Variance Analysis

Using Exam Variance Analysis to prepare for the CMA, CIA, and CPA Exams

This continues a series of posts that looks at preparing for an exam using some of the same concepts that you might study for the CMA, CPA, or CIA exams.

Variance Analysis

In management accounting, variance analysis is the process of looking at the differences between the actual and budgeted results for a period. Common uses of variance analysis are in manufacturing expenses, i.e. direct material, direct labor, and overhead. When teaching variance analysis, I emphasize that we should not ignore variances that are favorable (positive) because we should look to see what that department is doing differently that led to the positive variance.

Actual vs Expected (“budgeted”) Results

When preparing for an exam, we can look at the difference between an actual result and an expected (or “budgeted”) result with practice questions. We recommend for most exams that you should be getting at least 80 – 85% of practice questions correct in order to be ready for the exam. So, when you answer practice questions, you can measure your actual result against your “budgeted” result and analyze where you need further study.

Answering Practice Questions

When you are answering practice questions, you should pay attention to how well you know each topic and how easily you can answer the questions. There are different ways that you can achieve a “passing” score, and you are in the best position to know how you did it. What do I mean by that? Let us say that you answer 10 questions and your goal is to get at least 8 correct. When doing the questions, there are 6 questions that you know for sure, and four questions that you mostly guessed on. If you got lucky in your guessing, you might get 8 or 9 of the 10 questions correct. But, in reality, you really only knew 60% of the questions, and the 60% score is the one that really matters.

Therefore, when you look at your results on a quiz or mock exam, you, and only you, are in the best position to make an assessment of your knowledge. Candidates often ask us if they are ready for the exam based on a mock exam score. That is an impossible question for us to answer; we don’t know how many questions you got right because you knew the answer and how many you got right because you guessed. On a mock exam, there’s a big difference between scoring 90% with 10 lucky guesses (you are probably ready for the exam) and scoring 90% with 25 lucky guesses (you are probably not ready for the exam).

Assessing Your “Total Variance”

Being honest in your assessment of your “total variance” is one of the best things you can do while studying for the exam. What are some of the strategies you have used in assessing your true variance when reviewing practice questions?

Brian Hock, CMA, CIA

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Capital Budgeting

CMA, CIA, and CPA Exam Preparation Using Exam Content: Capital Budgeting

Capital Budgeting

This is the first in a series of posts that looks at preparing for an exam using some of the same concepts that you might study for the CMA, CPA, or CIA exams.

Capital budgeting is the process that a company goes through when it makes large capital investments or investments into long-term projects. As individuals, we do not have much need for capital budgeting, but one example of personal capital budgeting is the decision to pursue a professional certification.

Usually, when we make a decision to get a certification, we are focusing on the increased salary that we expect to receive as a result of having that certification. While that is obviously a great benefit (cash inflow), it is not the only element of capital budgeting that is part of this decision. There are also cash outflows associated with taking an exam.

When I teach capital budgeting, I always emphasize that we need to take into account the non-monetary qualitative factors (both positive and negative) involved in a decision. For example, how the project would impact employee morale, whether the project would have any public relations implications, and if the project is congruent with the company goals and objectives. These qualitative factors are difficult to put into an analysis but may be just as important as the quantitative factors (i.e. the cash).

Cash Outflows

Some of the cash outflows and qualitative considerations connected with pursuing a professional certification are:

Cash Inflows

Some of the cash inflows and other qualitative benefits that you will receive include:

  • The increase in your salary that is the direct result of gaining the certification
  • An increase in respect and reputation within your organization
  • An increase in confidence that comes with passing an internationally recognized professional exam.

The tools that a company uses to determine whether or not a project is beneficial include the payback method and the net present value method. Both of these can also be applied to making a decision about getting a professional certification.

Payback Method and Net Present Value

  • Payback method. Based on the expected raise from gaining a certification, you can calculate how many years you will need to work to earn back the costs of taking the exam.
  • Net present value. To calculate the net present value of a certification, you would need to determine a required rate of return. I am not sure how you would determine a required rate of return, but it could be based on how much you value your time. It would also be possible to calculate the Internal Rate of Return and see if that IRR is acceptable to you. But, however you calculate it, is the return acceptable to you?

Have you considered any other cash flows or qualitative factors in your decision to prepare for a professional certification? I’d be glad to hear from you in the comments about what they were.

Brian Hock, CMA, CIA

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Why CMA is the Best Accounting and Finance Certification

There are several well-known international certifications for accounting and finance professionals, including CMA, CPA, CIMA, ACCA, ACA, CIA, CFA, and others. The first step for you as a professional seeking a certification is determining which one will be the most beneficial. This requires looking not only at your current job, but also what you would like to do in the future. By looking ahead, you can be certain that you have the needed skills, experience, and certification(s) for your career.

I have been involved in professional certifications in accounting and finance since 1998 and through all of these years, the certification that is generally the most valuable is the CMA. Of course, if you want to be an internal auditor, you become a CIA and if you want to be an investment banker, you should become CFA. However, if you are looking for a career in accounting or finance, are looking to start or operate a small or medium-sized business, or want to have a certification that will provide the most flexibility and most options for you in your career, the CMA is the best certification for you.

There are five main reasons that the CMA is the overall best accounting and finance credential:

1. The CMA Syllabus is practical and relevant to your job.

Everything in the CMA syllabus is something that a business does or should do. Such a practical syllabus provides a lot of benefits to you:

  1. It makes studying easier. It is a lot easier to study and learn something when its relevancy to a business is easy to understand. Also, by being practical, there is a greater chance that you will have some experience or exposure to the concepts before you start studying.
  2. The content you learn is useful for your current and future jobs. Ideally, studying for your certification will help you perform your job better. Whether you are in accounting, finance, budgeting, management, or operations, what is covered on the CMA Exam is what a company does or should be doing.
  3. The knowledge does not limit you to a specific department or career path. With topics ranging from financial accounting to management accounting, to planning and budgeting, to internal controls, to ethics and decision making, CMA prepares you for any job that is connected to management of a small or medium-sized business, or the accounting and finance functions in any size company.

2. You only need a Bachelor’s degree and two years of relevant work experience.

While some accountants have advanced degrees, there are many accountants who started in a different career and may not have a business degree or number of hours of accounting courses. For the CMA exam, as long as you have a 3 or 4 year Bachelor’s degree in any subject, you meet the education requirement.

Furthermore, as long as you have two years of relevant work experience, you will meet the experience requirement. Your experience does not need to be with any specific position nor does your supervisor need to be a CMA.

3. You only need to pass two exams to become a CMA.

While it may seem at first that only two exams are not enough for a professional certification, the two CMA exams cover a wide range of topics that are all tested in depth. This means that you get a rigorous exam that covers everything it needs to cover, but without a multi-year time commitment. With only two exams, you will be able to earn your CMA in around a year (average), and you will actually have a certification. While there are certifications with many more exams, if you don’t complete them all there is no benefit to you.

4. Your CMA certification is internationally recognized.

In all likelihood, you will have a number of different jobs during your career, which may include working for a multinational corporation, or in another country. Because the CMA certification is internationally recognized, it will help you get a job anywhere in the world. Having a CMA will also show to others in your organization that you are committed to your profession, which will help with promotions.

5. The CMA Syllabus is practical and relevant to your job.

Yes, this was also #1, but it is so important that it needs to be listed twice. An international syllabus (without country-specific details such as US Tax law) allows you to learn what is needed in today’s international accounting and finance marketplace.

For all of these reasons, I strongly recommend CMA as the best international certificate in accounting and finance. Of course, when you have a particular career goal, or your company requires a specific certification, then you need to pursue that required certification. If, however, you are looking to develop and expand your career prospects and possibilities within accounting and finance, then I strongly recommend the CMA Certification.

Brian Hock, CMA, CIA

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How to choose a live-taught course provider for the CMA, CIA, and CPA exams

Around the world, there are hundreds of institutions offering live taught classes for CMA, CIA, CPA, ACCA, and many other certifications. While there are a lot of excellent review course providers in the market, there are also some that charge too much for too little service. Some provide poor materials, illegal copies, and/or unqualified teachers and do not do much to help you prepare to pass your exams.

These are the questions that you need to ask providers when choosing a course: 

  1. How many hours of instruction are provided per part?
  2. Who are the instructors?
  3. How many candidates are usually in a class?
  4. May you attend a class, or part of a class, for free to see how the class is run?
  5. What support the does company provide outside of classes?
  6. Will the publisher of the materials that they use answer your questions?
  7. Will I need to study between classes?
  8. What happens if you miss a class? How can you “make it up?
  9. What study materials are provided?
  10. What will they do for you if you attend every class and fail the actual exam?
  11. What is the total cost of the attending class will be?
Watch the video to learn which answers you should expect from a good course provider and what answers are causes for concern.

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In my twenty years of helping candidates pass their certification exams, I have come across many myths and misconceptions that can cause candidates to spend more time and/or more money than they need to. These myths are often perpetuated through the marketing that companies use to differentiate themselves from their competitors. Unfortunately, this marketing can be very misleading as you research the best materials to use to study.

Myth #1: More material means better material

There are not a lot of materials that you need to prepare properly; all you need is a way to learn and way to practice. Usually, this means a textbook (but can also include videos if the videos cover the entire syllabus) and practice questions from past exams. The quantity of pages, number of questions, hours of videos, etc. is not as important as whether or not that material is complete, relevant, and prepares you to pass the exams. You generally do not need multiple question banks, either, because the question banks from each provider are usually very similar, including the same previously-released exam questions.

Myth #2: More expensive material means better material

While it is usually true that “you get what you pay for,” it is true only if what you are paying for adds value for you. When a material provider pays to receive “status” from the examiner or has an affiliate agreement with another site that “recommends” them (more on this next), these are costs that are passed on to you but do not add any value. If someone “approves” or “recommends” certain materials, be certain to find out the criteria for that recommendation. Any non-quality-based recommendation adds no value to you.

Myth #3: Review comparison sites are really unbiased

For many professional exams, there are websites that claim to offer unbiased reviews of the different providers. What is not very well known is that most of these sites receive commissions from the material providers listed on them, meaning that the reviews are not objective. Usually, the company that is rated the highest is the one that pays the highest commission to the review site. On some sites this relationship is disclosed (though often not very prominently), but on many sites it is not disclosed at all.

As an example, one of the review sites for CMA materials used to list HOCK as their #1 provider with five stars. When the owner of the site asked HOCK to join an affiliate commission program but we chose not to participate, we lost 2 stars overnight and went from first place to third place in their rankings. The change had nothing to do with the materials, but rather the review site could make money recommending other providers who would pay a commission.

Besides the undisclosed financial relationship, these sites often have incorrect and/or outdated information because they write a review and then it sits online, unchanged sometimes for years. These sites also give no mechanism for the course providers to provide updated information or to respond to the reviews if there are inaccurate or incorrect statements.

You may have noticed that there are a lot of these review comparison sites for CMA, CPA, and CIA materials that do not include HOCK. This is usually because we refused to pay a commission to the person who runs the site. I am certain that we have lost business over the years because of this decision, but I also know that it has allowed us to keep our prices more affordable for you, because we do not need to include a 20% or 25% commission mark-up in our price. What you pay for HOCK materials goes to value-added activities, and not to expensive marketing relationships.

Myth #4: Pass rates are accurate and honest

Many course providers post a pass rate for candidates who use their materials. I have written about this in the past, but these pass rates mean almost nothing because there is no straightforward and consistent way to calculate them. Which candidates are included? Or excluded? How do we determine a “pass?”

For example, if a candidate buys materials from Provider X and fails, but after purchasing Provider Y materials they pass the exam, is that candidate a “pass” for Provider X, Provider Y, or both? Does Provider X still include the first failure in their pass rate? Provider X could claim a 100% pass rate for that one student because they eventually did pass, but a 50% pass rate would be more accurate and honest.

Or, if a candidate uses materials from three providers and passes on their first attempt, who claims that “pass?” One way that you can see the inaccuracy of pass rates is by looking at all of the providers who publish pass rates. Every company claims a pass rate that is significantly higher than the exam’s published pass rate by the examining body. If these claimed pass rates were true, the real pass rate for the exam would as high as the claims made by the providers.

Myth #5: You must attend a class

For many years I taught live classes, and I know that a good class can be very helpful. However, the materials that a company sells should be sufficient to pass the exam with self-study. If you are going to study in a classroom, please make certain that the class will be value-added. See this post that I wrote previously listing some questions you should ask a classroom provider (https://www.hockinternational.com/questions-live-taught-classes/).

In addition, pay attention to the number of hours in the class. Some classes (including online classes) can include a large number of hours of instruction, which may be used to “justify” a higher price. No matter how good the teacher is, however, you need to spend time yourself studying and practicing questions. Not all of your study hours need to be instructor-led and if the class goes on too long, you are not getting any value from many of those hours.

For the CMA exam, both HOCK and the ICMA recommend 150 hours of study per part, and our videos are currently only 24 hours for Part 1 and 25 hours for Part 2. I have been teaching CMA since 2000 and we use those videos as the basis for our “You Pass or We Pay Guarantee.” If I am able to teach the content that you need in 25 hours per part, you do not need to be in a classroom for 100 hours per part.

Myth #6: Personal counselors are personal and needed

Some companies offer a personal counselor or similar service. While this sounds good, we believe that personal counselors are of limited added value to your studies. There is a specific syllabus for the exam, and every candidate must learn the material on the syllabus. You are able to determine in what areas you need additional study by looking at the statistics in your practice questions. If you have 94% for a topic, you know that topic well. If you have 43% for a topic, you do not know that topic well and you need to keep studying it. Maybe the counselor helps keep you motivated because they contact you every one or two weeks, but a good study plan can also keep you keep on track.

Besides statistics, only you know how well you understand a topic, regardless of the statistics. Are you guessing on the questions a lot? Are you confident in your knowledge as you read questions and answer them? Those are indicators about your preparedness that only you know. The counselor can’t tell you what your understanding and confidence level is.

In the end, interacting with a personal counselor adds time to your study process because the time you take talking to them or trying to meet specific administrative reporting tasks is time that you could be studying and learning the material instead.

Myth #7: There are shortcuts to passing the exam

Occasionally, a company will claim to have materials that reduce the time that you need to spend studying or have a shortcut to focus on “the right topics” for the exam. While that would be nice, there are no shortcuts! There is a syllabus for the exam and you need to learn all of it. Some common shortcuts include mnemonic devices or memory tricks, which may seem like they are working when you practice with questions that you become familiar with in the practice software, but on the exam you will have questions that you have never seen before. If you have only memorized a handful of key terms or phrases, you will not be able to answer questions on the exam that are different than the practice questions.

Using such shortcuts may reduce the amount of time you spend preparing for your first attempt on the exam, but you will spend the full amount of time later when you need to prepare to take the exam again. Not only do the shortcuts not save you any time, they cost you money as well when you don’t pass on the first attempt.

Final Thoughts

I hope that it is not too late for you to avoid some of these myths and misconceptions that could make your studies more expensive or take more time than necessary. You won’t find any shortcuts or marketing gimmicks at HOCK; instead, we will prepare you effectively and efficiently to pass the exams on your first attempt with comprehensive materials and support that give you all of the tools that you need – no more, and no less.

Brian Hock, CMA, CIA

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In this video, HOCK international President Brian Hock offers some tips for how to set up a study schedule for effective and efficient studying.

Some of the suggestions discussed in the video include:

  • Set aside time when studying is the only thing you do.
  • Make studying a priority in your schedule.
  • Study at a time of the day when you are alert and focused.
  • Use smaller blocks of time for studying rather than longer blocks.

Learn more about the HOCK study materials for the CMA, CPA, and CIA exams and see how HOCK can help you prepare to pass your exams on your first attempt.

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There is one question that you must be able to answer correctly in order to pass a professional exam. If you can answer this question correctly, you will pass the exam. If you cannot answer this question correctly, it is very unlikely that you will pass. Watch the video to find out the question!

So, before you start preparing for any question that is going to be on the exam, make certain you can first answer the question of why you are studying. Why are you studying?

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Recently a number of candidates have been contacting us because they have been having trouble staying motivated with their studies because they do not know when they will be able to take their exam. Here is a recent email that we received:

“I have been preparing to take the CIA Part 1 exam. However, due to the current coronavirus situation and the delay that it has caused, I have lost some motivation to study. Given the current situation, I would like to know what I can do to stay motivated when I do not know when I will be able to take the exam.” 

Watch the video to see what Brian Hock is recommending to do.

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Students frequently ask us if a particular exam is difficult to pass. I have spent some time thinking about this, and determined that the answer is “No, the exam is not difficult to pass. In fact, it should be easy to pass.”

If you are properly prepared, then the exam should be easy to pass. In other words, if you know the material tested on the exam, then taking the exam is just a process of answering questions you are prepared to answer. Of course, there may be a few questions that you are uncertain about, but if you are properly prepared, you should know that you passed when you leave the exam.

A better question to ask is, “Is it is difficult to prepare for the exam?” While this question is a bit different, the answer is similar. While not every topic will be easy to learn because some concepts are difficult to learn and take time, overall you should feel confident as you prepare to prepare to pass the exam if:

  1. You have decided that you want to pass the exam (this means that you are properly motivated and will actually study), and
  2. You have the right exam prep materials for your learning style, background, and experience.

I can’t help you find the internal motivation that you need to study for the exam, but I know that you should find it before you start studying. You can read this previous post for thoughts on internal motivation: https://www.hockinternational.com/only-question-need-answer-pass-exam/

I also can’t make your decision about what study materials are the best for you, but I can tell you some things you should think about and look for when you choose study materials:

  1. Do the materials offer multiple ways to learn? Do they have only a textbook to read, or do they have videos as well? Are there flash cards? Everyone learns differently, and you want a provider that will help you learn in the ways that are most effective for you.
  2. What guarantees are offered with the materials? Does the provider have a financial interest in making certain that you pass because they will have to pay something if you fail, or do they want you to fail so that they can sell you their materials again next year?
  3. How will the provider support you while you are studying? Do they have dedicated experts to help you? Will they give you updated materials if the exam changes while you are studying? Or will you have to pay again after a certain period of time?

Most importantly, look at samples of materials before you buy. Any review course provider should want you to see their materials and it should be easy for you to find and review them. We offer free samples of our materials on our web site.

We look forward to helping you achieve your certification and making it as easy as possible with complete, comprehensive, and clear materials. Please do not hesitate to contact us with any questions or concerns that you may have about preparing for the exams. We work hard so that the exam can be easy for you.

Brian Hock, CMA, CIA

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The Videos are not necessary to prepare to pass, but they do make the process easier and faster.

The short answer is that no, you do not need the videos to pass the exam. Many people prepare successfully without the videos. While we think that the videos make your studying more efficient (and perhaps more enjoyable), all of the information in the videos is also in the textbook. What the videos do is to bring my many years of teaching experience directly to you, making the topics much more alive than you just reading out of the book.

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