IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 171:

  An appropriate transfer price between two divisions of The Stark Company can be determined from the following data:

  

  What is the natural bargaining range for the two divisions?

  A. Between $20 and $50.
  B. Between $50 and $70.
  C. Any amount less than $50.
  D. $50 is the only acceptable price.
  A. Between $20 and $50.

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  Explanation

• Question 172:

  MS Trucking is considering the purchase of a new piece of equipment that has a net initial investment with a present value of $300,000. The equipment has an estimated useful life of3years. For tax purposes1 the equipment will be fully depreciated a rates of 30%, 40%, and 30% in years one, two, and three, respectively. The new machine is expected to have a $20,000 salvage value. The machine is expected to save the company $170,000 per year in operating expenses. MS Trucking has a 40% marginal income tax rate and a 16% cost of capital. Discount rates for a 16% rate are:

  

  Assume that the salvage value at the end of the investment's useful life is zero. What is the new payback period?

  A. 2. 84years.
  B. 1.76years.
  C. 2. 08 years.
  D. 2. 09 years.
  D. 2. 09 years.

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  Explanation

  The payback period is the time required to recover the original investment. As determined below, the annual net after-tax cash inflows for Years 1 through 3 are $138,000, $150,000, and $138,000 (excluding salvage value), respectively. In

  Year 1, the after-tax cash inflow is $170,000 minus taxes of $32,000 {[$1 70,000 -- ($300,000 x 30%) depreciation] x 40%}, or $138,000. In Year 2, the after-tax cash inflow is $170,000 minus taxes of $20,000 {[$1 70,000 -- $300,000 x 40%)

  depreciation] x 40%}, or $150,000. In Year 3, the after-tax cash inflow I(excluding salvage value) is again $138,000. After 2 years, $288,000 ($138,000 + $150,000) will have been `recovered. Consequently, the first $12,000 received in Year 3

  will recoup the initial investment.

  Because $12,000 represents .09 (rounded) of Year 3 net after4ax cash inflows ($12,000 + $138,000), the payback period is 2. 09 years.

• Question 173:

  Basic product , expected product, augmented product, and potential product are

  A. Elements of the customer value hierarchy
  B. Items in the product hierarchy
  C. Product classifications
  D. Product lines
  A. Elements of the customer value hierarchy

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  Explanation

  A product may be analyzed in terms of the customer value hierarchy. (1) core benefits (e.g., transportation), (2) basic product (car that functions), (3) expected product (a car with standard features and quality) , (4) augmented product (a car that exceeds expectations), and (5) potential product (a car that reflects every possible augmentation and new ways to differentiate the product)

• Question 174:

  A company with $4. 8 million in credit sales per year plans to relax its credit standards1 projecting that this will increase credit sales by $720,000. The company's average collection period for new customers is expected to be 75 days, and the payment behavior of the existing customers is not expected to change. Variable costs are 80% of sales. The firm's opportunely cost is 20% before taxes. Assuming a 360-day year, what is the company's benefit (loss) on the planned change in credit terms?

  A. $0
  B. $28,800
  C. $144,000
  D. $120,000
  D. $120,000

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  Explanation

  The incremental sales will produce an increased contribution margin of $144,000 ($720,000 x 20%). However, that amount must be offset by the cost of funds invested in receivables. The variable costs associated with the incremental sales are $576,000 ($720,000 x 80%). Given a 75-day credit period, the average investment in receivables equals $120,000 [$576,000 x (75 + 360)]. Accordingly, the cost of the investment in additional receivables is $24,000 ($120,000 x 20% opportunely cost), and the net benefit of the planned change in credit terms is $120,000 ($144000: $24,000).

• Question 175:

  Garfield, Inc. is considering a 10-year capital investment project with forecasted revenues of $40,000 per year and forecasted cash operating expenses of $29,000 per year. The initial cost of the equipment for the project is $23,000. and Garfield expects to sell the equipment for $9,000 at the end of the tenth year The equipment will be depreciated over 7 years The project requires a working capital investment of $7,000 at its inception and another $5,000 at the end of Year 5. Assuming a 40% marginal tax rate, the expected net cash flow from the project in the tenth year is?

  A. $32,000
  B. $24,000
  C. $20,000
  D. $11,000
  B. $24,000

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  Explanation

  The project will have an $11,000 before-tax cash inflow from operations in the tenth year ($40,000 -- $29,000). Also, $9,000 will be generated from the sale of the equipment. The entire $9,000 will be taxable because the basis of the asset was reduced to zero in the 7th year. Thus, taxable income will be $20,000 ($11,000 + $9,000), leaving a net after-tax cash inflow of $12,000 [$20.000 x (1.0-- .4)] To this $12,000 must be added the $12,000 tied up in working capital ($7,000 + $5,000). The total net cash flow in the 10th year will therefore be $24. O0j

• Question 176:

  Harper and her band want to put on a concert They have looked at two venues, a small one and a large one, and have compiled me following information

  

  What is the breakeven pant of the small venue?

  A. 200
  B. 250
  C. 305
  D. 315
  B. 250

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  Explanation

• Question 177:

  A large manufacturing company has several autonomous divisions that sell their products in perfectly competitive external markets as well as internally to the other divisions of the company. Top management expects each of its divisional managers to take actions that will maximize the organization's goals as well as their own goals. Top management also promotes a sustained level of management effort of all of its divisional managers. Under these circumstances, for products exchanged between divisions, the transfer price that will generally lead to optimal decisions for the manufacturing company would be a transfer price equal to the

  A. Full cost of the product.
  B. Full cost of the product plus a markup
  C. Variable cost of the product plus a markup.
  D. Market price of the product.
  D. Market price of the product.

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  Explanation

  A market-based transfer price promotes goal congruence and sustained management effort. It is also consistent with divisional autonomy. A market transfer price is most appropriate when the market is competitive. interdivisional dependency is low, and busing in the market involves no marginal costs or benefits.

• Question 178:

  N-Air Corporation uses a joint process to produce three products: A, B, and C, all derived from one input. The company can sell these . products at the point of split-off (end of the joint process) or process them further. The joint production costs during October were $10,000. N-Air allocates joint costs to the products in proportion to the relative physical volume of output. Additional information is presented in the opposite column.

  

  Assuming sufficient demand exists, N-Air could sell all the products at the prices previously mentioned at either the split-off point or after further processing. To maximize its profits, N-Air Corporation should

  A. Sell product A at split-oft and perform additional processing on products B and C.
  B. Sell product B at split-oft and perform additional processing on products C and A.
  C. Sell product C at split-off and perform additional processing on products A and B.
  D. Sell products A, B, and C at split-off.
  C. Sell product C at split-off and perform additional processing on products A and B.

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  Explanation

• Question 179:

  Joint costs are those costs

  A. Of products requiring the services of two or more processing departments.
  B. Of a product from a common process that has relatively little sales value and only a small effect on profit.
  C. Of production that are combined in the overhead account.
  D. Of two or more products produced from a common process.
  D. Of two or more products produced from a common process.

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  Explanation

  Joint costs are the common costs of producing two or more inseparable products up to the point at which they become separable (the split-off point). The products are then sold as identifiably separate products or are processed further.

• Question 180:

  "Committed costs" are

  A. Costs which management decides to incur in the current period to enable the company to achieve objectives other than the filling of orders placed by customers.
  B. Costs which are likely to respond to the amount of attention devoted to them by a specified manager.
  C. Costs which are governed mainly by past decisions that established the present levels of operating and organizational capacity and which only change slowly in response to small changes in capacity.
  D. Amortization of costs which were capitalized in previous periods.
  C. Costs which are governed mainly by past decisions that established the present levels of operating and organizational capacity and which only change slowly in response to small changes in capacity.

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  Explanation

  Committed costs are those which are required as a result of past decisions.