IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 111:

  UniCorp produces uniforms that it sells an rents to businesses. It recently acquired a textile mill that produces synthetic cloth. This acquisition is an example of

  A. Capacity expansion Forward integration
  B. Capacity expansion Backward integration
  C. Vertical Integration Forward integration
  D. Vertical Integration Backward integration
  D. Vertical Integration Backward integration

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  Explanation

  The degree of backward and forward vertical integration along the value chain varies with the industry. Unicorp acquired one of its suppliers, which is on a different level of the value chain. Thus, the combination involved vertical integration. Moreover, the acquisition of a supplier is characteristic of backward integration.

• Question 112:

  What is a challenge that the long-term aspect of capital budgeting presents to the management accountant?

  A. Activity can be tracked for a single accounting period.
  B. Capital projects affect multiple accounting periods.
  C. The flexibility of the capital budgeting decision.
  D. Freedom of the organization's financial planning.
  B. Capital projects affect multiple accounting periods.

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  Explanation

  Capital budgeting is the process of planning and controlling investments for long-tern, projects It is this long-term aspect of capital budgeting that presents the management accountant with specific challenges. Most financial and management accounting topics concern tracking and reporting activity for a single accounting or reporting cycle, such as one month or one year, By their nature, capital projects affect multiple accounting periods and will constrain the organization's financial planning well into the future. Once made, capital budgeting deacons tend to be relatively inflexible.

• Question 113:

  Kim is thinking of organizing a fundraiser to support a local charity. She has planned to rent a banquet hall and provide the guests with food, entertainment, and various party favors. She has decided to charge $500 a person. After researching around town, Kim has discovered the following costs: How many guests must attend in order for Kim to break even?

  

  A. 408
  B. 417
  C. 425
  D. 443
  C. 425

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  Explanation

• Question 114:

  Parkinson Company can increase annual sales by $150,000 if it sells to a new, riskier group of customers. The uncollectible accounts expense is expected to be 16% of sales, and collection costs will be 4%. The company's manufacturing and selling expenses are 75% of sales, and its effective tax rate is 38%. If Parkinson accepts this opportunity, its after-tax income will increase by

  A. $2,850
  B. $4,650
  C. $7,500
  D. $8,370
  B. $4,650

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  Explanation

  The compass manufacturing and selling costs exclusive of bad debts equal 75% of sales. Hence, the gross profit on the $150,000 increase in sales will be $37,500 ($150,000 x 25%). Assuming $24,000 ($150,000 x 16%) of bad debts and $6,000 ($150,000 x4%) of collection expense, the increase in pretax income will be $7,500 ($37,500 -- $30,000). Consequently, after4ax income will increase by $4,650 [$7,500 -- ($7,500 x 38%)].

• Question 115:

  The term referring to the excess of the price of a good over its cost is

  A. Consumer surplus
  B. Profit margin
  C. Contribution margin
  D. Value-added transfer
  B. Profit margin

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  Explanation

  To remain in the market, a product must provide value to the customer and a profit to the seller. The producer's profit (profit margin) is the difference between its costs and the price it charges for the product.

• Question 116:

  What is the after-tax cost of preferred stock that sells for $5 per share and offers a $0.75 dividend when the tax rate is 35%?

  A. 5. 25%
  B. 9.75%
  C. 10.50%
  D. 15%
  D. 15%

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  Explanation

• Question 117:

  If firm increases its cash balance by issuing additional shares of common stock, networking capital

  A. Remains unchanged and the current ratio remains unchanged.
  B. Increases and the current ratio remains unchanged.
  C. Increases and the current ratio decreases.
  D. Increases and the current ratio increases.
  D. Increases and the current ratio increases.

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  Explanation

  Net working capital is the excess of current assets over current liabilities. The current ratio equals current assets divided by current liabilities. Selling stock for cash increases current assets and stockholders' equity', with no effect on current liabilities. The result is an increase in working capital and the current ratio.

• Question 118:

  A characteristic of the payback method (before taxes) is that it

  A. Incorporates the time value of money.
  B. Neglects total project profitability'.
  C. Uses accrual accounting inflows in the numerator of the calculation.
  D. Uses the estimated expected life of the asset in the denominator of the calculation.
  B. Neglects total project profitability'.

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  Explanation

  The payback method calculates the number of years required to complete the return of the original investment. This measure is computed by dividing the net investment required by the average expected cash, 1flow to be generated, resulting in the number of years required to recover the original investment. Payback is easy to `calculate but has two principal problems: it ignores the time value of money, and it gives no consideration to returns, after the payback period. Thus, it ignores total project profitability'.

• Question 119:

  A manufacturing concern sells its sole product for $10 per unit, with a unit contribution margin of $6. The fixed manufacturing cost rate per unit is $2 based on a denominator capacity of 1 million units, and fixed marketing costs are $1.5 million. If 900,000 units are produced, the absorption-costing breakeven point in units sold is

  A. 425,000 units
  B. 583. 333 units
  C. 900,000 units
  D. 1,000,000 units
  A. 425,000 units

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  Explanation

• Question 120:

  All types of organizations can benefit from budgeting. A major difference between governmental budgeting and business budgeting is that

  A. Business budgeting is required by the SEC.
  B. Governmental budgeting is usually done on a zero-base
  C. Business budgeting can be used to measure progress in achieving company objectives, whereas governmental budgeting cannot be used to measure progress in achieving objectives.
  D. Governmental budgeting usually represents a legal limit on proposed expenditures
  D. Governmental budgeting usually represents a legal limit on proposed expenditures

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  Explanation

  A governmental budget is a legal document adopted in accordance with procedures specified by applicable laws. It must be complied with by the administrators of the governmental unit included in the budget. Because the effectiveness and efficiency of governmental efforts are difficult to measure in the absence of the profit- centered activity that characterizes business operations, the use of budgets in the appropriation process is of major importance