IMANET IMANET Certifications IMANET-CMA Questions & Answers

• Question 181:

  Regis Company manufactures plugs used in its manufacturing cycle at a cost of $36 per unit that includes $8 of fixed overhead. Regis needs 30,000 of these plugs annually, and Orlan Company has offered to sell these units to Regis at $33 per unit. If Regis decides to purchase the plugs, $80,000 of the annual fixed overhead applied will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs.If the plugs are purchased and the facility rented, Regis Company wishes to realize $100,000 in savings annually. To achieve this goal, the minimum annual rent on the facility must be

  A. $10,000

  B. $40,000

  C. $70,000

  D. $190,000

  Correct Answer: D

  Without regard to rental of idle production capacity, the company will lose $3 per unit ($33 purchase price -- $30 relevant cost) by purchasing the plugs. The total annual loss will be $90,000 (30,000 units x $3). Consequently, to achieve the targeted savings, the minimum annual rent must be $190,000 ($90,000 loss from purchasing + $100,000 targeted savings).

• Question 182:

  Regis needs 30000 of these plugs annually, and Orlan Company has offered to sell these units to Regis at $33 per unit. If Regis decides to purchase the plugs, $60,000 of the annual fixed overhead applied will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs.If Regis Company purchases the plugs but does not rent the unused facility, the company would

  A. Save $3.00 per unit.

  B. Lose $6.00 per unit.

  C. Save $2.00 per unit.

  D. Lose $3.00 per unit.

  Correct Answer: D

  Exclusive of the fixed overhead, the unit cost of making the plugs is $28 ($36 total cost -- $8 fixed OH). Purchasing the plugs will avoid $2 per unit of fixed overhead ($60000 OH applied ?30,000 units). Accordingly, $6 per unit of fixed overhead is unavoidable, and the relevant (avoidable) unit cost of making the plugs is $30 [$36 total cost-($8 fixed OH -$2 avoidable cost)]. The purchase option therefore results in a $3-per-unit loss ($33 purchase price -- $30 relevant cost).

• Question 183:

  Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26,000, to determine which product will be more profitable. The results of the study follow.

  

  The costs associated with the two products have been estimated by Gleason's cost accounting department and are shown as follows:

  

  Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset.Assuming that Gleason elects to produce the frozen dessert, the profit that would have been earned on the breakfast rolls is a(n)

  A. Deferrable cost.

  B. Sunk cost.

  C. Avoidable cost.

  D. Opportunity cost.

  Correct Answer: D

  An opportunity cost is the maximum return that could have been earned on the next best alternative use of a resource. In this case, the lost profit on the rolls is an opportunity cost. Regis Company manufactures plugs used in its manufacturing cycle at a cost of $36 per unit that includes $8 of fixed overhead

• Question 184:

  Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26,000, to determine which product will be more profitable. The results of the study follow.

  

  The costs associated with the two products have been estimated by Gleason's cost accounting department and are shown as follows:

  

  Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset.The advertising expense estimated by Gleason for the introduction of the new products is an example of a(n)

  A. Conversion cost.

  B. Discretionary cost.

  C. Committed cost.

  D. Opportunity cost.

  Correct Answer: B

  Discretionary costs refer to fixed costs that are not absolutely necessary to operate in the current period. The level of these costs is subject to a decision made by management each period. A key characteristic of discretionary costs is that there is no clearly measurable relationship between input (the costs) and output. Advertising is a good example of a discretionary fixed cost.

• Question 185:

  Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26,000, to determine which product will be more profitable. The results of the study follow.

  

  The costs associated with the two products have been estimated by Gleason's cost accounting department and are shown as follows:

  

  *Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed

  asset.

  The cost incurred by Gleason for the market study is a(n)

  A. Incremental cost.

  B. Prime cost.

  C. Opportunity cost.

  D. Sunk cost.

  Correct Answer: D

  A sunk cost is a previously incurred cost that is the result of a past irrevocable management decision. Nothing can be done in the future about sunk costs. The market study cost is an example.

• Question 186:

  Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26,000, to determine which product will be more profitable. The results of the study follow.

  

  The costs associated with the two products have been estimated by Gleason's cost accounting department and are shown as follows:

  

  Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset.In order to recover the costs of production tooling and advertising for the breakfast rolls, Gleason's sales of the breakfast rolls would have to be

  A. 37500 units.

  B. 100,000 units.

  C. 60,000 units.

  D. Some amount other than those given.

  Correct Answer: B

  Fixed costs of $45,000 ($25,000 + $20,000) should be divided by the unit contribution margin of $45 ($1 .20 selling price -- $.25 -- $30 -- $.20). The unit breakeven point is therefore 100,000 units ($45,000 ?$45).

• Question 187:

  Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26,000, to determine which product will be more profitable. The results of the study follow.

  

  *Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset. The expected value of Gleason's operating profit directly traceable to the sale of frozen desserts is

  A. $198,250

  B. $150,250

  C. $120,250

  D. Some amount other than those given.

  Correct Answer: C

  The expected volume for sales of frozen desserts is 305,000 [(250000 x .30) + (300000 x 40) + (350,000 x .20) + (400 .000 x .10)]. At $1 .80 each1 the total revenue from 305,000 units would be $549,000. Variable costs would total $1.15 each ($40 + $35 + $40), or $350750 for 305.000 units. Fixed costs total $78,000 ($48,000 + $30000). Thus, operating profit would be $120,250 ($549,000 --$350,750-$78,000).

• Question 188:

  Gleason Co. has two products, a frozen dessert and ready4o-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26000, to determine which product will be more profitable. The results of the study follow.

  

  The costs associated with the two products have been estimated by Gleason's cost accounting department and are shown as follows:

  

  *Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset. Applying a deterministic approach, Gleason's revenue from sales of frozen desserts would be

  A. $549,000

  B. $540,000

  C. $216,000

  D. Some amount other than those given.

  Correct Answer: B

  The word deterministic is used to characterize processes that are not probabilistic. Such an approach uses the most likely value. In this case, sales of desserts would most likely be 300,000 units. At $1.80 each1 total revenue would be $540,000.

• Question 189:

  Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26000, to determine which product will be more profitable. The results of the study follow.

  

  The costs associated with the two products have been estimated by Gleason's cost accounting department and are shown as follows:

  

  *Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset. According to Gleason's market study, the expected value of the sales volume of the breakfast rolls is

  A. 125,000 units.

  B. 260,000 units.

  C. 275,000 units.

  D. Some amount other than those given.

  Correct Answer: B

• Question 190:

  Cohasset Company currently manufactures all component parts used in the manufacture of various hand tools. A handle is used in three different tools. The unit cost budget for 201000 handles is

  

  RandM Steel has offered to supply 20,000 handles to Cohasset for $1.25 each, delivered. If Cohasset

  currently has idle capacity that cannot be used, accepting the offer will

  A. Decrease the handle unit cost by $05.

  B. Increase the handle unit cost by $ .15.

  C. Decrease the handle unit cost by $15.

  D. Increase the handle unit cost by $.05.

  Correct Answer: B

  Since the fixed cost will be incurred whether the company makes or buys the part, the relevant unit cost of making the part is the $1 .10 variable cost ($1 .30 -- $20 fixed overhead). The existence of idle capacity indicates that the firm has no opportunity cost to be considered in the calculation. Thus, accepting the offer would increase costs by$.15 per unit.