IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 1251:

  In the decision making process, differential cost is a (n)

  A. Sunk cost of alternative courses of action.
  B. Fixed cost of alternative courses of action.
  C. Opportunity cost of alternative courses of action.
  D. Cost that changes among alternative courses of action.
  D. Cost that changes among alternative courses of action.

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  Explanation

  A differential cost is one that changes among alternative courses of action.

• Question 1252:

  The most likely effect of a marketing public relations (publicity) campaign is to

  A. Increase overall promotion costs.
  B. Reach only people exposed to other promotional tools.
  C. Provide greater credibility than other promotional tools.
  D. Have little effect on the corporate image.
  C. Provide greater credibility than other promotional tools.

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  Explanation

  Marketing public relations (publicity) supports the marketing department, especially by increasing audience awareness and brand knowledge. Its traditional role was to obtain free media coverage. This function may be less expensive than advertising and sales promotions. Furthermore, publicity is often perceived to be more trustworthy because it appears in news stories and features. Thus, it may affect people who avoid other elements of the promotional mi Moreover, publicity may dramatize the firm and its products.

• Question 1253:

  An important concept in decision making is described as "the contribution to income that is forgone by not using a limited resource in its best alternative use." This concept is called

  A. Marginal cost.
  B. Incremental cost.
  C. Potential cost.
  D. Opportunity cost.
  D. Opportunity cost.

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  Explanation

  An opportunity cost is the maximum benefit sacrificed by employing a scarce productive resource in a specified manner. In other words, it is the value or worth of that resource in its next best alternative use.

• Question 1254:

  Copeland Inc. produces X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade the product to become Xylene. The following information has been gathered:

  I. Selling price per pound of X-547

  II. Variable manufacturing costs of upgrade process Ill. Avoidable fixed costs of upgrade process

  IV.

  Selling price per pound of Xylene

  V.

  Joint manufacturing costs to produce X-547

  Which items should be reviewed when making the upgrade decision?

  A. I, II, and IV only.
  B. I, II, Ill, and IV only.
  C. I, II, IV, and V only.
  D. II and Ill only.
  B. I, II, Ill, and IV only.

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  Explanation

  Common, or joint, costs cannot be identified with a particular joint product. By definition, joint products have common costs until the split-off point. Costs incurred after the split-off point are separable costs. The decision to continue processing beyond split- off is made separately for each product. The costs relevant to the decision are the separable costs because they can be avoided by selling at the split-off point. They should be compared with the incremental revenues from processing further. Thus, items I. (revenue from selling at split-off point), II. (variable costs of upgrade), Ill. (avoidable fixed costs of upgrade), and IV. (revenue from selling after further processing) are considered in making the upgrade decision.

• Question 1255:

  The best advantage of a zero-coupon bond to the issuer is that the

  A. Bond requires a low issuance cost.
  B. Bond requires no interest income calculation to the holder or issuer until maturity.
  C. Interest can be amortized annually by the APR method and need not be shown as an interest expense to the issuer
  D. Interest can be amortized annually on a straight-line basis but is a noncash outlay
  D. Interest can be amortized annually on a straight-line basis but is a noncash outlay

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  Explanation

  Zero-coupon bonds do not pay periodic interest. The bonds are sold at a discount from their face value, and the investors do not receive interest until the bonds mature. The issuer does not have to make annual cash outlays for interest. However, the discount must be amortized annual and reported as interest expense.

• Question 1256:

  Scenario development

  A. Is a quantitative forecasting method.
  B. Is a method of determining an organization's direction?
  C. Is used to identify courses of action.
  D. Requires preparation of future event scenarios.
  D. Requires preparation of future event scenarios.

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  Explanation

  Scenario development is a qualitative forecasting method that requires preparation of conceptual scenarios of future events given carefully defined assumptions. It entails writing multiple different but equally likely descriptions of future states.

• Question 1257:

  Zero-based budgeting forces managers to

  A. Estimate a product's revenues and expenses over its expected life cycle.
  B. Prepare a budget based on historical costs.
  C. Formulate s budget by objective rather than function.
  D. Justify all expenditures at the beginning of every budget period.
  D. Justify all expenditures at the beginning of every budget period.

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  Explanation

  Zero-based budgeting is a planning process in which each manager must justify his/her department's full budget for each period. The purpose is to encourage periodic reexamination of all costs in the hope that some can be reduced or eliminated.

• Question 1258:

  Two companies produce and sell the same product in a competitive industry. Thus, the selling price of the product for each company is the same. Company 1 has a contribution margin ratio of 40% and fixed costs of $25 million. Company 2 is more automated, making its fixed costs 40% higher than those of Company 1. Company 2 also has a contribution margin ratio that is 30% greater than that of Company 1. By comparison, Company 1 will have the breakeven point in terms of dollar sales volume and will have the dollar profit potential once the indifference point in dollar sales volume is exceeded.

  

  A. Option A
  B. Option B
  C. Option C
  D. Option D
  A. Option A

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  Explanation

• Question 1259:

  A company is considering two mutually exclusive projects with the following projected cash flows:

  

  The company has a required rate of return of 8%. If the company's objective is to maximize shareholder wealth, which one of the following is the most valid reason for selecting one of the projects?

  A. The net present value of Project A is greater than the net present value of Project B, therefore select Project A.
  B. The net present value of Project A is less than the net present value of Project B, therefore select Project B.
  C. The internal rate of return of Project A is greater than the internal rate of return of Project B, therefore select Project A.
  D. The internal rate of return of Project A is less than the internal rate of return of Project B, therefore select Project B.
  A. The net present value of Project A is greater than the net present value of Project B, therefore select Project A.

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  Explanation

  Project A has a single cash inflow, calculated as the present value of a single payment in 4 years discounted at 8%:

  

  Project B has multiple even cash inflows, calculated as the present value of an ordinary

  

  The net present value of Project A is thus greater than that of Project B.

• Question 1260:

  Calamity Cauliflower Corporation is considering undertaking a capital project. The company would have to commit $24000 of working capital in addition to an immediate outlay of $160 .000 for new equipment. The project is expected to generate $100 .000 of annual income for 10 years. At the end of that time, the new equipment, witch will be depreciated on a straight-line basis, is expected to have a salvage value of $ 10.000. The existing equipment that would be sold to make room for the project has a historical cost of $220,000 and accumulated depreciation of $208,000. It has an estimated remaining useful life of 2 years and the remaining book value is being depreciated on a straight-line basis. A scrap dealer has agreed to buy it for $8,000. The company's effective tax rate is 40%. Calamity Cauliflower's relevant after-tax annual cash inflow from the ongoing operations of the project is

  A. $100,000
  B. $60,000
  C. $40,000
  D. $0
  B. $60,000

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  Explanation

  The relevant after-tax annual cash inflow for the project consists of the gross cash inflow ,($10O.000) minus income tax expense ($100,000 x AO). or $60,000.