IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 201:

  Tonykinn Company is contemplating marketing a new product. Fixed costs will be $800000 for production of 75. 000 units or less and $1 .200.000 if production exceeds 75,000 units The variable cost ratio is 60% for the first 75,000 units. Variable costs will decrease to 50% of sales for units in excess of 75. 000. If the product is expected to sell for $25 per unit, how many units must Tonykinn sell to break even?

  A. 120,000
  B. 111,000
  C. 96. 000
  D. 80.000
  B. 111,000

  ---

  Explanation

• Question 202:

  A company has sales of one of its products of $400,000 per year and a contribution margin ratio of 20%. Its margin of safety is $40,000. What are the company's fixed costs?

  A. $72,000
  B. $80,000
  C. $288,000
  D. $320,000
  A. $72,000

  ---

  Explanation

  The margin of safety equals sales above the breakeven point. Thus, if the margin of safety is $40,000. the breakeven point in sales dollars must be $360,000. If the contribution margin rah is 20%, the contribution margin (sales -- variable costs) at the breakeven point is $72,000 ($360,000 x 20%). This amount must equal fixed costs because sales equal the sum of fixed and variable costs at the breakeven point.

• Question 203:

  Residco; Inc expects net income of $800,000 for the next fiscal year. Its targeted and current capital structure is 40% debt and 60% common equity. The director of capital budgeting has determined that the optimal capital spending for next year is $1 2 million. If Residco follows a strict residual dividend policy, what is the expected dividend-payout ratio for next year'?

  A. 90.0%
  B. 66. 7%
  C. 40.0%
  D. 10.0%
  D. 10.0%

  ---

  Explanation

  Under the residual theory of dividends, the residual of earnings paid as dividends depends on the available investments and the debt-equity ratio at which cost of capital is minimized. The rational investor should prefer reinvestment of retained earnings when the return exceeds what the investor could earn on investments of equal risk. However, the firm may prefer to pay dividends when investment returns are poor and the internal equity financing would move the firm away from its ideal capital structure. If Residco wants to maintain its current structure, 60% of investments should be financed from equity. Hence, it needs $720,000 ($1,200,000 x 60%) of equity funds, leaving $80,000 of net income ($800,000 NI - $720,000) available for dividends. The dividend-payout ratio is therefore 10% ($80,000 --$800,000 NI)

• Question 204:

  A company experiences both variable usage rates and variable lead times for its inventory' items. The probability distributions for both usage and lead times are known. A technique the company could use for determining the optimal safety stock levels for an inventory item is

  A. Queuing theory.
  B. Linear programming.
  C. Decision tree analysis.
  D. The Monte Carlo method.
  D. The Monte Carlo method.

  ---

  Explanation

  Simulation is a technique for experimenting with mathematical models using a computer. The Monte Carlo method is a technique used to generate the individual values for a random variable. This simulates the uncertainly inherent in real-world situations. The model is then run a large number of times, and the variance of the probability' distribution of the results and the average performance are determined.

• Question 205:

  Opportunity costs are

  A. Not used for decision making.
  B. The same as variable costs.
  C. Equal to historical costs.
  D. Relevant to decision making.
  D. Relevant to decision making.

  ---

  Explanation

  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. An opportunity cost is therefore relevant to the decision process.

• Question 206:

  The relevance of a particular revenue to a decision is determined by

  A. Riskiness of the decision.
  B. Number of decision variables.
  C. Amount of the revenue.
  D. Potential effect of the decision.
  D. Potential effect of the decision.

  ---

  Explanation

  Relevance is the capacity of information to make a difference in a decision by helping users of that information to predict the outcomes of events or to confirm or correct prior expectations. Thus, relevant revenues are those expected future revenues that vary with the action taken.

• Question 207:

  A manufacturer can sell its single product for $660.Below are the cost data for the product: Direct Materials $170 Direct Labor 225 Manufacturing Overhead 90

  The relevant margin amount when beginning a theory of constrains (TOC) analysis is A. $490

  B. $345

  C. $265

  D. $175

  Correct Answer. A
  A

  ---

  Explanation

  A theory of constraints (TOC) analysis proceeds from the assumption that only direct materials costs are truly variable in the short run. This is Called throughput .or super variable, costing The relevant margin amount is throughput margin, Which equals price minus direct materials. Thus, the relevant margin amount for this manufacturer is $490 ($660-$170).

• Question 208:

  Briar Co. signed a government construction contract providing for a formula price of actual cost plus 10%. In addition, Briar was to receive one-half of any savings resulting from the formula price's being less than the target price of $2. 2 million. Briar's actual costs incurred were $1,920,000. How much should Briar receive from the contract?

  A. $2,060,000
  B. $2,112,000
  C. $2,156,000
  D. $2,200,000
  C. $2,156,000

  ---

  Explanation

  The formula price is 110% of actual cost, or $2,112,000 (110% x $1,920,000), a savings of $88,000 on the $2,200,000 target price. Accordingly, Briar should receive $2,156,000 {$2,1 12,000 + [50% x ($2,200,000 -- $2,1 1 2,000)]}.

• Question 209:

  Woods, Inc. is considering four independent investment proposals. Woods has $3 million available for investment during the present period. The investment outlay for each project and its projected net present value (NPV) is presented below.

  

  Which of the following project options should be recommended to Woods' management?

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

  ---

  Explanation

• Question 210:

  The Summers Company manufactures a vanity of industrial valves. Current', the company is operating at about 70% capacity and is earning a satisfactory return on investment. Management has been approached by Glasgow Industries Ltd. of Scotland

  with an offer to buy 120.000 units of a pressure valve. Glascow manufactures a valve that is almost identical to Summers' pressure valve; however, a fire in Glascow Industries' valve plant has shut down its manufacturing operations. Glascow needs the 120,000 valves over the next 4 months to meet commitments to its regular customers; the company is prepared to pay $19 each for the valves. FOB shipping point. Summers' product cost, based on current attainable standards. for the pressure valve is

  

  Manufacturing overhead is applied to production at the rate of $18 per standard direct labor hour This overhead rate is made up of the following components

  

  How many additional direct Labor hours would be required each month to fill the Glascow order?

  A. 10,000
  B. 15,000
  C. 30,000
  D. 120,000
  B. 15,000

  ---

  Explanation

  The manufacturing overhead rate is $18 per standard direct labor hour and the standard product cost includes $9 of manufacturing overhead per pressure valve. Accordingly, the standard direct labor hour per finished valve is 112 hour ($9 / $18). Therefore, 30,000 units per month would require 15,000 direct labor hours.