IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 1191:

  Which of the following is not an example of synergy?

  A. A shopping mail with several businesses providing different products and performing different services
  B. A store provides warranties on automobile parts in order to maximize customer value
  C. A manufacturing company hires a new manger with technological experience lacking in the company
  D. Military Huumvees are converted into sports utility vehicles for sale to civilians
  B. A store provides warranties on automobile parts in order to maximize customer value

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  Explanation

  Synergy occurs when the combination of formerly separate elements has a greater effect than the sum of their individual effects. It is unclear here whether the store is a car dealership or a parts shop. Therefore, this is seen more as an operational service strategy that seeks to gain a competitive advantage and maximize customer value by providing services such as warranties, rather than market synergy. Market synergy arises when products or services have positive complementary effects. (i.e., a parts shop and a service warranty on parts)

• Question 1192:

  The marketable securities with the least amount of default risk are

  A. Federal government agency securities.
  B. U.S. Treasury securities.
  C. Repurchase agreements.
  D. Commercial paper.
  B. U.S. Treasury securities.

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  Explanation

  The marketable securities with the lowest default risk are those Issued by the federal government because they are backed by the full faith and credit of the U.S. government and are therefore the least risky form of investment.

• Question 1193:

  The following data pertain to the Rees Company for the year just ended:

  

  What was Rees Company's residual income?

  A. $0
  B. $8,000
  C. $20,000
  D. $60,000
  D. $60,000

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  Explanation

  Residual income is the excess of the return on an investment over a targeted amount equal to an imputed interest charge on invested capital. The first step is to determine the level of income if the invested capital had returned exactly the cost of capital. Invested capital is not given, so it must be calculated. Given capital turnover (sales ?invested capital) of 4, invested capital must be $200,000 ($800,000 sales ?). Thus, the required return is $20,000 (10% imputed rate x $200,000). The residual income is the excess of operating income over $20,000, or $60,000 ($80,000 - $20,000).

• Question 1194:

  The breakeven point in units sold for Tierson Corporation is 44,000. If fixed costs for Tierson are equal to $880, 000 annually and variable costs are $10 per unit1 what is the contribution margin per unit for Tierson Corporation?

  A. $0.05
  B. $20.00
  C. $44. 00
  D. $88.00
  B. $20.00

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  Explanation

  The breakeven point in units is equal to the fixed costs divided by the contribution margin per unit. Thus, the UCM is $20.00 ($880 .000 ?44,000 units).

• Question 1195:

  Green Company produces Product A and sells it for $18.00. The following cost data apply: Green has thought of marketing a new Product B with the same cost structure as Product A except that the price will be $15. 60. Green Company currently has the plant capacityr necessary for this expansion. Because of the cost structure, Green Company will find the production and sale of Product B in the short run to be

  

  A. Not profitable unless the price can be raised to $17. 10.
  B. Not profitable at any price.
  C. Not profitable at $15. 60 because the fixed selling expense and fixed manufacturing overhead will not be covered by the price.
  D. Profitable to produce and sell Product B in the short run at the price of $15. 60.
  D. Profitable to produce and sell Product B in the short run at the price of $15. 60.

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  Explanation

  With excess capacily, production is profitable if the incremental revenues are greater than the incremental costs. Here, the incremental costs equal total costs minus any fixed costs ($17. 10 -- $1 .50 -- $2. 20 = $13. 40). If Product B can be sold for a price greater than $13. 40. Short-run production will be profitable. Long-run profit ability, however, will depend on fixed costs as well as variable costs and sales price.

• Question 1196:

  If a U.S. manufacturer's price in the U.S. market is below an appropriate measure of costs and the seller has a reasonable prospect of recovering the resulting loss in the future through higher prices or a greater market share, the seller has engaged in

  A. Collusive pricing.
  B. Dumping.
  C. Predatory pricing.
  D. Price discrimination.
  C. Predatory pricing.

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  Explanation

  Predatory pricing is intentionally pricing below cost to eliminate competition and reduce supply. Federal statutes and many state laws prohibit the practice. The U.S. Supreme Court has held that pricing is predatory when two conditions are met (1)the seller's price is below "an appropriate measure of its costs," and (2) it has a reasonable prospect of recovering the resulting loss through higher prices or greater market share.

• Question 1197:

  The carrying costs associated with inventory management include

  A. Insurance costs, shipping costs, storage costs, and obsolescence.
  B. Storage costs, handling costs, capital invested, and obsolescence.
  C. Purchasing costs, shipping costs, set-up costs, and quantity discounts lost.
  D. Obsolescence, set-up costs, capital invested, and purchasing costs.
  B. Storage costs, handling costs, capital invested, and obsolescence.

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  Explanation

  Carrying costs include storage costs, handling costs, insurance costs, and interest on capital invested, and obsolescence.

• Question 1198:

  Effective cost capacity management

  A. Minimizes the value delivered to customers.
  B. Maximizes required future investments.
  C. Matches the firm's resources with current and future market opportunities.
  D. Is limited to eliminating short-term worth.
  C. Matches the firm's resources with current and future market opportunities.

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  Explanation

  According to SMA 4Y, Measuring the Cost of Capacity, maximizing the value created within an organization starts with understanding the nature and capabilities of all of the company's resources. Capacity is defined from several different perspectives. Managing capacity cost starts when a product or process is first envisioned. It continues through the subsequent disposal of resources downstream. Effective capacity cost management requires supporting effective matching of a firm's resources with current and future market opportunities.

• Question 1199:

  Jackson Corporation uses net present value techniques in evaluating its capital investment projects. The company is considering a new equipment acquisition that will cost $100,000, fully installed, and have a zero salvage value at the end of its five-year productive life. Jackson will depreciate the equipment on a straight-line basis for both financial and tax purposes. Jackson estimates $70,000 in annual recurring operating cash income and $20,000 in annual recurring operating cash expenses. Jackson's desired rate of return is 12% and its effective income tax rate is 40%. What is the net present value of this investment on an after-tax basis?

  A. $28,840
  B. $8,150
  C. $36,990
  D. $80,250
  C. $36,990

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  Explanation

  Annual cash outflow for taxes is $12,000 {[$70,000 inflows -- $20,000 cash operating expenses `--($100,000 ?5) depreciation] x 40%}. The annual net cash inflow is therefore $38,000 ($70,000 --$20,000-- $12,000). The present value of these net inflows for a 5-year period is $136,990 ($38,000 x 3. 605 present value of an ordinary annually for 5 years at 12%)1 and the NPV of the investment is $36,990 ($136,990 -- $100,000 investment).

• Question 1200:

  Transfer pricing should encourage goal congruence and managerial effort In a decentralized organization, it should also encourage autonomous decision making. Managerial effort is the

  A. Desire and the commitment to achieve a specific goal
  B. Sharing of goals by supervisors and subordinates
  C. Extent to which individuals have the authority to make decisions.
  D. Extent of the attempt to accomplish a specific goal
  D. Extent of the attempt to accomplish a specific goal

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  Explanation

  Managerial effort is the extent to which a manager attempts to accomplish a goal. Managerial effort may include psychological as well as physical commitment to a goal.