IMANET Certified Management Accountant CMA Exam Questions

Page: 1 / 14
Total 1336 questions
Question 1

The following forecasts have been prepared for a new investment by Oxford Industries of $20 million with an 8-year life:

Assume that Oxford employs straight-line depreciation, and that they are taxed at 35%. Assuming an opportunity cost of capital of 14%, what is the NPV of this project, based on expected outcomes?



Answer : B

The first step is to calculate the annual cash flows from the project for the base case (the expected values). These may be calculated as shown:

This level of cash flow occurs for each of the 8 years of the project. The present value of an 8-year, $1 annuity is 4.639 at 14%. The NPV of the project is therefore given by:


Question 2

The budget data for the Bid well Company appear below.

Budgeted operating income $ 90,000. The Bid well Company's breakeven sales in units are?



Answer : D

The breakeven point in units is found by dividing the fixed costs ($210,000) by contribution margin per unit ($3). Variable costs are $700,000 at 100,000 units, or $7 per Unit. Selling price is $10 per unit. Dividing $210,000 by $3 per unit results in a breakeven point of 70,000 units


Question 3

Wiich pairs of systems are considered corrIementary because they inherently focus on &fferent time frames

Short-term Long-term



Answer : D

Theory of constraints (TOC) has a short-term focus based on costs of arterials and product raw; activity-based costing has a long-term locus which considers al predict costs and is concerned with strategic pricing and profit plan rang


Question 4

Woods, Inc. is considering four independent investment proposals. Woods has $3 million available for investment during the present period. The investment outlay for each project and its projected net present value (NPV) is presented below.

Which of the following project options should be recommended to Woods' management?



Answer : A

Capital rationing exists when a firm sets a limit on the amount of funds to be invested during a given period. In such situations, a firm cannot afford to undertake all profitable projects. The profitability index (or excess present value index) is a method for ranking projects to ensure that limited resources are placed with the investments that will return the highest net present value (NPV).

The indexes for Woods' potential projects can thus be calculated as follows: Ranked in order of desirability, they are III, II, IV, and I . Since only $3 million is available for funding, only Ill, II, and I will be selected.


Question 5

Leland Manufacturing uses 10 units of Part Number KJ37 each month in the production of radar equipment. The unit cost to manufacture 1 unit of KJ37 is presented below.

Material handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Leland's annual manufacturing overhead budget is one-third variable and two4hirds fixed. Scott Supply, one of Leland's reliable vendors. has offered to supply Part Number KJ37 at a unit price of $15,000.If Leland purchases the KJ37 units from Scott, the capacity Leland used to manufacture these parts would be idle. Should Leland decide to purchase the parts from Scott, the unit cost of KJ37 would



Answer : A

In addition to the $15,000 purchase price, the company would still incur $8,000 per unit of unavoidable (fixed) manufacturing overhead (2/3 of $12,000). The materials handling charge of 20% of the purchase price of components would add another $3,000 per unit ($15,000 x .2). Therefore the unit cost of purchase would be $26,000 )$15,000 +$8,000 + $3,000), which is $4,800 more than the current cost to manufacture.


Question 6

Jorelle Company's financial staff has been requested to review a proposed investment in new capital equipment. Applicable financial data is presented below. There will be no salvage value at the end of the investment's life and, due to realistic depreciation practices, it is estimated that the salvage value and net book value are equal at the end of each year. All cash flows are assumed to take place at the end of each year. For investment proposals, Jorelle uses a 12% after-tax target rate of return.

Discounted Factors for a 12% Rate of Return

The accounting rate of return on the average investment proposal is



Answer : D

The accounting rate of return (unadjusted rate of return or book value rate of return) equals accounting net income divided by the required average investment. The accounting rate of return ignores the time value of money. The average income over 5 years is $43,000 per year [($35000 + $39,000 + $43000 + $47,000 + $51,000) 5]. Hence, the accounting rate of return is 34.4% [$43,000 ($250,000 2)].


Question 7

Francis wants to create an endowment income of $15,500 a year for the Cancer Research Center at the Municipal Hospital. She proposes that the first payment not be made for 3 years' time. if Francis can earn a return of 6% on her investments, what amount should she invest now?



Answer : C

The present value of the perpetuity will be $258.333.33 ($15,500 0,06). This amount has to be invested by the end of 2 years so that the first payment of $15,500 will be received at the end of 3 years. The present value of this today is equal to the present value factor for 6% for 2 years multiplied by $258,333.33. The present value factor for 6% for 2 years is 0.890, so the solution is $229,916.66.


Page:    1 / 14   
Total 1336 questions