IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 1121:

  The served market share

  A. Decrease when profits decrease
  B. Measure customer loyalty
  C. Always exceeds overall market share
  D. Must be less than overall market share
  C. Always exceeds overall market share

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  Explanation

  Served market share (sales/ the served market, i.e., all buyers willing and able to product) must exceed the overall market share. The served market is smaller than the total market.

• Question 1122:

  When using the net present value method for capital budgeting analysis, the required rate of return is called all of the following except the

  A. Risk-free rate.
  B. Cost of capital.
  C. Discount rate.
  D. Cutoff rate.
  A. Risk-free rate.

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  Explanation

  The rate used to discount future cash flows is sometimes called the cost of capital, the discount rate, the cutoff rate, or the hurdle rate. A risk-free rate is the rate available on risk-free investments such as government bonds. The risk-free rate is not equivalent to the cost of capital because the latter must incorporate a risk premium.

• Question 1123:

  Business risk is the risk inherent in a firm's operations that excludes financial risk. It depends on all of the following factors except the

  A. Amount of financial leverage.
  B. Sales price variability.
  C. Demand variability.
  D. Input price variability.
  A. Amount of financial leverage.

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  Explanation

  Business risk is the risk of fluctuations in earnings before interest and taxes or in operating income when the firm uses no debt. It depends on factors such as demand variability, sales price variability, input price variability, and the amount of operating leverage. Financial leverage affects financial risk and is not a factor affecting business risk.

• Question 1124:

  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

  A. 12. 2%.
  B. 8.7%
  C. 6. 4%
  D. 6. 2%.
  B. 8.7%

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  Explanation

  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 1125:

  Richardson Motors uses 10 units of Part No.T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is presented as follows:

  

  Materials handling, which is not included in manufacturing overhead, represents the direct van able costs of the receiving department that are applied to direct materials and purchased components on the basis of their cost. Richardson's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Simpson Castings, one of Richardson's reliable vendors, has offered to supply T305 at a unit price of $30,000.Assume Richardson Motors is able to rent all idle capacity for $50,000 per month. If Richardson decides to purchase the 10 units from Simpson Castings, Richardson's monthly cost for T305 would

  A. Decrease $14,000.
  B. Increase $46,000.
  C. Decrease $64,000.
  D. Increase $96,000.
  B. Increase $46,000.

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  Explanation

  For 10 components, the total cost increase would be $96,000, but the $50,000 rental would reduce the net increase to $46 J00.

• Question 1126:

  High-Tech Industries is considering the acquisition of a new state-of-the-art manufacturing machine to replace a less efficient machine. Hi-Tech has completed a net present value analysis and found it to be favorable. Which one of the following factors should not be of concern to Hi-Tech in its acquisition considerations?

  A. The availability of any necessary financing.
  B. The probability of near-term technological changes to the manufacturing process.
  C. The investment tax credit.
  D. Maintenance requirements, warranties, and availability of service arrangements.
  C. The investment tax credit.

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  Explanation

  The investment tax credit is of no concern because it no longer exists. The 1986 Tax Reform Act eliminated the investment tax credit.

• Question 1127:

  Which of the following cost allocation methods is used to determine the lowest price that can be quoted for a special order that will use idle capacity within a production area?

  A. Job order.
  B. Process.
  C. Variable.
  D. Standard.
  C. Variable.

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  Explanation

  If idle capacity exists, the lowest feasible price for a special order is one covering the variable cost. Variable costing considers fixed cost to be a period cost, not a product cost. Fixed costs are not relevant to short term inventory costing with idle capacity because the fixed costs will be incurred whether or not any production occurs. Any additional revenue in excess of the variable costs will decrease losses or increase profits.

• Question 1128:

  Following are the operating results of the two segments of Parklin Corporation.

  

  Fixed costs of goods sold are allocated to each segment based on the number of employees. Fixed selling and administrative expenses are allocated equally. If Segment B is eliminated, $1 .500 of fixed costs of goods sold would be eliminated. Assuming Segment B is closed, the effect on operating income would be a(n)

  A. Increase of $500.
  B. Increase of $2,000.
  C. Decrease of $2,000.
  D. Decrease of $2500.
  C. Decrease of $2,000.

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  Explanation

• Question 1129:

  A company obtained a short-term bank loan of $250,000 at an annual interest rate of 6%. As a condition of the loan, the company is required to maintain a compensating balance of $50,000 in its checking account. The company's checking account earns interest at an annual rate of 2%. Ordinarily, the company maintains a balance of $25,000 in its checking account for transaction purposes. What is the effective interest rate of the loan?

  A. 6. 44%
  B. 7. 00%
  C. 5. 80%
  D. 6. 66%
  A. 6. 44%

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  Explanation

  The $50,000 compensating balance requirement is partially satisfied by the company's practice of maintaining a $25,000 balance for transaction purposes. Thus, only $25,000 of the loan will not be available for current use, leaving $225,000 of the loan usable. At 6% interest, the $250,000 loan would require an interest payment of $15,000 per year. This is partially offset by the 2% interest earned on the $25,000 incremental balance, or $500 Subtracting the $500 interest earned from the $15,000 of expense results in net interest expense of $14,500 for the use of $225,000 in funds. Dividing $14,500 by $225,000 produces an effective interest rate of 6. 44%.

• Question 1130:

  On August 15, 19XX, National Corporation announced a 1-for-10 reverse split, the event to occur on September 6, subject to shareholder approval. The stock's closing price on August 14 was $1.375. If nothing changes, at what price would you expect the stock to sell after the stock split is made effective on September 6?

  A. $13. 75
  B. $10.00
  C. $2. 75
  D. $1.38
  A. $13. 75

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  Explanation

  A reverse stock split, like a regular stock split, should not change market capitalization. Thus, if there are 1/10 as many shares outstanding as previously, they should be worth 10 times as much. Thus, the price after the reverse split would be $13. 75 (10 x $1375).