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Question 1

An advantage of a direct investment strategy when entering a foreign market is

AReduction in the capital at risk

BShared control and responsibility

CAssurance of access when the foreign country imposes domestic content rules

DAvoidance of interaction with the local bureaucracy

Answer : C

Direct investment has many advantages:

(1) cheaper materials or labor,

(2) receipt of investment incentives from the host government,

(3) a strong relationship with interested parties in the host country,

(4) control of the investment,

(5) a better image in the host country, and

(6) market access when domestic contest rules are in effect. However, direct investment is risky because of exposure to currency fluctuations, expropriation, potentially high exit barriers, and restraints on sending profits out of the country.

Question 2

A company has sales of $500,000, variable costs of $300,000, and pretax profit of $150,000. If the company increased the sales price per unit by 10%, reduced fixed costs by 20%1 and left variable cost per unit unchanged1 what would be the new breakeven point in sales dollars?

A$88000

B$100000

C$110,000

D$125,000

Answer : A

The breakeven point in sales dollars is equal to the sum of fixed costs plus any desired pretax profit, divided by the contribution margin ratio [(sales---variable costs) sales]. Fixed cost was $50,000 ($500,000 sales---$300,000 VC---$150,000 pretax profit). Given the increase in sales of 10% and decrease in fixed costs of 20%, the breakeven point in sales is $88,000.

Question 3

The benefits of a just-in-time system for raw materials usually include

AElimination of nonvalue-adding operations

BIncrease in the number of suppliers,thereby ensuring competitive bidding.

CMaximization of the standard delivery quality,thereby lessening the paperwork for each delivery.

DDecrease in the number of deliveries required to maintain production.

Answer : A

Nonvalue0adding activities are thise that do not add to customer value or satisfy an organization need.inventory activities are inherently nonvalue-adding.thus,a system,such as JIT,that promotes lean production and reduces inventory and its attendant procedures(storage,handling,etc.)also redces nonvalue-adding activities.

Question 4

Which one of the following is least likely to be an objective of a cost accounting system?

AProduct costing.

BDepartment efficiency.

CInventory valuation.

DSales commission determination.

Answer : D

A cost accounting system has numerous objectives, including product costing, assessing departmental efficiency, inventory valuation. income determination, and planning, evaluating, and controlling operations. Determining sales commissions is not an objective of a cost accounting system because such commissions are based on sales, not costs.

Question 5

Gait Cost Magnetic Croatian (GCMC) is negotiating an intermediate-term loan to tenancy a jilt project with another comparer GCMC intends k sell its share of nature to its partner after 6 years. The lending bank has therefore agreed to structure the loan with a bacon payment at that time The amount of the loan is $100,000 GCMC will make level quarterly payments at an annual rate of 8%. Because the loan is to be only partially amortized, the payments are based on a full amortization life of 10 years Which one of the following statements in regard to this loan is true? (Round your answer to the nearest dollar.)

AThe quarterly payment is $3,726.

BThe quarterly payment is $5.288.

CThe balloon payment is $12,107.

DThe balloon payment is $49,636

Answer : D

The level quarterly payments based on a full-amortization life of 10 years constitute an annuity well a present value of $100,000. Assuming payments are due at the end of each quarter, the payment equals $100,000 divided by the present value interest factor for an ordinary annuity of 40 pentodes (4 x 10 years) at 2% (8% + 4), or $3,655.64 ($100,000 27355). The balloon payment is the present value of the remaining payments. R equals the quarterly payment times the present value interest factor for an ordinary annuity of 16 periods [(10 years ---6 years) x 4] at 2% (8% * 4). or $49,636 ($3,655.64 x 13.578).

Question 6

Richardson Supply has a $100 invoice with payment terms of 2/10, net 60. Richardson can either take the discount or place the funds in a money market account pang 6% interest. Using a 360-day year, Richardson's cost of not talking the cash discount is

A12.2%.

B8.7%

C6.4%

D6.2%.

Answer : B

The company will initially lose $2 by not taking the discount. This amount is partially offset by interest earned on $98 for 50 days of $817. Thus, the net cost is $1.183 ($200 - $817). Since a 360-dayyear has 7.2 fifty-day periods, the total annualized cost is $8.52 (7.2 x $1.183). The loss rate is about 8.7% ($8.52/$98)

Question 7

The sum of the costs necessary to effect a one-unit increase in the activity level is a(n)

ADifferential cost.

BOpportunity cost.

CMarginal cost.

DIncremental cost.

Answer : C

A marginal cost is the sum of the costs necessary to effect a one-unit increase in the activity' level.

IMANET Certified Management Accountant CMA Exam Questions