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HOCK international

Mock Exam #2 – CMA Part 1

Question 1: Another way to write the accounting equation is:

a) Assets + Profit – Dividends – Liabilities = Closing Equity

b) Assets – Liabilities – Dividends = Opening Equity + Profit

c) Assets – Liabilities – Opening Equity + Dividends = Profit

d) Assets – Profit – Dividends = Closing Equity – Liabilities

Question 2: Which of the following would probably be classified as a non-current asset in the financial
statements of a business?

a) A tax refund that is due next year.

b) A car that is held for resale.

c) Cleaning products used to clean the office.

d) A computer used by the office secretary.

Question 3: James Corp. is entering an invoice for new equipment in the accounts. The invoice shows
the following costs:

Water treatment equipment $39,800


Delivery of equipment $ 1,100
One-year maintenance contract $ 3,980
Installation charges $ 7,854
Total invoice charge $52,734

What is the total value of the new equipment that should be capitalized to the fixed asset account?

a) $39,800

b) $48,754

c) $44,880

d) $52,734

Question 4: It is said that a company has competitive advantage when it is more profitable than the
average company in the industry. A company is able to gain and maintain its competitive advantage by
doing all of the following except:

a) Using its resources more efficiently, thereby leading to higher per unit costs.

b) Identifying the needs of its customers and satisfying them.

c) Making changes that improve the quality of its products or services.

d) Creating an environment within the company where innovation is promoted.

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Mock Exam #2 – CMA Part 1

Question 5: The management accountant for Brightlight Corp. is planning production of a new type of
lamp that is expected to be environmentally friendly. Production of the new lamp is expected to be
subject to a 60% learning curve, since it involves only minimal adjustments to established processes.
The initial lot of 500 lamps is expected to take 1000 hours of labor.

Direct labor $20 per hour


Direct materials $50 per direct labor hour
Variable overhead applied $25 per direct labor hour
Fixed overhead applied $2,000 per lot manufactured

What is the average time per unit for the manufacture of 8 lots using the cumulative average-time
learning model?

a) 0.500 hours per unit.

b) 0.432 hours per unit.

c) 0.750 hours per unit.

d) 0.858 hours per unit.

Question 6: HiLIFE Nutrition plans to have total fourth quarter budgeted credit sales of $300,000 for
October, $482,000 for November, and $458,000 for December. Other information concerning the fourth
quarter is as follows:

• The company’s allowance for doubtful debts account has a debit balance of $5,000 as of
September 30.
• The company plans to record bad debt expense during the quarter equal to 5% of credit sales.
• The company’s allowance for doubtful debts account is expected to have a credit balance of
$32,000 at the end of December.

Based on the information given above, what is the amount of uncollectible receivables the company
expects to write off during the quarter?

a) $25,000

b) $35,000

c) $38,000

d) $42,000

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HOCK international
Mock Exam #2 – CMA Part 1

Question 7: A textile manufacturing company expects to sell 150,000 units of its top selling product in
the coming second quarter. The amount of yarn required to produce 1 unit of finished product is 0.70
kilograms. Because of increased demand the company plans to increase its inventory of yarn by 20,000
kilograms. In addition, the company plans to increase finished goods inventory by 15,000 units. If no
change in the work-in-process inventory is expected, how many kilograms of yarn must be purchased in
June?

a) 165,000 kilos

b) 95,500 kilos

c) 135,500 kilos

d) 115,500 kilos

Question 8: Which one of the following types of budget systems best supports the objective of
minimizing budgetary slack and reducing the uncertainty of the budgeting process in a fast moving
business environment?

a) Bottom up, flexible budgets.

b) Bottom up, rolling budgets.

c) Top down, flexible budgets.

d) Top down, rolling budgets.

Question 9: ATC Corp. currently buys most of its raw materials from AlfaTex. ATC is a new start-up
manufacturing company, and because of this, AlfaTex has given ATC the following payment schedule:

• 25% at the time of delivery


• Remaining amount is due the following month

In preparing the master budget for the first quarter of the year, ATC assumed that total purchases for
the quarter would be fairly even over the three months. In its budgeted balance sheet, ATC anticipated a
March 31 accounts payable balance of $30,000 with AlfaTex. Assuming that the accounts payable
balance on January 1 is $15,000, what are ATC’s anticipated first quarter cash payments to AlfaTex?

a) $135,000

b) $90,000

c) $120,000

d) $105,000

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Mock Exam #2 – CMA Part 1

The following information is for the next two questions: The following data pertains to Pell Co.’s
construction jobs that began during 20X5:

Project 1 Project 2
Contract price $ 420,000 $ 300,000
Cost incurred during 20X5 $ 240,000 $ 280,000
Estimated costs to complete $ 120,000 $ 40,000
Billed to customers during 20X5 $ 150,000 $ 270,000
Received from customers during 20X5 $ 90,000 $ 250,000

Question 10: If Pell uses the completed contract method to account for construction contracts, what
amount of gross profit (loss) would Pell report in its 20X5 income statement?

a) $0

b) $(20,000)

c) $40,000

d) $60,000

Question 11: If Pell uses the percentage-of-completion method, what is the balance that will be
reported in the company’s Construction in Progress (CIP) account at the end of 20X5?

a) $520,000

b) $720,000

c) $540,000

d) $420,000

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Mock Exam #2 – CMA Part 1

Question 12: Gamma Corp. plans to sell 200,000 board games during the next period. The company’s
master budget contains the following data relating to the sale and production of its games:

Sales revenue $1,800,000


Variable costs:
Direct materials $ 400,000
Direct labor $ 200,000
Factory overhead $ 250,000
Fixed overhead $ 50,000
Other fixed costs $ 150,000
Operating profit $ 750,000

Actual sales during the period were 225,000 games. Using flexible budgeting, Gamma expects the
operating income for the period to be:

a) $750,000

b) $812,500

c) $868,750

d) $968,750

Question 13: Which of the following are advantages of having a non-participative (top-down or
authoritative) budgeting process as compared to a participated budgeted process?

I. Employee motivation is increased.


II. Slack in the operational budgets is reduced.
III. The budgets produced are more attainable.
IV. The budgeting process takes less time.

a) I and II only

b) II and IV only

c) III and IV only

d) I, II, III and IV

Question 14: Which of the following is not an action that would be used to minimize budgetary slack in
the budgets?

a) Asking managers to justify their projections and rewarding them when they consistently provide
accurate estimates.

b) Giving a manager some managerial discretion to exceed the budget when necessary.

c) Having top management set the budget when the business is going through a crisis.

d) Harassing a manager every time his/her budget is exceeded.

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Mock Exam #2 – CMA Part 1

Question 15: Which of the following would not be an example of a strategic decision?

a) Management implements lean production in its operations.

b) The board is decides to build a new plant costing $12.5 million.

c) The company replaces an old piece of equipment will a new more efficient machine.

d) Management decides to cut administrative personnel by 5%.

Question 16: All of the following transactions would be reported as Other Comprehensive Income (OCI)
except

a) translation adjustments.

b) realized gains (losses) on available-for-sale securities.

c) gains (losses) on the effective portion of a cash flow hedge.

d) actuarial gains (losses) on defined benefit pension plans.

Question 17: The financial records of Beta Company showed that on December 31, 20X4 the company
had a debit balance of $100 in its allowance for doubtful debts account, and another $55 of uncollectible
account balances needed to be written off before year end. The company estimated that its ending
allowance account balance should be $115. As of December 31, 20X4, the company had still not made a
provision for bad debt expense. Based on the given information how much bad debt expense should be
recorded as of December 31, 20X4?

a) $240

b) $270

c) $170

d) $290

Question 18: Alpha Corp. bought machinery on January 1, 20X4 for $500,000. For book purposes the
company depreciates machinery using the sum-of-the-years’ digits method. The estimated salvage, or
residual, value of the machinery after 10 years of service is expected to be $50,000. The company’s
accumulated depreciation account balance as of December 31, 20X5 should be:

a) $81,818

b) $90,909

c) $155,454

d) $172,727

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Mock Exam #2 – CMA Part 1

Question 19: At the end of the third quarter 20X5, Theta Corp. decided to issue a stock dividend to its
shareholders. The company declared a 20% stock dividend on its 100,000 issued and outstanding shares
of $3 par value common stock, which had a fair value of $6 per share before the stock dividend was
declared. By what amount did Theta’s additional paid-in capital account increase as a result of the stock
dividend?

a) $0

b) $60,000

c) $120,000

d) By some other amount

Question 20: Collins Inc.’s fiscal year ends on June 30. The year-end physical inventory count for the
fiscal year ended June 30, 20X5 was not done until July 7, 20X5. The total inventory value according to
the physical inventory done on July 7 was calculated as $950,000.

Between June 30 and July 7 the following transactions took place:

Value of purchased goods $11,750


Sale price of goods sold (marked up 15% on cost) 14,950
Value of goods returned to suppliers 3,000
Value of goods returned from customers 1,500

What value should be included in the financial statements for inventory as of June 30, 20X5?

a) $952,750

b) $949,750

c) $926,750

d) $958,950

Question 21: Which of the following statements about the valuation of inventory are correct, based on
U.S. GAAP?

I. Inventories are normally valued at the higher of cost and net realizable value.
II. LIFO (Last-in; first-out) can be used to value inventory.
III. The net realizable value may be used as the inventory value.

a) I and II only

b) II and III only

c) I and III only

d) I, II and III

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Mock Exam #2 – CMA Part 1

Question 22: In preparing its financial statements for the current year, a company’s closing inventory
was understated by $300,000.

What will be the effect of this error if it remains uncorrected?

a) The current year’s profit will be overstated and next year’s profit would will be understated.

b) The current year’s profit will be understated but there will be no effect on next year’s profit.

c) The current year’s profit will be understated and next year’s profit will be overstated.

d) The current year’s profit will be overstated but next year’s profit will not be effected.

The following information is for the next three questions:

A textbook reseller’s warehouse inventory record for Advanced Accounting textbooks showed the
following transactions for the month of September:

September 1 50 units in stock at a cost of $40 per unit

7 100 units were purchased at a cost of $45 per unit

14 80 units were sold

21 50 units were purchased at a cost of $50 per unit

28 60 units were sold

Question 23: What was the value of the Advanced Accounting textbook inventory as of September 30
using the FIFO cost flow assumption and the periodic system?

a) $2,450

b) $2,700

c) $2,950

d) $3,000

Question 24: What was the value of the Advanced Accounting textbook inventory as of September 30
using the weighted average cost flow assumption and the periodic system?

a) $2,450

b) $2,700

c) $2,950

d) $3,000

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Mock Exam #2 – CMA Part 1

Question 25: What is the gross profit for the month of September on Advanced Accounting textbooks if
the company uses the LIFO cost flow assumption and the perpetual system and the sales price averaged
$60 per unit?

a) $1,850

b) $2,100

c) $2,350

d) $2,400

Question 26: In today’s global economy there are two primary sets of accounting standards in use:
U.S. GAAP and IFRS. Which of the following is not true concerning differences between the two
accounting standards?

a) Under IFRS, revaluation of fixed assets (increasing their carrying value) if their fair value is
materially different from their carrying value is permitted while under U.S. GAAP revaluation is
not permitted.

b) Under U.S. GAAP, LIFO is permitted while under IFRS LIFO is not permitted.

c) Under U.S. GAAP, Research and Development costs are expensed when incurred while under
IFRS some internal development costs may be capitalized if specific criteria are met.

d) Under IFRS, the completed contract method of accounting for a long-term construction contract
is permitted, while under U.S. GAAP the completed contract method is prohibited.

Question 27: What is the name given to a budget that simply takes the current year’s results and
adjusts them up or down for any anticipated changes in the coming year?

a) Incremental budget

b) Flexible budget

c) Zero-based budget

d) Functional budget

Question 28: What does ŷ represent?

a) The constant coefficient of a regression equation, or the value of y when x = 0.

b) The predicted value of y on a regression line corresponding to each value of x.

c) The value of y that corresponds to each value of x in a regression.

d) The expected value of a probability distribution.

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Mock Exam #2 – CMA Part 1

Question 29: A primary goal for a company is to be able to sustain its operations and support its
growth through increased earnings. In the short term, there are a number of factors that influence a
company’s earnings power. Which of the following is not one of those factors?

a) Price charged for goods and services.

b) Quality of product and service.

c) The innovative nature of its research.

d) Cost of creating and preserving customer value.

Question 30: The goal of every company is to be profitable. Concerning management’s role in attaining
profitable growth, there are two opposing philosophies. If a manager takes a more passive role and
believes that his/her role is to make decisions based on environmental events as they occur, the
manager is operating under which philosophy?

a) The planning and control theory.

b) The passive control theory.

c) The market theory.

d) The profit growth theory.

Question 31: A company that extracts and supplies oil and natural gas is considering its future business
direction over the next five years and beyond. Management understands that these resources are in
limited supply and there is growing public and political concern about the environment (i.e. CO2
emissions, water contamination, etc.).

Senior management and the board are in the process of developing a 10-year strategic plan. Which of
the following would probably not be included in the company’s strategic plan?

a) Investments in renewable sources of energy, such as wind and wave power, etc.

b) Resources required to achieve the company’s goals, including access to pipelines, exploration
rights, expertise in wind and wave power, etc.

c) Decisions about how many resources (including money) should be invested in each business
activity.

d) Decisions about compensation and bonus packages for senior managers.

Question 32: Michael Porter developed the well-known framework, known as the “five forces” model.
Which of the following statements in relationship to the five forces framework is correct?

a) The framework assists in the developing a broad perspective on the environment within which
the organization is operating.

b) The framework is not appropriate for non-profit organizations.

c) The framework provides the means of identifying the forces that affect the level of competition in
an industry or sector.

d) The framework identifies the major stakeholders of an organization.

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Mock Exam #2 – CMA Part 1

Question 33: Buyers might be particularly powerful in their bargaining ability in which of the following
situations?

I. When the volumes of their purchases is high relative to the size of the supplier.
II. When the products of suppliers are highly differentiated.
III. When the buyer has full information about suppliers and prices.
IV. When the profits of the buyer are high.

a) I and II only.

b) I and III only.

c) II and III only.

d) II and IV only.

Question 34: Suppliers might be particularly powerful in their bargaining ability in which of the following
situations?

I. When there are only a small number of suppliers in the market.


II. When there are no substitutes for the products they supply.
III. When the products of the supplier are undifferentiated.
IV. When the supplier’s product is not an important component in the end-products that are made with
it.

a) I and II only.

b) I and III only.

c) II and III only.

d) II and IV only.

Question 35: Which of the following would not be true when describing a successful strategy?

a) The strategy provides the means for the organization to survive and grow.

b) The strategy provides golden parachutes for senior managers.

c) The strategy provides a means for the organization to regain its competitive advantage.

d) The strategy addresses changes to the external environment.

Question 36: Management selects a set of strategies that are meant to create and sustain competitive
advantage for the organization. Forecasting future trends in the company’s industry in order to position
the company so it can compete successfully in a changing environment is an example of which type of
strategy?

a) Functional-level strategy.

b) Business-level strategy.

c) Corporate-level strategy.

d) Global-level strategy.

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Mock Exam #2 – CMA Part 1

Question 37: The direct materials price variance as used in manufacturing can be calculated as a
purchase price variance, focusing on the purchase price of the amount of direct materials purchased
during the period, or as the more traditional price usage variance, focusing on the historical cost of the
amount of direct materials actually taken from raw materials inventory and put into production during
the period.

QCM Enterprises used the following information to calculate its direct materials variances for a single
product during the month of May.

Planned production 26,000 units


Actual production 23,000 units
Actual purchase of direct materials – 75,000 pounds $297,000
Actual direct materials used in production 70,000 pounds
Actual cost of direct materials used in production $287,000
Standard price of direct materials $4.00 per pound
Standard quantity of direct materials per unit 3 pounds

If the company reports its price variance as the purchase price variance in order to recognize variances
as early as possible, what would be the difference in the variance from the more traditional way of
calculating it, as a price usage variance?

a) The purchase price variance is $10,000 less favorable than the price usage variance.

b) The purchase price variance is $4,000 less favorable than the price usage variance.

c) The purchase price variance is $9,800 more favorable than the price usage variance.

d) The purchase price variance is $10,000 more favorable than the price usage variance.

Question 38: Which of the following describes a standard that is based on normal capacity utilization?

a) A standard based on the level of activity that satisfies average customer demand over a long-
term period, and thus the standard is generally unchanged over a period of time.

b) A standard that is based on current price levels.

c) A standard set at an ideal level that makes no allowance for normal losses, waste and machine
downtime.

d) A standard that assumes an efficient level of operation, but which includes allowances for factors
such as normal loss, waste and machine downtime.

Question 39: Bird of Paradise Enterprises’ budgeted production of pool floats for the month of June was
8,500 floats. Actual production for June was 9,000 floats. The direct material standard for a pool float is
5 pounds of direct material at $2 per pound. The controller calculated that the direct material usage
variance for pool floats produced in June was $1,000 favorable. How many pounds of direct material
were actually used in June’s production of pool floats?

a) 42,000 pounds.

b) 45,500 pounds.

c) 44,500 pounds.

d) 43,000 pounds.

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Mock Exam #2 – CMA Part 1

Question 40: A company is considering implementing an activity-based budgeting (ABB) system. When
reviewing the reasons for implementing ABB, which statement is the least likely reason to implement
ABB?

a) ABB helps organizations identify activities that add value to a product or service.

b) ABB can do a better job of estimating per unit overhead costs.

c) ABB can do a better job of estimating per unit direct costs.

d) ABB can help to identify budgetary slack.

Question 41: HiTech Enterprises, a producer of USB hubs, is developing its budget for 20X5. HiTech has
developed the following range of sales estimates and associated probabilities for the year:

Estimated
Sales Probabilities

Worst case $120,000 25%

Most likely $170,000 40%

Best case $220,000 35%

If HiTech’s cost of sales averages 80% of sales, what is the expected value of HiTech’s 20X5 budgeted
gross profit?

a) $34,000

b) $44,000

c) $30,000

d) $35,000

Question 42: In forecasting, the linear regression formula ŷ = a + b(x) is often used for calculating
expected costs. However, for this formula to be useful for predicting the y values, there needs to be a
strong historical correlation between the x values and their related y values. In other words, changes in
the x values should be a major cause of changes in the y values. The strength of the correlation between
the x values and the y values and thus the predictive ability of the regression model is measured by

a) the coefficient of correlation.

b) the coefficient of determination.

c) the standard error of the estimate.

d) all of the above.

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Mock Exam #2 – CMA Part 1

Question 43: A company’s production manager developed a linear regression formula to help determine
total production cost for the next quarter. The coefficient of determination was computed to be 0.60 in
the results involving one independent and one dependent variable. These results mean that:

a) There is no relationship between y and x.

b) The relationship between y and x is negative.

c) 60% of the total variation in y, the dependent variable, is explained by variations in x, the
independent variable.

d) 60% of the total variation in y, the independent variable, is explained by variations in x, the
dependent variable.

Question 44: If the linear regression formula developed by the company’s production manager
mentioned in the previous question is y = 93,564 + 1.35x, then 93,564 is the ______ while 1.35 is the
______ of the regression line.

a) y intercept, slope.

b) slope, regression coefficient.

c) slope, y intercept.

d) radius, y intercept.

Question 45: High Value Corporation recently began production of a new product, High Tops. The
company just completed and sold an order of 100 units of High Tops that had the following costs:

Direct materials $ 3,000

Direct labor (1500 hours x 10.00) 15,000

Variable overhead (1500 hours x $5.00)* 7,500

Fixed overhead** 5,000

$ 30,500

*Applied on the basis of direct labor hours.

**Applied at the rate of $50.00 per unit for the 100 units produced. Fixed costs are not expected to
change up to 500 produced units.

The company has now been asked to prepare a bid for 300 units of High Tops.

If an 80 percent cumulative average learning curve is applicable, High Value's relevant manufacturing
costs to produce High Tops would be estimated at:

a) $44,100

b) $39,100

c) $76,500

d) $51,000

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Mock Exam #2 – CMA Part 1

The following information is for the next two questions: A manufacturing company with four
divisions throughout the United States has the following information about the four divisions’
performance available for analysis:

Eastern Western Northern Southern


Division Division Division Division

Division operating income $15 million $17 million $13 million $11 million

Division total assets $88 million $121 million $87 million $110 million

Total assets under division


manager’s control $83 million $113 million $65 million $92 million

Question 46: If the company uses the divisions’ Returns on Investment to compare the performance
of the division managers, which division had the highest Return on Assets?

a) Eastern Division.

b) Western Division.

c) Northern Division.

d) Southern Division.

Question 47: In using Residual Income to compare the performance of the division managers, the
company has calculated the Western Division’s Residual Income as $9,090,000. What required rate of
return is the company is using in its calculations?

a) 15%.

b) 7%.

c) 8%.

d) 6.5%.

Question 48: Companies need to understand whether any of their processes have a learning curve. All
of the following are benefits of learning curve analysis except:

a) In calculating the cost of a contract, learning curve analysis can lead to more competitive bidding
by the company.

b) By recognizing that higher costs will occur in the early phases of a project, learning curve
analysis can allow for more effective evaluation of managers.

c) Costs can be projected more accurately over the life of a capital investment when expected
improvements in labor productivity due to learning are included.

d) Learning curve analysis is useful when operations are robotic-intensive because repeated trials
can lead to improved performance.

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Mock Exam #2 – CMA Part 1

Question 49: Ranger, Inc. manufactures winchons. Its historical manufacturing costs at various
production levels are as follows:

Production Historical
Volume Cost

10,000 $156,000

12,000 152,000

14,000 165,000

16,000 178,000

18,000 175,000

20,000 196,000

The cost function that best describes Ranger’s total manufacturing costs for winchons is

a) TC = 86,000 + 5.5X

b) TC = 136,000 + 2X

c) TC = 108,000 + 4.4X

d) TC = 116,000 + 4X

Question 50: Of the following types of businesses, which ones would be more likely to use a standard
costing system?

I. An architect
II. A fashion designer
III. A textile manufacturer
IV. A restaurant

a) I and II only

b) II and III only

c) III and IV only

d) II and IV only

Question 51: For all of the benefits of using standard costing there are some limitations to its use. All of
the following statements are true concerning limitations of standard costing except:

a) It may be difficult to determine an accurate standard cost, particularly if the business


environment is constantly changing.

b) The standards can be based only on a division’s own cost.

c) The less standardized the process, the less useful standard costs become.

d) The use of standard costing could lead to overemphasis of quantitative measures.

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Mock Exam #2 – CMA Part 1

Question 52: A textile manufacturing company’s current costing system uses only actual costs. The
company has been advised to switch to a standard costing system for a variety of reasons. The company
has learned that there are generally four choices it has regarding the level of activity it uses when setting
its standard costs. If the company’s goal is to have a level of activity that is best for motivating
employees and getting them to work more diligently, which level of activity should be used?

a) Master budget capacity.

b) Practical capacity.

c) Normal capacity.

d) Ideal capacity.

The following information is for the next five questions: HiTOY Corporation produces and sells a
variety of different toys, two of which are its popular battery-powered riding toys: its mini Mustang car
and its mini Harley motorcycle.

The following data pertains to HiTOY’s budgeted and actual sales for the year 20X5 for its Mustang cars
and Harley motorcycles:

Actual results Static budget

Mustang Harley Mustang Harley

Units sold 15,000 10,000 12,000 12,000

Revenue $3,750,000 $2,000,000 $2,640,000 $2,400,000

Variable costs $2,250,000 $1,200,000 $1,560,000 $1,320,000

Fixed costs $750,000 $550,000 $500,000 $500,000

Operating profit $750,000 $250,000 $580,000 $580,000

Question 53: The selling price variance for the contribution margin line is

a) $450,000 unfavorable

b) $50,000 unfavorable

c) $50,000 favorable

d) $450,000 favorable

Question 54: The sales volume variance for the contribution margin line is

a) $90,000 unfavorable

b) $400,000 unfavorable

c) $400,000 favorable

d) $90,000 favorable

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Question 55: The sales mix variance for the contribution margin line is

a) $50,000 unfavorable

b) $0

c) $100,000 unfavorable

d) $50,000 favorable

Question 56: The sales quantity variance for the contribution margin line is

a) $90,000 favorable

b) $212,000 favorable

c) $212,000 unfavorable

d) $90,000 unfavorable

Question 57: Market size information for HiTOY’s for 20X5 was:

Units Sold Market size in Units

Actual 25,000 520,000


Expected 24,000 480,000

What was HiTOY’s market size variance for 20X5?

a) $90,000 favorable

b) $180,000 favorable

c) $180,000 unfavorable

d) $90,000 unfavorable

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Mock Exam #2 – CMA Part 1

The following information is for the next four questions: A textile manufacturing company has
recently switched to using a standard costing system. For its knitting department it allocates its variable
manufacturing overhead based on standard knitting machine hours per unit. The fixed portion of the
overhead is allocated on a per unit basis at a standard rate set at the beginning of the quarter. The
following information was gathered about allocated knitting department overhead costs for the second
quarter:

Budgeted data for the second quarter:

Knitting machine hours 6 minutes per unit

Variable manufacturing overhead rate $0.50 per machine hour

Fixed manufacturing overhead $120,000

Planned level of production 1,200,000 units

Actual results for the second quarter:

Variable manufacturing overhead rate $0.55 per machine hour

Actual output 1,150,000 units

Total knitting machine hours 125,000 hours

Fixed manufacturing overhead $130,000

Question 58: Using three-way analysis of overhead variances, what is the spending variance for the
second quarter?

a) $16,250 favorable

b) $11,250 favorable

c) $16,250 unfavorable

d) $11,250 unfavorable

Question 59: Using the four-way analysis of overhead variances, what is the variable overhead
efficiency variance for the second quarter?

a) $2,750 unfavorable

b) $5,000 unfavorable

c) $2,750 favorable

d) $5,000 favorable

Question 60: Using two-way analysis of overhead variances, what is the controllable variance for the
second quarter?

a) $11,250 favorable

b) $21,250 favorable

c) $11,250 unfavorable

d) $21,250 unfavorable

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Question 61: Using four-way analysis of overhead variances, what is the volume variance for the
second quarter?

a) $5,000 unfavorable

b) $10,000 unfavorable

c) $5,000 favorable

d) $10,000 favorable

Question 62: A company produces a specialty breakfast cereal. The cereal is made up of three different
types of grain inputs: corn, wheat and rice. Because of increases in material prices the product mix
changed from 33.33% for each input to 26% for corn, 36% for wheat, and 38% for rice. Based on
changes in the product mix, which one of the following would we conclude not to be true, assuming no
final product price increase?

a) Prices for corn and wheat went up more (as a percentage) than the price increase of rice.

b) Price of corn (as a percentage) went up more than the prices of wheat and rice.

c) Overall throughput contribution decreased.

d) Throughput contribution would have been even less had the product mix not changed.

Question 63: Concerning the mix and yield variances, all of the following are true except:

a) The mix variance is used to determine how much of the quantity or usage variance is due to a
difference between the actual mix of materials used and the standard mix of materials allowed
for the actual production.

b) The yield variance measures the efficiency of turning inputs into outputs.

c) The sum of the mix and yield variances equals the total quantity or usage variance.

d) If more of an expensive material is actually used and less of a cheaper material is actually used
compared with the standard amounts of materials in the mix, then the mix variance would be
favorable.

Question 64: For most companies the quality of its products is a key factor when measuring
performance. Which of the following would probably not be used as a product quality performance
measurement?

a) The number of sales returns.

b) The number of customer complaints.

c) The time spent on reworking defective products.

d) Percentage of idle time.

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Mock Exam #2 – CMA Part 1

Question 65: A textile manufacturing company uses responsibility accounting. The production process
consists of five separate processes: knitting, sewing, fabric dyeing, boarding and packaging. For the
manager of the knitting department, which of the following items would be more likely to appear in
his/her performance report?

I. Direct labor for knitting room.


II. Yarn materials.
III. Allocated costs for repair and maintenance of the knitting department.
IV. Depreciation of knitting machines.

a) I and II only

b) II and III only

c) I, II and III only

d) I, II, III and IV

Question 66: Costs for shared services such as IT, maintenance, and other administrative functions
need to be allocated among the various responsibility centers that use the services. The method of cost
allocation used should be one that will do all of the following except:

a) Motivate managers to do their best.

b) Provide a basis for management bonuses.

c) Provide incentives to make decisions that are consistent with the goals of senior management.

d) Provide a fair evaluation of managers’ performance.

Question 67: The Crude Oil Refining Division (CORD) of TNTNeft is currently operating at its full
capacity and it produces two types of products: NEFT 23 and NEFT 25. CORD sells both products to
outside customers for $125 and $155 per unit respectively. The variable costs are $75 per unit for NEFT
23 and $90 per unit for NEFT 25. Fixed costs are $15 per unit for NEFT 23, and $25 per unit for NEFT 25.

The company’s Petroleum Refining Division (PRD), which currently buys NEFT 23 from an outside
supplier for $130 per unit, would like to purchase 1 million units of NEFT 23 from CORD.

If CORD increases its production of NEFT 23 to meet the demand of PRD, it must stop producing NEFT 25
entirely. Additionally, to meet the strict quality requirements of PRD, CORD must increase its material
costs by $5.00 per unit; but variable selling costs will be reduced by $6.50 per unit. The total number of
units of NEFT 25 produced and sold by CORD is 750,000 units per year. The fixed cost presently being
allocated to NEFT 25 would be allocated to other products if NEFT 25 were not being produced.

What is the price range for the NEFT 23 transfer price that would satisfy both divisions?

a) $65.00 - $125.00

b) $125.00 - $130.00

c) $122.25 - $130.00

d) $125.50 - $130.00

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Mock Exam #2 – CMA Part 1

Question 68: TNTNeft has assets employed of $500,000,000 and its required rate of return on
investment is 12%. Its residual income is $35,000,000.

What is TNTNeft’s return on investment?

a) 7%

b) 12%

c) 15%

d) 19%

Question 69: It is not uncommon for large corporations to have multiple divisions, and executive
management frequently likes to compare the performance of its various divisions. All of the following
could impair divisional comparison except:

a) remuneration policies.

b) business environment of each division.

c) age of the divisions’ assets.

d) accounting policies.

Question 70: A textile manufacturing company has decided to implement a balanced scorecard
evaluation system and is considering several measurement factors, including:

I. Customer retention
II. Return on investment
III. Training hours
IV. Employee turnover
V. Number of divisions

Which of the following would most likely be non-financial performance indicators used in the textile
company’s balanced scorecard?

a) I, III and IV only

b) I, III, IV, and V only

c) I and III only

d) I and IV only

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Mock Exam #2 – CMA Part 1

Question 71: A company that uses normal costing finds that there is an under-applied factory overhead
control account balance at the end of the accounting period. Which of the following best explains how
the under-applied overhead has occurred?

a) Actual factory overhead costs put into production were less than the amount used as a basis for
establishing the predetermined rate.

b) Actual factory overhead costs incurred exceeded the amount used as a basis for establishing the
predetermined rate.

c) Actual activity levels of production were higher than planned due to an increase in sales demand.

d) The amount of the allocation base planned for the actual production was less than the actual
amount of the allocation base used in production.

Question 72: A company that applies factory overhead based on a per unit basis has an over-applied
factory overhead control account balance at the end of its accounting period. If the amount of the over-
applied overhead is considered immaterial, the accounting transactions to close the factory overhead
control account would be

a) CR Cost of goods sold; DR Finished Goods

b) CR Finished Goods; DR Factory overhead control

c) DR Factory overhead control; CR Cost of goods sold

d) DR Factory overhead control; CR Work-in-progress

Question 73: A manufacturing company that uses process costing had no work-in-process at the
beginning of a period and no losses due to defective or spoiled goods during the period. During the
period, raw materials for 3,200 units were input into the process. At the end of the period, 2,800 units
had been completed. Ending work-in process was 100% complete with respect to materials and 65%
complete with respect to conversion costs. What were the equivalent units of production in the period?

Materials Conversion costs

a) 3,200 2,080

b) 2,800 3,060

c) 3,200 3,060

d) 2,800 2,080

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The following information is for the next three questions: The finishing department of a
manufacturing company uses process costing to allocate production costs to finished goods and closing
work-in-process. Material is added at the beginning of the process and conversion costs are added evenly
throughout the period.

At the beginning of the second quarter the company had 15,000 units in beginning work-in-process that
were 70% complete with respect with conversion costs. During the period 105,000 units were
transferred-in from the machining department. Ending work-in-process had 20,000 units that were 65%
complete with respect to conversion costs. Conversion costs in beginning work-in-process totaled
$67,500 and material cost in beginning work-in-process totaled $135,000. During the period $966,000 of
material costs and $592,000 of conversion costs were incurred.

Question 74: If the company uses the weighted-average inventory cost flow assumption, what was the
conversion cost per equivalent unit (rounded to two decimal places)?

a) $5.65

b) $5.84

c) $5.37

d) $5.78

Question 75: If the company uses the FIFO inventory cost flow assumption, what was the conversion
cost per equivalent unit (rounded to two decimal places)?

a) $5.65

b) $5.84

c) $5.37

d) $5.78

Question 76: If the company uses the FIFO inventory cost flow assumption, how much in production
costs should be allocated to ending work-in-process (rounded to the nearest dollar)?

a) $250,570

b) $252,450

c) $259,083

d) $260,550

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Question 77: The Machining department transfers 15,000 units to the Assembly department. The
Assembly department had no opening work-in-process. At the end of the period the Assembly
department transferred 14,500 units out to the Finishing department, and the Assembly department had
500 units in ending work-in-process. There were no losses due to defective or spoiled units during the
period.

If the costs transferred in plus the costs incurred in the Assembly department totaled $476,000 and the
value of the units transferred out was $464,000, what is the degree of completion of the ending work-in-
process inventory in the Assembly department?

a) 75%

b) 65%

c) 97.48%

d) 77%

Question 78: A company uses process costing and the following information relates to the company’s
Machining department’s process for the first quarter.

Units put into process 16,000 units


Units transferred out to the Assembly department 15,000 units
There was no beginning or ending work-in-process inventory.
Normal loss is expected to be 5% of units put into production.

Costs of direct materials put into production were $250,000. Conversion costs for the period were
$93,520.

What is the value of the abnormal loss that will be expensed on the income statement?

a) $4,500

b) $4,520

c) $4,294

d) $4,860

Question 79: Activity-based costing (ABC) has been found to be an effective method for better
allocating overhead costs. The following statements about ABC have been made:

I. Cost drivers are factors that cause costs to increase/decrease as the level of the activity
increases/decreases.

II. Traditional costing tends to overestimate overhead costs for high-volume products.

Which of the above mentioned statements is/are true?

a) I only

b) II only

c) Both are true

d) Neither are true

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Mock Exam #2 – CMA Part 1

Question 80: Champion Company manufactures a variety of products. Champion had been using a
traditional overhead allocation system based on machine hours. For the current year, Champion decided
to use an activity-based costing system using machine hours and the number of inspections as measures
of activity. Information on these measures of activity and related overhead rates for the current year is
as follows:

Estimated Predetermined

Activity Overhead Rate

Machine hours 50,000 $20 per machine hour

Quality control (number of


inspections) 3,000 $35 per inspection

Job IC-2 required 15 machine hours and 2 inspections. In comparing ABC with traditional costing, under
which costing system would more overhead costs be allocated to Job IC-2, and by how much?

a) ABC by $15.50

b) Traditional by $20.00

c) ABC by $38.50

d) Traditional by $40.50

Question 81: A company produces and sells a single product. For the first quarter the company reports
an operating profit of $75,000 under absorption costing. If the company reports operating profit using
variable (direct) costing, operating profit falls by $6,000. If manufacturing fixed costs were $60,000 and
budgeted production units were 1,500 units, what happened to inventory of finished goods during the
period?

a) Increased by 150 units

b) Increased by 50 units

c) Decreased by 150 units

d) Decreased by 50 units

Question 82: Which of the following statements is true regarding the difference between absorption
and variable costing?

a) If production exceeds sales, absorption costing will result in a higher profit but a lower ending
finished goods inventory.

b) If production exceeds sales, variable costing will result in a higher profit but a higher ending
finished goods inventory.

c) If production exceeds sales, variable costing will result in a higher profit but a lower ending
finished goods inventory.

d) If production exceeds sales, absorption costing will result in a higher profit and a higher ending
finished goods inventory.

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Question 83: A small auditing company uses job-order costing to calculate client profitability. To service
an important client, one senior and 3 junior auditors were assigned to the client. The senior auditor put
in 15 hours, while the junior auditors put in an average of 35 hours each. The senior auditor’s cost was
$150 per hour and the costs for the junior auditors average $52 per hour. Other costs incurred to service
the client were $1,550 of reimbursed travelling costs, $500 of administration, and $2,500 of other
common costs. If the company’s billing rate is $170 per auditor hour, what was the customer-level
operating profit for this client?

a) $12,690

b) $8,140

c) $14,940

d) $11,140

The following information is for the next two questions: A textile manufacturing company has the
following information for its service departments, IT and Payroll department, and its production
departments, Knitting and Sewing.

IT Payroll Knitting Sewing

Overhead cost $14,000 $17,200 $18,000 $20,000

Service provided by IT 30% 30% 40%

Service provided by Payroll 25% 30% 45%

Question 84: Using the step-down method of service department cost allocation, how much is to be
allocated from Payroll to Sewing? (Round to the nearest dollar.)

a) $10,320

b) $12,740

c) $9,630

d) $12,840

Question 85: Using the reciprocal method of service department allocation, how much is the total
overhead cost for Knitting for the period? (Round to the nearest dollar.)

a) $30,560

b) $30,594

c) $30,876

d) $31,605

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Question 86: Commitment to high and consistent quality, striving for improvement in products or
services, flexibility in responding to the changing needs of customers, and providing extensive training to
its employees are all elements of a company that seeks to do things differently. In doing things
differently, the company is primarily trying to:

a) Benchmark against the best in the industry.

b) Focus its attention on improving the total quality of its products and services.

c) Better manage costs and services in order to become a low-cost provider.

d) Improve the effectiveness and efficiency of operations, and thus, affect profits.

The following information is for the next two questions: Listed below are costs of quality that a
metal processing company has incurred throughout its operations. The company plans to prepare a
report that classifies these costs into the following four categories: preventive costs, appraisal costs,
internal failure costs, and external failure costs.

Cost Items Amount


Design reviews $275,000
Finished goods returned due to failure $55,000
Freight on replacement finished goods $27,000
Labor for inspections during manufacturing $75,000
Labor for inspection of raw materials received $32,000
Manufacturing equipment testing labor $63,000
Manufacturing rework labor and overhead $150,000
Materials used in warranty repairs $68,000
Process engineering $180,000
Product-liability claims $145,000
Product-testing equipment $35,000
Repairs to equipment due to breakdowns $22,000
Scrap material $125,000
Training of manufacturing workers $156,000
Scheduled equipment maintenance $90,000

Question 87: The cost of quality classified as appraisal costs for the manufacturing firm would be:

a) $297,000

b) $275,000

c) $205,000

d) $198,000

Question 88: The cost of quality classified as internal failure costs for the manufacturing firm would be:

a) $297,000

b) $275,000

c) $205,000

d) $198,000

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Mock Exam #2 – CMA Part 1

Question 89: Which of the following situations would indicate strong corporate governance?

I. The company has a Code of Ethics and it provides periodic ethics training to its employees.
II. The positions of Board Chair and CEO are held by the same person.
III. A majority of the non-executive directors are former employees.
IV. The Chair of the audit committee is the former CFO, who retired 6 months ago.
V. A majority of the board members are outside directors not employed by the company.

a) I, II, III and IV only.

b) I only

c) I and V only

d) All of the above

Question 90: It is management’s responsibility to make sure risk management and control processes
are established and operating as intended. The purpose of these two processes is so people in the
organization are better able to manage risks and so they understand what the objectives of the
organization are. Control processes should provide reasonable assurance that objectives of the company
relating to which of the following will be achieved?

I. Resources are used effectively and efficiently, the company’s business objectives are being
achieved, and assets are safeguarded.
II. Reporting is reliable and timely and meets all requirements both internal and external.
III. The actions and decisions of the organization are in compliance with laws, regulations, and
contracts.
IV. Management’s plans have not been circumvented by worker collusion.

a) I and II only.

b) I, II, III and IV.

c) II, III and IV only.

d) I, II and III only.

Question 91: Regularly performed reconciliations are an example of what type of internal control?

a) A detective control.

b) A preventive control.

c) A feedforward control.

d) A compensating control.

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Mock Exam #2 – CMA Part 1

Question 92: Internal auditing is defined as an independent and objective assurance and consulting
activity designed to add value and improve operations. Regarding assurance engagements, which of the
following are functions that internal auditors could perform?

I. Verify compliance with labor laws and regulations.


II. Evaluate the effectiveness and efficiency of a particular production department.
III. Draft procedures for the improvement of internal controls over warehousing.
IV. Observe a cashier’s handling of cash payments.

a) I, II, and III only

b) I and III only

c) I, II, and IV only

d) All of the above

Question 93: A strong internal control environment is the foundation whereby management is able to
carry out its internal control responsibilities. Which of the following are characteristics of a strong control
environment, as detailed by the Committee of Sponsoring Organizations (COSO)?

I. Commitment to competence.
II. Segregation of duties.
III. Commitment to ethics and integrity.
IV. Setting of objectives.
V. Board oversight.

a) All of the above

b) I, III and V only.

c) I, II and IV only

d) I, II, III and V.

Question 94: Concerning assurance engagements the scope of internal auditing is considered broader
than the scope for external auditors. Which of the following engagements conducted by an internal
auditor could be useful for the external auditor?

a) The performance of an operational audit.

b) The performance of an engagement that reviewed the revenue and receivables cycle.

c) The results of a due diligence conducted by the internal auditor for a possible acquisition.

d) None of above.

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Question 95: The segregation of duties is an important control objective. Which of the following does
not violate that objective?

a) Signing of checks and custody of signature stamp.

b) Purchase requisition request and purchase order authorization.

c) Credit approval and write-off of bad debts.

d) All of the above violate the segregation of duties.

Question 96: The warehouse department receives notice from a sales clerk that an item in stock was
sold. The sales clerk indicates to the warehouse which item was sold and verifies the quantity. The
warehouse pulls the item from inventory and sends it to the shipping department. The shipping
department prepares the packing slip and prepares the item for shipment. The shipping clerk enters data
on the item shipped. The shipping documentation is sent to general accounting after shipping so the
shipment can be invoiced. Which of the following areas is a control weakness of the organization?

I. Notice of sale to the warehouse by the sales clerk.


II. Verification by the sales clerk to the warehouse of the quantity.
III. Preparation of packing slip by the shipping department.
IV. Sending the shipping documentation to accounting after the shipping takes place.

a) I only.

b) II and III only.

c) I, II, and III only.

d) All of the above.

Question 97: A company had the following invoices in a batch:

Invoice Number Product Quantity Unit Price

1000 S-10 10 $3.00

1010 A-25 15 $5.50

1020 P-34 20 $3.75

1030 P-35 25 $6.00

Which of the following most likely represents a hash total for the batch?

a) SAPP-104

b) 4

c) $337.50

d) 4060

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Question 98: Once a company connects to the outside via the Internet there are a number of additional
security measures that companies should take to minimize theft or destruction of data information. At a
minimum, the system should include all of the following except:

a) Anti-virus software.

b) Malware.

c) Encryption.

d) Firewall.

Question 99: Which of the following is true concerning viruses, Trojan horses, and Worms?

I. The difference between a virus and a worm is that the worm does not require the use of an
infected host file, while the virus does.
II. The difference between a Trojan horse and a virus is that Trojan horses do not replicate
themselves whereas viruses do.

a) I only

b) II only

c) I and II are true

d) Neither is true

Question 100: It is generally recommended that organizations have a formal disaster recovery plan to
fall back on in case a catastrophic event strikes, such as a hurricane, tornado, flood, criminal misconduct
and so on. Which of the following would generally not be included in a company’s disaster recovery plan?

a) Information about which employees will participate in the disaster recovery and their
responsibilities.

b) The type of hardware, software and facilities that will be used.

c) The priority of applications that should be processed.

d) Information about recovery value of damaged property.

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Mock Exam #2 – CMA Part 1

Essay Problem #1
Lith123 Corp. has developed a new type of lithium-ion car battery for hybrid cars. The estimated labor
time for the first battery is 30 minutes; however, the company is expecting a learning curve of 80% for
the first eight units produced. The average cost of labor is $75 per hour. The cost of materials and other
variable overheads is expected to total $35 per unit.

The company is expected to price each battery by adding a 50% mark-up to the total variable costs per
battery, basing the cost for labor on the average time to produce the last four units.

Required Part 1:
A. Explain the concept of learning curves and discuss three benefits and three limitations
(problems) associated with learning curve analysis.

B. Using the cumulative-average time model, calculate the price that Lith123 Corp. expects to
charge for its new lithium-ion battery (the price for labor per battery is based on the average
time it takes to produce the last four units).

The first phase of production has now been completed for the lithium-ion battery. The first unit actually
took 35 minutes to complete and the average time to complete the first eight units was 14.77 minutes,
at which point the learning effect came to an end. Lith123 is planning on adjusting the price to reflect the
actual average time it took to complete the last four units.

Required Part 2:
A. Calculate the actual learning curve rate. Discuss whether the employees actually learned more
quickly or less quickly than expected.

Note: The average time to complete the first four units was 19.6875 minutes per unit

B. Based on the information found above, calculate the adjusted cost for labor and compare it with
the cost calculated in Part 1.

C. Calculate the adjusted price to be charged for the battery.

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Mock Exam #2 – CMA Part 1

Essay Problem #2
Trans Oil & Gas Corporation (TransOG), a British company, operates four oil refineries in the United
States. Six months ago there was an explosion at one of its refineries that resulted in the death of 2
employees and seriously injured another 10.

The U.S. Occupational Safety and Health Administration (OSHA) found that a cracked valve had led to
the explosion. Further OSHA investigation found that there was a lack of regard for the safety of the
workers on the part of management at the refineries. More specifically the agency’s report detailed the
following safety issues that led to the explosion:

1) TransOG did not provide effective safety leadership and has not adequately established worker
safety as a core value across its four refineries.

2) The agency found that there were instances of a lack of operating discipline, toleration for
serious deviations from safe operating practices and apparent complacency toward serious
process safety risks at each refinery.

3) An independent investigation conducted a year previously at two of the company’s refineries had
expressed major concerns about weaknesses in safety practices. The report had been distributed
to the refinery managers, but no action was taken to correct the problems.

4) None of the refineries had printed safety manuals and the managers themselves were
responsible for breaches of safety procedures.

5) Finally, the agency’s report mentioned a situation where a whistleblower had reported a serious
safety breach a month before the explosion. The whistleblower’s report that was presented to his
immediate superior had been ignored. The whistleblower then presented the report to the
refinery manager who told him to talk with his immediate supervisor.

After the explosion, an investigative reporter found the report made to management by the
whistleblower. The investigative reporter then wrote an article stating how TransOG had ignored the
concerns of the whistleblower.

Required:
A. Based on the COSO publication, Internal Control – Integrated Framework, state the objectives of
a sound system of internal control.

B. Based on COSO, list and describe the main components of internal control.

C. Explain how conditions at the refineries of TransOG indicate that it did not have a sound system
of internal control.

D. TransOG was further criticized because it was found that its internal auditing function was not
effective. Define the function of internal auditing and explain the characteristics of an effective
internal auditing function.

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