IMANET IMANET Certifications CMA Questions & Answers

• Question 471:

  Which of the following would decrease unit contribution margin the most?

  A. A 15% decrease in selling price.

  B. A 15% increase invariable expenses.

  C. A 15% decrease in variable expenses.

  D. A 15% decrease in fixed expenses.

  Correct Answer: A

• Question 472:

  In working on a CVP analysis1 the accountant is unsure of the exact results and/or assumptions under which to operate. What can the accountant do to help management in this CVP decision?

  A. Nothing. It is not the responsibility of the accountant to be concerned with the ambiguity of the results and/or assumptions.

  B. Ascertain the probabilities of various outcomes and work with management on understanding those probabilities in reference to the CVP decision.

  C. Calculate the probabilities of various outcomes and make the decision for management.

  D. Use a random number table to generate a decision model and make the decision for management.

  Correct Answer: B

  The assumptions under which CVP analysis operates primarily hinge on certainty. Once [uncertainty enters the situation, the results are not so clear. Thus, the accountant should make an appropriate effort to ascertain the probabilities of various outcomes. The accountant can then work with management to help make the appropriate decision.

• Question 473:

  The margin of safety is a key concept of CVP analysis. The margin of safety is the

  A. Contribution margin rate.

  B. Difference between budgeted contribution margin and Break even contribution margin.

  C. Difference between budgeted sales and breakeven sales.

  D. Difference between the breakeven point in sales and cash flow breakeven.

  Correct Answer: C

  The margin of safety measures the amount by which sales may decline before losses occur. It is1 the excess of budgeted or actual sales over sales at the BEP. It may be stated in either units sold or sales revenue.

• Question 474:

  When used in cost-volume-profit analysis, sensitivity! Analysis

  A. Determines the most profitable mix of products to be sold.

  B. Allows the decision maker to introduce probabilities in the evaluation of decision alternatives.

  C. Is done through various possible scenarios and computes the impact on profit of various predictions of future events.

  D. Is limited because, in cost-volume-profit analysis, costs are not separated into fixed and variable components.

  Correct Answer: C

• Question 475:

  If inventories are expected to change, the type of costing that provides the best information for breakeven analysis is

  A. Job order costing.

  B. Variable (direct) costing.

  C. Joint costing.

  D. Absorption (full) costing.

  Correct Answer: B

  A variable (direct) costing system is best for providing the information needed for CVP analysis because both techniques separate the fixed costs from variable costs. CVP analysis calculates a variable cost per unit and deducts it from unit sales price to determine the unit contribution margin. The total contribution margin from a given level of unit sales measures the extent of recovery of fixed costs and the profit earned. Direct costing is likewise oriented toward determination of the contribution margin because it treats fixed manufacturing overhead as a period, not a product, cost. Thus, it facilitates CVP analysis by isolating variable manufacturing costs.

• Question 476:

  One of the major assumptions limiting the reliability of breakeven analysis is that

  A. Efficiency and productivity will continually increase.

  B. Total variable costs will remain unchanged over the relevant range.

  C. Total fixed costs will remain unchanged over the relevant range.

  D. The cost of production factors varies with changes in technology.

  Correct Answer: C

  The inherent simplifying assumptions used in CVP analysis are the following: Costs and revenues are predictable and are linear over the relevant range; variable costs change proportionally with activity level; changes in inventory are insignificant in amount fixed costs remain constant over the relevant range of volume; prices remain fixed; production equals sales; there is a relevant range in which the various relationships are true for a given time span; all costs are either fixed or variable; productive efficiency is constant; costs vary only with changes in sales volume; and there is a constant mix of products (or only one product).

• Question 477:

  When an organization decides on a course of action that is selected from a group of alternative courses of action, the benefit lost by not choosing the best alternative course of action is the

  A. Expected value.

  B. Incremental cost.

  C. Net realizable value.

  D. Opportunity cost.

  Correct Answer: D

  An opportunity cost is defined as the benefit forgone, for example, the contribution to income, by not selecting the best alternative use of scarce resources. Opportunity costs are not recorded in the accounting records1 but they are important for management decision making.

• Question 478:

  In the decision making process, differential cost is a (n)

  A. Sunk cost of alternative courses of action.

  B. Fixed cost of alternative courses of action.

  C. Opportunity cost of alternative courses of action.

  D. Cost that changes among alternative courses of action.

  Correct Answer: D

  A differential cost is one that changes among alternative courses of action.

• Question 479:

  Cost-volume-profit (CVP) analysis is a key factor in many decisions, including choice of product lines, pricing of products, marketing strategy, and use of productive facilities. A calculation used in a CVP analysis is the breakeven point. Once the breakeven point has been reached, operating income will increase by the

  A. Gross margin per unit for each additional unit sold.

  B. Contribution margin per unit for each additional unit sold.

  C. Fixed costs per unit for each additional unit sold.

  D. Variable costs per unit for each additional unit sold.

  Correct Answer: B

  At the breakeven point, total revenue equals the fixed cost plus the variable cost. Beyond the BEP, each unit sale will increase operating income by the unit contribution margin (unit sales price--unit variable cost) because fixed cost will already have been recovered.

• Question 480:

  Sunk costs

  A. Are substitutes for opportunity costs.

  B. In and of themselves are not relevant to decision making.

  C. Are relevant to decision making.

  D. Are fixed costs.

  Correct Answer: B

  Sunk costs are those that cannot be avoided because the expenditure has already occurred or an irrevocable decision to incur the cost has been made. Sunk costs are irrelevant to management decision making because they cannot vary with the decision choice selected.