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Financial CMA Exam
Certified Management Accountant (Page 4 )

Updated On: 19-Jan-2026
Page 4 of 270
PDF with 1336 Questions
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Capacity expansion is also referred to as

  1. Market penetration
  2. Market development
  3. Product development
  4. Diversification

Answer(s): A

Explanation:

Market penetration is growth of existing products or development of existing markets. It occurs in mature firms within an industry



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When demand uncertainty is low, firms tend to adopt a strategy of preemptive expansion. The conditions for successful preemption expansion include which of the following?

  1. The firm should avoid market signals that alert competitors to the firm's plans
  2. The expansion should be small relative to the market to minimize risk
  3. Economic of scale should be large relative to demand
  4. The business should be strategically vital to competitors

Answer(s): C

Explanation:

Economics of scale should be large in relation to demand, or the learning-curve effect should give an initial large investor a permanent cost advantage. For example, the preemptive firm may be able to secure too much of the market to allow a subsequent firm to invest at the efficient scale. That is, the residual demand available to be met by the later firm is less than the efficient scale of production. The later firm therefore must choose between intense competition at the efficient scale or a cost disadvantage.



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What is the key strategic issues when a firm is considering capacity expansion?

  1. Forecasting long-term demand
  2. Analyzing the behavior of competitors
  3. Identifying options
  4. Avoiding industry overcapacity

Answer(s): D

Explanation:

Whether to expand capacity is a major strategic decision because of the capital required, the difficulty of forming accurate expectations, and the long time frame of the lead times and the commitment. The key forecasting problems are long-term demand and behavior of competitors. The key strategic issue is avoidance of industry overcapacity. Under capacity in a portable industry trends to be a short-term issue. Profits ordinarily lure additional investors. Overcapacity trends to be a long-term problem because firms are more likely to compete intensely rather than reverse their expansion



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Effective cost capacity management

  1. Minimizes the value delivered to customers
  2. Maximizes required future investments
  3. Matches the firm's resources with current and future market opportunities
  4. Is limited to eliminating short-term worth

Answer(s): C

Explanation:

According to SMA 4Y, Measuring the Cost of Capacity, maximizing the value created within an organization starts with understanding the nature and capabilities of all of the company's resources. Capacity is defined from several different perspectives. Managing capacity cost starts when a product is first envisioned. It continues through the subsequent disposal of resources downstream. Effective capacity cost management requires supporting effective matching of a firm's resource with current and future market opportunities.



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The capital budgeting model that is ordinarily considered the best model for long-range decision making is the

  1. Payback model
  2. Accounting rate of return model
  3. Unadjusted rate of return model
  4. Discounted cash flow model

Answer(s): D

Explanation:

The capital budgeting methods that are generally considered the best for long-range decision making are the internal rate of return and net present value methods. These are both discounted cash flow methods



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