IMANET IMANET Certifications IMANET-CMA Questions & Answers

• Question 171:

  ABD Really manages five apartment complexes in a three-state area. Summary income statements for each apartment complex are shown as follows:

  

  Included in the expenses is $1,200,000 of corporate overhead allocated to the apartment complexes based on rental income. The apartment complex(es) that ABD should consider selling is (are)

  A. Apartment complexes Two, Three, Pour, and Five.

  B. Apartment complexes Three, Pour, and Five.

  C. Apartment complexes Pour and Five.

  D. Apartment complex Four.

  Correct Answer: C

• Question 172:

  Richardson Motors uses 10 units of Part No.T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is presented as follows:

  

  Materials handling, which is not included in manufacturing overhead, represents the direct variable costs of the receiving department that are applied to direct materials and purchased components on the basis of

  their cost. Richardson's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Simpson Castings, one of Richardson's reliable vendors, has offered to supply T305 at a unit price of $30,000.Assume the rental opportunity does not exist and Richardson Motors could use the idle capacity to manufacture another product that would contribute $104,000 per month. If Richardson chooses to manufacture the ten T305 units in order to maintain quality control, Richardson's opportunity cost is

  A. $68,000.

  B. $88,000.

  C. $8,000.

  D. $(96,000).

  Correct Answer: C

  For 10 units, the additional cost of purchasing is $96,000. However, the net effect of purchasing is a gain of $8,000($104,000 contribution from making another product - $96,000). Opportunity cost is the benefit from the next best alternative use of the resources. Hence, the company's opportunity cost of making the part is $8,000.

• Question 173:

  Richardson Motors uses 10 units of Part No.T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is presented as follows:

  

  Materials handling, which is not included in manufacturing overhead, represents the direct van able costs of the receiving department that are applied to direct materials and purchased components on the basis of their cost. Richardson's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Simpson Castings, one of Richardson's reliable vendors, has offered to supply T305 at a unit price of $30,000.Assume Richardson Motors is able to rent all idle capacity for $50,000 per month. If Richardson decides to purchase the 10 units from Simpson Castings, Richardson's monthly cost for T305 would

  A. Decrease $14,000.

  B. Increase $46,000.

  C. Decrease $64,000.

  D. Increase $96,000.

  Correct Answer: B

  For 10 components, the total cost increase would be $96,000, but the $50,000 rental would reduce the net increase to $46 J00.

• Question 174:

  Richardson Motors uses 10 units of Part No. T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is presented as follows:

  

  Materials handling, which is not included in manufacturing overhead, represents the direct variable costs of the receiving department that are applied to direct materials and purchased components on the basis of their cost. Richardson's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Simpson Castings, one of Richardson's reliable vendors, has offered to supply T305 at a unit price of $30,000.If Richardson Motors purchases the ten T305 units from Simpson Castings, the capacity Richardson used to manufacture these parts would be idle. Should Richardson decide to purchase the parts from Simpson, the out-of- pocket cost per unit of T305 would

  A. Decrease $6,400.

  B. Increase $3,600.

  C. Increase $9,600.

  D. Decrease $12,400.

  Correct Answer: C

  The out-of-pocket cost of making the part equals the total manufacturing cost minus the fixed overhead, or $26400 {$42,400 -[(2 + 3) x $24,000]}. The cost of the component consists of the $30,000 purchase price plus the $6,000 (20% of cost) of variable receiving costs, or a total of $36,000. Thus, unit out-of-pocket cost would increase by $9,600 if the components were purchased.

• Question 175:

  The opportunity cost of making a component part in a factory with no excess capacity is the

  A. Variable manufacturing cost of the component.

  B. Fixed manufacturing cost of the component.

  C. Cost of the production given up in order to manufacture the component.

  D. Net benefit given up from the best alternative use of the capacity.

  Correct Answer: D

  An opportunity cost is the maximum benefit forgone by using a scarce resource for a given purpose. It is the benefit provided by the next best use of that resource. Thus, in a factory operating at full capacity, the opportunity cost of making a component is the benefit given up by not selecting an alternative use of the plant capacity.

• Question 176:

  JJ Motors, Inc. employs 45 sales personnel to market its line of luxury automobiles. The average car sells for $23,000, and a 6% commission is paid to the salesperson. JJ Motors is considering a change to a commission arrangement that would pay each salesperson a salary of $2,000 per month plus a commission of 2% of the sales made by that salesperson. The amount of total monthly car sales at which

  JJ Motors would be indifferent as to which plan to select is

  A. $2250,000

  B. $3000.000

  C. $1500,000

  D. $1250,000

  Correct Answer: A

• Question 177:

  A manufacturer has been approached by a new customer who wants to place a one-time order for a component similar to one that the manufacturer makes for another customer. Existing sales will not be affected by acceptance of this order. The manufacturer has a policy of setting its targeted selling price at 60% over full manufacturing cost. The manufacturing costs and the targeted selling price for the existing product are presented as follows.

  

  The manufacturer has excess capacity to produce the quantity of the component desired by the new customer. The direct materials used in the component for the new customer would cost the manufacturer $0.25 less than the component currently being made. The variable selling expenses (packaging and shipping) would be the same, or $0.90 per unit. Under these circumstances, the minimum unit price at which the manufacturer would accept the special order is one exceeding.

  A. $8.35

  B. $9.25

  C. $14.00

  D. $14.80

  Correct Answer: B

  Because the manufacturer has excess capacity and existing sales will be unaffected, the minimum price the manufacturer should be willing to accept is anything above the total variable cost of the unit ($2.05 +$3.60+$2.70+$0.90=$9.25), an amount that includes the variable manufacturing cost and the variable selling expenses. The fixed costs are not relevant.

• Question 178:

  Leland Manufacturing uses 10 units of Part Number KJ37 each month in the production of radar equipment. The unit cost to manufacture 1 unit of KJ37 is presented below.

  

  Material handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Leland's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Scott Supply, one of Leland's reliable vendors, has offered to supply Part Number KJ37 at a unit price of $15,000.Assume that Leland Manufacturing does not wish to commit to a rental agreement but could use idle capacity to manufacture another product that would contribute $52,000 per month. If Leland elects to manufacture KJ37 in order to maintain quality control, Leland's opportunity? cost is

  A. $18,000

  B. $(20,000)

  C. $4,000 D. Some amount other than those given

  Correct Answer: C

  Opportunity cost is the maximum alternative earnings that might have been obtained if the productive good service or capacity had been applied to some alternative use. The additional total monthly cost of purchasing the component is $48,000. If the idle facilities could be used to produce a product contributing $52,000 per month, the net benefit opportunity cost of manufacture would be $4,0000.

• Question 179:

  Leland Manufacturing uses 10 units of Part Number KJ37 each month in the production of radar equipment. The unit cost to manufacture 1 unit of KJ37 is presented below.

  

  Material handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Leland's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Scott Supply, one of Leland's reliable vendors, has offered to supply Part Number KJ37 at a unit price of $15,000. Assume Leland Manufacturing is able to rent all idle capacity for $25,000 per month. If Leland decides to purchase the 10 units from Scott Supply, Leland's monthly cost for KJ37 would

  A. Increase $48,000.

  B. Increase $23,000.

  C. Decrease $7,000.

  D. Change by some amount other than those given.

  Correct Answer: B

  Purchasing would increase unit cost by $4,800 ($26,000 cost to purchase--$21,200 cost to manufacture), an increase of $48,000 per month (10 units x $4,800). However, the $25,000 of rental income would reduce the increase in net costs to $23J00 per month.

• Question 180:

  Leland Manufacturing uses 10 units of Part Number KJ37 each month in the production of radar equipment. The unit cost to manufacture 1 unit of KJ37 is presented below.

  

  Material handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Leland's annual manufacturing overhead budget is one-third variable and two4hirds fixed. Scott Supply, one of Leland's reliable vendors. has offered to supply Part Number KJ37 at a unit price of $15,000.If Leland purchases the KJ37 units from Scott, the capacity Leland used to manufacture these parts would be idle. Should Leland decide to purchase the parts from Scott, the unit cost of KJ37 would

  A. Increase by $4,800.

  B. Decrease by $6,200.

  C. Decrease by $3,200.

  D. Change by some amount other than those given.

  Correct Answer: A

  In addition to the $15,000 purchase price, the company would still incur $8,000 per unit of unavoidable (fixed) manufacturing overhead (2/3 of $12,000). The materials handling charge of 20% of the purchase price of components would add another $3,000 per unit ($15,000 x .2). Therefore the unit cost of purchase would be $26,000 )$15,000 +$8,000 + $3,000), which is $4,800 more than the current cost to manufacture.