IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 1101:

  Rational decision making involves all of the following steps except

  A. Defining the problem.
  B. Taking sunk costs into account.
  C. Choosing an alternative.
  D. Implementing the decision.
  B. Taking sunk costs into account.

  ---

  Explanation

  The consideration of choices and the selection of the choice expected to give the best results are key parts of the planner's job. Rational decision making involves the following steps: defining the problem. Obtaining information, identifying alternative courses of action, making predictions about future costs, choosing and justifying an alternative, implementing the decision, and evaluating performance to provide feedback. One of the most common errors in decision making is taking sunk costs into account. Because sunk costs have already been incurred, they can play no role in rational decision making.

• Question 1102:

  The following data pertain to a 4-year project being considered by Metro Industries:

  A depreciable asset that costs $1 .200.000 will be acquired on January 1. The asset, which is expected to have a $200,000 salvage value at the end of 4 years, qualifies as 3- year property under the Modified Accelerated Cost Recovery

  System (MACPS).

  The new asset will replace an existing asset that has a tax basis of $150,000 and can be sold on the same January 1 for $180,000.

  The project is expected to provide added annual sales of 30,000 units at $20. Additional cash operating costs are: variable, $12 per unit fixed, $90,000 per year.

  A $50,000 working capital investment that is fully recoverable at the end of the fourth year is required.

  Metro is subject to a 40% income tax rate and rounds all computations to the nearest dollar. Assume that any gain or loss affects the taxes paid at the end of the year in which it occurred. The company uses the net present value method to

  analwe investments and will employ the following factors and rates.

  

  The discounted, net-of-tax amount that relates to disposal of the existing asset is

  A. $168,000
  B. $169,320
  C. $180,000
  D. $190,680
  B. $169,320

  ---

  Explanation

  The cash in flow from the existing asset is $180,000, but that amount is subject to tax on the $30,000 gain ($180,000-- $150,000 tax basis). The tax on the gain is $12,000 ($30,000 x 40%). Because the tax will not be paid until year-end1 the discounted value is $10,680 ($12,000 x .89 PV of $1 at 12% for one period). Thus, the net-of-tax inflow is $169,320 ($180,000--$10,680). NOTE: This as set was probably a Section 1231 asset, and any gain on sale qualifies for the special capital gain tax rates. Had the problem not stipulated a 40% tax rate, the capital gains rate would be used. An answer based on that rate is not among the options.

• Question 1103:

  The one item listed below that would warrant the least amount of consideration in credit and collection policy decisions is the

  A. Quality of accounts accepted.
  B. Quantity discount given.
  C. Cash discount given.
  D. Level of collection expenditures.
  B. Quantity discount given.

  ---

  Explanation

  A quantity discount is an attempt to increase sales by reducing the unit price on bulk purchases. It concerns only the price term of an agreement, not the credit term, and thus is unrelated to credit and collection policy.

• Question 1104:

  A change in credit policy has caused an increase in sales, an increase in discounts taken, a decrease in the amount of bad debts, and a decrease in the investment in accounts receivable. Based upon this information, the company's

  A. Average collection period has decreased.
  B. Percentage discount offered has decreased.
  C. Accounts receivable turnover has decreased.
  D. Working capital has increased.
  A. Average collection period has decreased.

  ---

  Explanation

  An increase in discounts taken accompanied by declines in receivables balances and doubtful accounts all indicate that collections on the increased sales have been accelerated. Accordingly, the average collection period must have declined. The average collection period is a ratio calculated by dividing the number of days in a year (365) by the receivable turnover. Thus, the higher the turnover, the shorter the average collection period. The turnover increases when either sales (the numerator) increase, or receivables (the denominator) decrease. Accomplishing both higher sales and a lower receivables increases the turnover and results in a shorter collection period.

• Question 1105:

  The following data pertains to XYZ Company for the current year of operations.

  

  Assuming that XYZ Company sells 80,000 units, what is the maximum that can be paid for an advertising campaign while still breaking even?

  A. $135,000
  B. $1,015,000
  C. $535,000
  D. $695,000
  A. $135,000

  ---

  Explanation

• Question 1106:

  Relevant or differential cost analysis

  A. Takes all variable and fixed costs into account to analyze decision alternatives.
  B. Considers only variable costs as they change with each decision alternative.
  C. Considers all variable and fixed costs as they change with each decision alternative.
  D. Allows the decision maker to group all types of costs together to facilitate decision making.
  C. Considers all variable and fixed costs as they change with each decision alternative.

  ---

  Explanation

  Relevant cost analysis considers only those costs that differ among decision options. Both fixed and variable costs are considered if they vary with the option selected.

• Question 1107:

  The lye of consumer segmentation based on lifestyle or core values is

  A. Geographic.
  B. Demographic.
  C. Psychographic.
  D. Behavioral.
  C. Psychographic.

  ---

  Explanation

  Psychographic segmentation is by personality traits, lifestyle (attitudes, activities, and interests), or core values. Thus, marketers may attempt to build a brand personality, design offerings targeted to time-constrained or money-constrained individuals, or appeal to beliefs at a deeper level than attitudes and behaviors.

• Question 1108:

  A cost that can be saved by not adopting a particular option is a(n)

  A. Imputed cost.
  B. Avoidable cost.
  C. Unavoidable cost.
  D. Postponable cost.
  B. Avoidable cost.

  ---

  Explanation

  An avoidable cost is one that can be saved by not adopting a particular alternative.

• Question 1109:

  A global firm establishes a cost-based price for its product in each country. The most likely negative outcome is that this pricing strategy will

  A. Set too high a price in countries where the firm's costs are high.
  B. Overprice the product in some markets and under price it in others.
  C. Create a gray market.
  D. Result in dumping.
  A. Set too high a price in countries where the firm's costs are high.

  ---

  Explanation

  A firm may set a cost-based price in each market with a standard markup. In a region or country where costs are high, this strategy may result in prices that are too high to be competitive within the local market.

• Question 1110:

  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
  B. $225,000,000

  ---

  Explanation

  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%].