IMANET IMANET Certifications IMANET-CMA Questions & Answers

• Question 201:

  If a U.S. manufacturer's price in the U.S. market is below an appropriate measure of costs and the seller has a reasonable prospect of recovering the resulting loss in the future through higher prices or a greater market share, the seller has engaged in

  A. Collusive pricing.

  B. Dumping.

  C. Predatory pricing.

  D. Price discrimination.

  Correct Answer: C

  Predatory pricing is intentionally pricing below cost to eliminate competition and reduce supply. Federal statutes and many state laws prohibit the practice. The U.S. Supreme Court has held that pricing is predatory when two conditions are met (1)the seller's price is below "an appropriate measure of its costs," and (2) it has a reasonable prospect of recovering the resulting loss through higher prices or greater market share.

• Question 202:

  Vince, Inc. has developed and patented a new laser disc reading device that will be marketed internationally. Which of the following factors should Vince consider in pricing the device?

  l.

  Quality of the new device Il. Life of the new device Ill. Customers' relative preference for quality compared with price

  A.

  I and II only.

  B.

  I and Ill only.

  C.

  II and Ill only.

  D.

  I, II, and Ill.

  Correct Answer: D

  Product pricing is a function of consumer demand, competitive factors, and the seller's cost structure and profit objectives. Thus, the seller must consider the trade-off between the price and quality effects on demand. A better-quality' product, for example, one with a relatively long useful life, is more costly to produce and therefore sells for a higher price, which in turn reduces the amount demanded.

• Question 203:

  Clay Co. has considerable excess manufacturing capacity. A special job order's cost sheet includes the following applied manufacturing overhead costs: Fixed costs $21,000 Variable costs 33,000

  The fixed costs include a normal $3,700 allocation for in-house design costs, although no in-house design will be done. Instead, the job will require the use of external designers costing $7,750. What is the total amount to be included in the calculation to determine the minimum acceptable price for the job?

  A. $36,700

  B. $40,750

  C. $54,000

  D. $58,050

  Correct Answer: B

  Given excess capacity, the company presumably will not incur opportunity costs if it accepts the special order. Assuming also that fixed costs will be unaffected, the incremental cost of the order (the minimum acceptable price) will be $40,750 ($33,000 VC + $7,750 cost of external design).

• Question 204:

  When only differential manufacturing costs are taken into account for special-order pricing, an essential assumption is that

  A. Manufacturing fixed and variable costs are linear.

  B. Selling and administrative fixed and variable costs are linear.

  C. Acceptance of the order will not affect regular sales.

  D. Acceptance of the order will not cause unit selling and administrative variable costs to increase.

  Correct Answer: C

  Granting a lower-than-normal price for a special order has potential ramifications for regular sales because other customers may demand the same price. Thus, the decision to consider differential manufacturing costs only should be based on a determination that all other costs are not relevant, that is, that these other costs do not vary with the option chosen.

• Question 205:

  Which of the following cost allocation methods is used to determine the lowest price that can be quoted for a special order that will use idle capacity within a production area?

  A. Job order.

  B. Process.

  C. Variable.

  D. Standard.

  Correct Answer: C

  If idle capacity exists, the lowest feasible price for a special order is one covering the variable cost. Variable costing considers fixed cost to be a period cost, not a product cost. Fixed costs are not relevant to short term inventory costing with idle capacity because the fixed costs will be incurred whether or not any production occurs. Any additional revenue in excess of the variable costs will decrease losses or increase profits.

• Question 206:

  When considering a special order that will enable a company to make use of currently idle capacity. which of the following costs is irrelevant?

  A. Materials.

  B. Depreciation.

  C. Direct labor.

  D. Variable overhead.

  Correct Answer: B

  Because depreciation will be expensed whether or not the company accepts the special order, it is irrelevant to the decision. Only the variable costs are relevant.

• Question 207:

  Production of a special order will increase gross profit when the additional revenue from the special order is greater than

  A. The direct materials and labor costs in producing the order.

  B. The fixed costs incurred in producing the order.

  C. The indirect costs of producing the order.

  D. The marginal cost of producing the order.

  Correct Answer: D

  Gross profit will increase if the incremental or marginal cost of producing the order is less than the marginal revenue. Marginal cost equals the relevant variable costs assuming fixed costs are not affected by the special order.

• Question 208:

  A company needs special gears. The machinery to make the gears can be rented for $100000 for 1 year, but the company can buy the gears and avoid the rental cost. Because the demand for the gears may be high (0.6 probability) or low (0.4 probability) and contribution margins vary, the company prepared the following decision tree:

  

  Which of the following statements is true?

  A. The expected value of making is $20,000.

  B. The expected value of buying is $70000.

  C. Making the gears is the best choice.

  D. Buying the gears is the best choice.

  Correct Answer: B

• Question 209:

  The ABC Company manufactures components for use in producing one of its finished products. When 12,000 units are produced, the full cost per unit is $35, separated as follows: Direct materials $ 5 Direct labor 15 Variable overhead 10 Fixed overhead 5 The XYZ Company has offered to sell 12,000 components to ABC for $37 each. If ABC accepts the offer, some of the facilities currently being used to manufacture the components can be rented as warehouse space for $40,000. However, $3 of the fixed overhead currently applied to each component would have to be covered by ABC's other products. What is the differential cost to the ABC Company of purchasing the components from the XYZ Company?

  A. $8000

  B. $20,000

  C. $24,000

  D. $44,000

  Correct Answer: B

• Question 210:

  Which of the following qualitative factors favors the buy choice in an insourcing vs. outsourcing decision?

  A. Maintaining a long-run relationship with suppliers is desirable.

  B. Quality control is critical.

  C. Idle capacity is available.

  D. All of the answers are correct.

  Correct Answer: A

  The maintenance of long-run relationships with suppliers may become paramount in a make-or-buy decision. Abandoning long-run supplier relationships may cause difficulty in obtaining needed parts when terminated suppliers find it advantageous not to supply parts in the future.