IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 1261:

  Calamity Cauliflower Corporation is considering undertaking a capital project. The company would have to commit $24,000 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 histoncal 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 tax benefit arising from the disposal of the old equipment is

  A. $8,000
  B. $4,800
  C. $3,200
  D. $1,600
  D. $1,600

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  Explanation

• Question 1262:

  The payback reciprocal can be used to approximate a project's

  A. Profitability' index.
  B. Net present value.
  C. Accounting rate of return if the cash flow pattern is relatively stable.
  D. Internal rate of return if the cash flow pattern is relatively stable.
  D. Internal rate of return if the cash flow pattern is relatively stable.

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  Explanation

  The payback reciprocal (1 + payback) has been shown to approximate the internal rate of return' (IRR) when the periodic cash flows are equal and the life of the project is at least twice the payback period:

• Question 1263:

  When demand uncertainty is low, firms tend to adopt a strategy of preemptive expansion. The conditions for successful preemption expansion include which of the following?

  A. The firm should avoid market signals that alert competitors to the firm's plans
  B. The expansion should be small relative to the market to minimize risk
  C. Economic of scale should be large relative to demand
  D. The business should be strategically vital to competitors
  C. Economic of scale should be large relative to demand

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  Explanation

  Economics of scale should be large in relation to demand, or the learning-curve effect should give an initial large investor a permanent cost advantage. For example, the preemptive firm may be able to secure too much of the market to allow a subsequent firm to invest at the efficient scale. That is, the residual demand available to be met by the later firm is less than the efficient scale of production. The later firm therefore must choose between intense competition at the efficient scale or a cost disadvantage.

• Question 1264:

  Which of the following statements regarding budgets is false?

  A. Budgets present organizational plans in a formal, logical, and integrated manner.
  B. Budgets are used only as a planning function.
  C. Budgets may be developed for cash flows or labor usage.
  D. A budget is a plan that contains a quantitative statement of expected results.
  B. Budgets are used only as a planning function.

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  Explanation

  Budget formulation is a planning function; however, budgets are also useful control devices. Budget provide a basis for control of performance through comparisons of actual with budgeted data. They permit analysis of variations from plans and signal the need for corrective managerial action.

• Question 1265:

  Within a financial risk management context, the term value at risk (VAR) is defined as the

  A. Maximum value a company can lose
  B. Maximum loss within a certain time period at a given level of confidence.
  C. Worst possible outcome given the distribution of outcomes.
  D. Most likely negative outcome.
  B. Maximum loss within a certain time period at a given level of confidence.

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  Explanation

  The value at risk (VAR) model uses statistical analysis of historical market and volatilities to estimate the likelihood that a given portfolio's losses will exceed a certain amount. It is preferable to sensitivity analysis because it states the probability (stated at a specific confidence level) that a given change in a variable ( e.g. a foreign currency exchange rate or an interest rate) will result in a given loss.

• Question 1266:

  Which strategy for a global marketing organization is based on a portfolio of national markets?

  A. Creation of a division o manage international marketing
  B. A multinational strategy
  C. A glocal strategy
  D. Creation of an export department
  B. A multinational strategy

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  Explanation

  International marketing efforts take three basic forms: creation of a n export department; creation of a division to mange international marketing, or global organization. The latter encompasses genuinely worldwide functions, e.g., manufacturing, marketing, finance, and logistics. Thus, world wide operations are the organization's focus, not merely that of a department or division of a national firm. A global organization may follow a multinational, global, or glocal strategy. A multinational strategy adopts a portfolio approach. Its emphasis is on national markets because the need for global integration is not strong. The product is customized for each market and therefore incurs higher production costs. Decision making is primarily local with a minimum of central control. This strategy is most effective given large difference between countries. Also, exchange rate risk is reduced when conducting business in this manner.

• Question 1267:

  A major supplier has offered Alpha Corporation a year-end special purchase whereby Alpha could purchase 180,000 cases of sport drink at $10 per case. Alpha normally orders 30,000 cases per month at $12 per case. Alpha's cost of capital is 9%. In calculating the overall opportunity cost of this offer, the cost of carrying the increased inventory would be

  A. $32,400
  B. $40,500
  C. $64,800
  D. $81,000
  A. $32,400

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  Explanation

  If Alpha makes the special purchase of 6 months of inventory (180,000 cases + 30,000 cases per month), the average in victory for the 6-month period will be $900,000 [(180,000 x $10) + 2]. If the special purchase is not made, the average in victory for the same period will be the average monthly inventory of $180,000 [(30,000 x $12) + 2]. Accordingly, the incremental average inventory is $720,000 ($900,000 -- $180,000), and the interest cost of the incremental 6-month investment is $32,400 [($720,000 x9%) ?2].

• Question 1268:

  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-term 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 decisions tend to be relatively inflexible.

• Question 1269:

  Key Co.changed from a traditional manufacturing operation with a job-order costing system to a just-in-time operation with a backflush costing system.what is(are)the expected effect(s)of these changes on key'inspection costs and recording detail of costs tracked to jobs in process?

  

  A. Decrease Decrease
  B. Decrease Increase
  C. Increase Decrease
  D. Increase Increase
  A. Decrease Decrease

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  Explanation

  In a JIT system,materials go directly into production without being inspected.the assumption is that the vendor has already performed all necessary inspections.the minimizationof inventory reduces the number of suppliers,storage costs,etc.backflush costing eliminates the traditional sequential tracking of costs.be charged initially to cost of sales,and costs may be fluhed back to the inventory accounts only at the end of the period.thus,the detail of cost accounting is decreased.

• Question 1270:

  Which strategy is characterized by the creation of a new product specifical for a certain market or region of the world?

  A. Straight extension.
  B. Product adaptation,
  C. Communication adaptation.
  D. Product invention.
  C. Communication adaptation.
  D. Product invention.

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  Explanation

  Using a product invention strategy, a new product is created specifically for a certain country or regional market. A product may either include advancements for developed countries or have certain elements removed in places wfiere a lower cost is a key selling point. Backward invention is the reintroduction of an earlier version of the product to meet local needs. This variant of the invention strategy reflects the possibility that different countries may be in different stages of the international product life cycle. Forward invention requires developing a new product for the unique needs of a foreign market.