IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 1171:

  A company is evaluating the possible introduction of a new version of an existing product that will have a 2-year life cycle. At the end of 2 years, this version will be obsolete, with no additional cash flows or salvage value. The initial and sole outlay for the modified product is $6 million, and the company's desired rate of return is 10%. Following are the potential cash flows (assumed to occur at the end of each year) and their probabilities if the product is marketed:

  

  The following interest factors for the present value of $1 at 10% are relevant: Period 1 .909

  2 .826

  Assume the company has the real option to abandon the project at the end of Year 1. If the salvage value at that time is $3 million and the desired rate of return remains at 10%, what is the project's net present value?

  A. $878,050
  B. $1,200,550
  C. $2,746,450
  D. $4,454,100
  B. $1,200,550

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  Explanation

• Question 1172:

  Multi Frame Company has the following revenue and cost budgets for the two products it sells:

  

  The budgeted unit sales equal the current unit demand, and total fixed overhead for the year is budgeted at $975,000. Assume that the company plans to maintain the same proportional mix. In numerical calculations, Multi Frame rounds to the nearest cent and unit.The total number of units Multi Frame needs to produce and sell to break even is

  A. 150,000 units.
  B. 8. 354,545 units.
  C. 177,273 units.
  D. 300,000 units.
  A. 150,000 units.

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  Explanation

  The calculation of the breakeven point is to divide the fixed costs by the contribution margin per unit. This determination is more complicated for a multi-product firm. If the same proportional product mix is maintained, one unit of plastic frames

  is sold for every three units of glass frames. Accordingly, a composite unit consists of four frames:

  one plastic and three glass. For plastic frames, the unit contribution margin is $5 ($10-- $2 --$3). For glass frames, the unit contribution margin is $7 ($15 --$3-- $5). Thus, the composite unit contribution margin is $26 ($5 + $7 + $7 + $7), and

  the breakeven point is 37,500 packages ($975,000 EC + $26). Because each composite unit contains four frames, the total units sold equal 150,000.

• Question 1173:

  A firm that is deploying just-in-time manufacturing for the first time will

  A. Establish contracts with many suppliers since an interruption in spply is extremely disruptive of the production process.
  B. Establish contracts with a few carefully chosen suppliers since an interruption in supply is extremely disruptive of the production process.
  C. Maintain a carefully calibrated safety stock since interruption in supply are inevitable.
  D. Acquire considerable computer processing capability to manage the demands of the data-dependent kaban inventory management system.
  B. Establish contracts with a few carefully chosen suppliers since an interruption in supply is extremely disruptive of the production process.

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  Explanation

  In a JIT system,the suppliers'dependability is crucial.organizations that adopt JIT systems develop close relationships with a few carefully chosen suppliers who are extensively involved in the buyer's processes.

• Question 1174:

  In a decision analysis situation1 which one of the following costs is generally not relevant to the decision?

  A. Incremental cost.
  B. Differential cost.
  C. Avoidable cost.
  D. Historical cost.
  D. Historical cost.

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  Explanation

  Management decision analysis is based on the concept of relevant costs. Relevant costs differ among decision choices. Thus, incremental (differential or avoidable) costs are always relevant. Opportunity cost is also relevant because it is the benefit forgone by selecting one choice instead of another. Historical costs, because they occurred in the past, are sunk costs and not relevant to most management decisions.

• Question 1175:

  Which of the following is not an appropriate time measure for use in process analysis?

  A. Product development time.
  B. Breakeven time.
  C. Customer-response time
  D. Process value time
  D. Process value time

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  Explanation

  The three common time measures for process analysis are product development time, breakeven time, and customer-response time. Process value time is not a meaningful term in this context. An organization has collected data on the complaints made by personal computer users and has categorized the complaints.

  

• Question 1176:

  The following information regarding inventory policy was assembled by tee WE Corporation. The company uses a 50-.week year in all calculations.

  

  The reorder point is

  A. 5 .500 units
  B. 2,700 units
  C. 1,200 units
  D. 240 units
  B. 2,700 units

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  Explanation

  The reorder point equals the inventory to be sold during the lead time plus any safely stock. If the weekly sales are 240 units (12,000 ?50 weeks) and the lead time is 5 weeks, sales during the lead time should be 1,200 units. Adding the 1,200 units of expected sales to the 1,500 units of safely stock produces a reorder point of 2,700 units'

• Question 1177:

  Since Marsh, Inc. is experiencing a sharp increase in sales activity and a steady increase in production, the management of Marsh has adopted an aggressive working capital policy. Therefore, the company's current level of net working capital

  A. Would most likely be the same as in any other type of business condition as business cycles tend to balance out overtime?
  B. Would most likely be lower than under other business conditions in order that the company can maximize profits while minimizing working capital investment.
  C. Would most likely be higher than under other business conditions so that there will be sufficient funds to replenish assets.
  D. Would most likely be higher than under other business conditions as the company's profits are increasing.
  B. Would most likely be lower than under other business conditions in order that the company can maximize profits while minimizing working capital investment.

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  Explanation

  When a firm has an aggressive working capital policy, management keeps the investment in working capital at a minimum. Thus, a growing company would want to invest its funds in capital goods and not in idle assets. This policy maximizes return on investment at the price of the risk of minimal liquidity.

• Question 1178:

  Suppose exchange rates, prior to the introduction of the euro, between U.S. dollars and Swiss francs is SF 1.62 = $ 1.00 and the exchange rate between the U.S. dollar and the German mark is $1.00 = 1.50 DM. What is the cross-rate of Swiss francs to German marks?

  A. 2. 62
  B. 1.08
  C. 1.62
  D. 0.93
  B. 1.08

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  Explanation

  Since the dollar is the same in both ratios, the cross-rate between francs and marks is determined by dividing the 1.62 francs by 1.50 marks, resulting in 1.08 francs per mark.

• Question 1179:

  The form of distribution channel organization characterized by substantial overall control by one channel member is a

  A. Conventional marketing system (CMS)
  B. Horizontal marketing system (HMS).
  C. Vertical marketing system (VMS).
  D. Multichannel marketing system (MMS)
  C. Vertical marketing system (VMS).

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  Explanation

  A CMS consists of separate, independent members that do not control the others. A VMS differs because it is a coordinated system with a channel captain that has the substantial ability to control other members behavior. The effect is to eliminate members pursuit of conflicting objectives. Use of VMSs is the norm in the U.S. consumer market

• Question 1180:

  A man offers to buyyourcarwith4 equal annual payments of $3,000, beginning 2 years from today. Assuming you're indifferent to cash versus credit, that you can invest at 10%, and that you want to receive $9000 for the car, should you accept?

  A. Yes; present value is $9,510.
  B. Yes; present value is $11,373.
  C. No; present value is $8646.
  D. No; present value is $7461.
  C. No; present value is $8646.

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  Explanation

  A normal present-value-of-an annuity table assumes the first payment is one year away. In this case, the first payment is two years away. Thus, this should be viewed as a five- payment annuity minus one payment. The factor at 10% for five payments is 3. 791. Subtract from that the initial payment (year 1) which will not be made, a factor of .909, leaving a factor of 2. 882. Multiplying 2. 882 times $3,000 results in a present value of $8,646.