IMANET CMA Exam Practice Test Instant Access

Question 1

When management must decide to accept or reject a one-time-only special order, given sufficient idle capacity, which one of the following is not relevant to the decision?

AAbsorption costs.

BDifferential costs.

CDirect costs.

DVariable costs.

Answer : A

Management decision analysis is based on the concept of relevant costs. Relevant costs differ among decision choices. Thus, incremental or differential costs are always relevant. In special-order situations, given sufficient excess capacity, management is not concerned with full absorption costing because it includes certain product costs (fixed factory overhead) that will not change if the special order is accepted. The principal issue is recovery of the variable costs of processing the special order and earning a contribution margin to apply toward covering fixed costs and profits. Thus, given sufficient capacity that would otherwise be idle (opportunity cost is zero), accepting a special order may be indicated as long as the organization recoups its variable costs.

Question 2

The opportunity cost of making a component part in a factory with no excess capacity is the

AVariable manufacturing cost of the component.

BTotal manufacturing cost of the component.

CCost of the production given up in order to manufacture the component.

DNet benefit forgone from the best alternative use of the capacity required.

Answer : D

An opportunity cost is the return from the next best opportunity that could have been selected for the use of scarce resources. It does not represent an actual receipt or disbursement of resources and is not recorded in the accounting records. If the part could be made using otherwise idle capacity, there would be no opportunity cost.

Question 3

Whitehall Corporation produces chemicals used in the cleaning industry. During the previous month, Whitehall incurred $300,000 of joint costs in producing 60,000 units of AM-12 and 40,000 units of BM-36. Whitehall uses the units-of-production method to allocate joint costs. Currently, AM-12 is sold at split-off for $3.50 per unit. Flank Corporation has approached Whitehall to purchase all of the production of AM-12 after further processing. The further processing will cost Whitehall $90,000. Concerning AM- 12, which one of the following alternatives is most advantageous?

AWhitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $3.00, which covers the joint costs.

BWhitehall should continue to sell at split-off unless Flank offers at least $4.50 per unit after further processing, which covers Whitehall's total costs.

CWhitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $5.00.

DWhitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $5.25, which maintains the same gross profit percentage.

Answer : C

The unit price of the product at the split-off point is known to be $3.50, so the joint costs are irrelevant. The additional unit cost of further processing is $1.50 ($90,000 60,000 units). Consequently, the unit price must be at least $5.00 ($3.50 opportunity cost + $1 .50)

Question 4

Everything else being equal, a highly leveraged firm will have earnings per share.

ListA ListB

AMore Lower

BMore Less volatile

CLess Less volatile

DLess Higher

Answer : C

Earnings per share is less volatile in less highly leveraged firms. Lower fixed costs result in less variable earnings when sales fluctuate.

Question 5

Strategic planning is?

AShort term.

BOperational

CLong term

DInformal.

Answer : C

Strategic planning, also called long-term planning. Covers periods from 1 to 20 years. Strategic planning is somewhat difficult because of uncertainty about future conditions. Thus, long-range plans are more general and exclude operational detail.

Question 6

Multichannel marketing

AIs ownership of channels by multiple cooperating firms.

BIntroduces conflict when channels compete for customers.
C Tends to increase coverage and cost.

DImproves control by customizing the selling process.

Answer : B

Conflict in the channel may be vertical (between different levels), horizontal (between firms on the same level), or multichannel (between different channels). Channels may compete for the same customers and be unwilling to cooperate, espy dally when they have been added recently.

Question 7

Henderson, Inc. has purchased a new fleet of trucks to deliver its merchandise. The trucks have a useful life of 8 years and cost a total of $500.000. Henderson expects its net increase in after-tax cash flow to be $150,000 in Year 1, $175,000 in Year 2, $125,000 in Year 3, and $100,000 in each of the remaining years. If the net cash flow is $ 130,000 a year, what is the payback time for Henderson's fleet of trucks?

A3years.

B3.l5years.

C3.85 years.

D4years.

Answer : C

payback period for an investment, ignoring the time value of money, can be found by accumulating each year's net cash flows until the initial investment is recovered. Therefore, dividing the $500,000 initial investment by the annual $130,000 inflow gives a payback time of 3.85 years.

IMANET Certified Management Accountant CMA Exam Practice Test