (not 2.0). Under Feedback, correct calculations are: % change in sales = (28,000 20,000) / 24,000 = 8,000 / 24,000 = 0.33 % change in income = ($60,000 - $50,000) / $55,000 = $10,000 / $55,000 = 0.18 Income elasticity of demand = 0.33 / 0.18 = 1.83 Note: The above calculations are consistent with the CMA exam s use of the midpoint formula approach to calculate elasticity of demand, as explained on page 332. Page 386: For Example: (top of page) Change last sentence to Thus the depreciation charge for year 2 would be: (0.20) $8,000 = $1,600 (not (0.20)$10,000=$2,000) Page 410: Capital Rationing Change second sentence in first paragraph under figure 2D-20 to read Although projects B and C individually have lower NPVs than project A, they collectively have the higher NPV ($28,000 for B and C versus $21,400 for A) (not $21,000 for A). Page 411: Profitability Index: Figure 2D-21: Change figures in Columns PV of Future Cash Flows(2) and Profitability Index (2)/(1) as follows: Figure 2D-21: Profitability Index Project Total Initial Investment (1) PV of Future Cash Flows (2) Profitability Index (2)/(1) A $10,000 $31, B 5,000 21, C 5,000 16, Note: The numbers used in column 2 reflect the present value of the future cash flows only, not the net present value of the entire investment project. 5

6 Page 416: Knowledge Check Answers: Ranking Investment Projects Calculations to NPV in Question 2: NPV of Project A: -$15,000 + ($10,000 x ) + ($15,000 x 0.890) = $7,784 NPV of Project B: -$5,000 + ($5,000 x ) + ($10,000 x 0.890) = $8,617 NPV of Project C: -$5,000 + ($8,000 x ) + ($7,000 x 0.890) = $8,777 NPV of Project D: -$10,000 + (-$10,000 x ) + ($4,000 x 0.890) = -$15,874 Question 3: Changes to chart Change figure for project D (row 4) of Cash Inflow Year 1 column to (10,000) Change values in Net Present Value (NPV) column to reflect impact of initial investment (cash flow in Year 0) for project A, B, C, D Project Cash Inflow Year 0 Cash Inflow Year 1 Cash Inflow Year 2 Net Present Value (NPV) at 6% Profitability Index (PI) A ($15,000) $10,000 $15,000 $7, B (5,000) 5,000 10,000 8, C (5,000) 8,000 7,000 8, D (10,000) (10,000) 4,000 (15,874) (0.587) Calculations to compute Profitability Index (PI) in Question 3: PV of Project A: ($10,000 x ) + ($15,000 x 0.890) = $ PV of Project B: ($5,000 x ) + ($10,000 x 0.890) = $13,617 PV of Project C: ($8,000 x ) + ($7,000 x 0.890) = $13,777 PV of Project D: (-$10,000 x ) + ($4,000 x 0.890) = -$5,874 PI of Project A: $ / $15,000 = PI of Project B: $13,617 / $5,000 = PI of Project C: $13,777 / $5,000 = PI of Project D: -$5,874 / $10,000 = Page 494: Notes: Change Note [1] to read Direct labor overhead of $560,000 (not $156,000) / $80,000 total direct labor hours = $7.00 per direct labor hour. 6

7 CMALS PARTICIPANT GUIDE PART 1: Financial Planning, Performance and Control Page 25: Slide 33 Delete Answer: b. Page 33: Section A, Topic 4: Annual Profit Plan and Supporting Schedules In first paragraph: Change barstool price to $40 from $25. In first paragraph: Change dining chair price to $100 from $70. In both charts, reverse Pine and Oak as follows: Pine Oak Assembly Painting Barstool 1.5 ft 2.5 ft 0.5 hr 0.5 hr Dinning chair 5.0 ft 2.0 ft 2.0 hr 1.0 hr Unit Cost $2.00/ft. $1.50/ft. $10.00/hr $15.00/hr Barstool Dining chair Pine Oak Ending inventories 10,000 8,000 15,000 ft 10,000 ft Desired inventories 9,000 7,000 10,000 ft 6,000 ft Unit Cost $20.00 $40.00 Page 52: Slide 16 Update calculation for Total Inspection Hour columns to include x : Subcomponent machining column 7,200 x 0.2 = 1,440 hours Final Assembly column 720 x 0.3 = 216 hours Page 56: Slide 24 Change Notes Payable line to $5,000 (not $6,000) Page 151: Slide 58 Change answer to e. $80,000 lower (answer is not d. $150,000 higher) 7

8 CMALS PARTICIPANT GUIDE PART 2: Financial Decision Making Page 23: Slide 36 Change Quick Ratio Numerator to Cash + Marketable Securities + Accounts Receivable Current Liabilities Page 332: Slide 19 Change figures in Columns PV of Future Cash Flows(2) and Profitability Index (2)/(1) as follows: Project Total Initial Investment (1) PV of Future Cash Flows (2) Profitability Index (2)/(1) A $10,000 $31, B 5,000 21, C 5,000 16,

IMA CMA Exam Prep V. 3.0 Updates and Errata Notification For Instructors As of April 26, 2010

IMA CMA Exam Prep V. 3.0 Updates and Errata Notification For Instructors As of April 26, 2010 The items below pertain to updates for the CMA Exam Prep Products (V 3.0) and cover items relevant to the Self