IMANET IMANET Certifications CMA Questions & Answers

• Question 451:

  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

  Correct Answer: A

• Question 452:

  Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device: Madengrad's income tax rate is 40%, and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years.Assume a 10% increase in annual fixed costs, a 20% unit cost increase for direct labor1 and a reduction in unit material costs of 25%, with no change in selling price. Madengrad Company's breakeven point would increase (decrease) (rounded to the nearest whole unit) by

  

  A. 3,960 units.

  B. (1.620) units.

  C. 1,604 units.

  D. 407 units.

  Correct Answer: D

• Question 453:

  Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device:

  

  Madengrad's income tax rate is 40%, and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years.Assume a 10% increase in annual fixed costs, a 20% unit cost increase for direct labor1 and a reduction in unit material costs of 25%, with no change in selling price. After incorporating these changes, Madengrad Compans contribution margin would be

  A. 34%

  B. 69%

  C. 36%

  D. 64%

  Correct Answer: C

• Question 454:

  Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device:

  

  Madengrad's income tax rate is 40% and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years.For Madengrad Company to achieve an after-tax net income of $540,000, annual sales revenue must be

  A. $23,850,000

  B. $225,000,000

  C. $2,700,000

  D. $21,420,000

  Correct Answer: B

  The formula for the breakeven point in sales divides fixed costs by the contribution margin percentage. The contribution margin percentage is 33 1/3% [$300 unit contribution margin ($900 selling price -- $600 variable costs) + $900 selling price]. The after-tax income specified is $540000, which is equal to 60% (1 .0 -- A tax rate) of the before-tax income. Consequently, the before-tax income needed is $900,000 ($540,000 + .6). This amount may be treated as a fixed cost for the purpose of the formula. The breakeven point in sales dollar is therefore $22,500,000 [($6,600,000 + $900,000) + 33 1/3%].

• Question 455:

  Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device: Madengrad's income tax rate is4O%, and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years.The annual sales volume required for Madengrad Company to break even is

  

  A. 22,000 units.

  B. 11,000units.

  C. 8,400 units.

  D. 13,888 units.

  Correct Answer: A

  The formula for the breakeven point in units divides the fixed costs by the unit contribution margin ($900 selling price -- $600 variable costs $300). Hence, the breakeven point is 22,000 units ($6,600,000 + 300).

• Question 456:

  Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device:

  

  Madengrad's income tax rate is 40%, and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years.If Madengrad Company achieves a sales and production volume of 8.000 units, the annual before-tax income (loss) will be

  A. $(4,200000)

  B. $1,780,000

  C. $(2,520,000)

  D. $(420,000)

  Correct Answer: A

  At a volume of 8000 units, sales will be $7,200,000 (8000 units x $900). Variable costs will ,be $4,800,000 (8,000 units x $600). Thus. the contribution margin is $2,400,000. Deducting the $6,600,000 of fixed 9costs from the contribution margin leaves a net loss of $4,200,000.

• Question 457:

  What is the breakeven point in units for a product that sells for $10 if fixed costs are $4,000 and variable costs are 20%?

  A. 250

  B. 500

  C. 800

  D. 2,000

  Correct Answer: B

  The breakeven point is where profit is zero and sales = fixed costs + variable costs, so 1 4,000 + 2x. Thus, 8x = 4,000, or x = 500 units. Alternatively, dividing the $4,000 of fixed costs by the $8 per unit contribution margin gives the same result.

• Question 458:

  A manufacturer contemplates a change in technology that would reduce fixed costs from $800,000 to $700 .000. However, the ratio of variable costs to sales will increase from 68% to 80%.Whatwill happen to break-even level of revenues?

  A. Decrease by $301,470.50

  B. Decrease by $500,000

  C. Decrease by $1,812,500

  D. Increase by $1,000,000

  Correct Answer: D

• Question 459:

  How much does each additional sales dollar contribute toward profit for a firm with $4 million break-even level of revenues and $1 .2 million in fixed costs including depreciation?

  A. $0.30

  B. $0.33

  C. $0.50

  D. $0.67

  Correct Answer: A

• Question 460:

  The change in period-to-period operating income when using variable costing can be explained by the change in the

  A. Unit sales level multiplied by the unit sales price.

  B. Finished goods inventory level multiplied by the unit sales price.

  C. Unit sales level multiplied by a constant unit contribution margin.

  D. Finished goods inventory level multiplied by a constant unit contribution margin.

  Correct Answer: C

  In a variable costing system, only the variable costs are recorded as product costs. All fixed costs are expensed in the period incurred. Because changes in the relationship between production levels and sales levels do not cause changes in the amount of fixed manufacturing cost expensed, profits more directly follow the trends in sales, especially when the UCM (selling price per unit--variable costs per unit) is constant. Unit sales times the UCM equals the total CM, and operating income (a pretax amount) equals the CM minus fixed costs of operations. If the UCM is constant and fixed costs are stable, the change in operating income will approximate the change in the CM (UCM x unit sales).