IMANET IMANET Certifications IMANET-CMA Questions & Answers

• Question 211:

  In an insourcing vs. outsourcing decision1 the decision process favors the use of total costs rather than unit costs. The reason is that

  A. Unit cost may be calculated based on different volumes.

  B. Irrelevant costs may be included in the unit amounts.

  C. Allocated costs may be included in the unit amounts.

  D. All of the answers are correct.

  Correct Answer: D

  Unit costs should be used with extreme care. In each situation, they may be calculated based on a different volume level from that anticipated, so comparability may be lost. Irrelevant costs included in the unit cost should be disregarded; only relevant costs should be included in the analysis. Allocated costs should also be ignored, and only the relevant costs that will change with the option chosen should be considered.

• Question 212:

  In an insourcing vs. outsourcing situation, which of the following qualitative factors is usually considered?

  A. Special technology.

  B. Skilled labor.

  C. Special materials requirements.

  D. All of the answers are correct.

  Correct Answer: D

  Special technology may be available either within or outside the firm that relates to the particular product.

  The firm may possess necessary skilled labor or the supplier may.

  Special materials requirements may also affect the decision process because one supplier may have

  monopolized a key component. Another factor to be considered is that assurance of quality' control is often

  a reason for making rather than buying.

• Question 213:

  What is the opportunity cost of making a component part in a factory given no alternative use of the capacity?

  A. The variable manufacturing cost of the component.

  B. The total manufacturing cost of the component.

  C. The total variable cost of the component.

  D. Zero.

  Correct Answer: D

  Opportunity cost is the benefit forgone by not selecting the best alternative use of scarce resources. The opportunity cost is zero when no alternative use is available.

• Question 214:

  Costs relevant to an insourcing vs. outsourcing decision include variable manufacturing costs as well as

  A. Avoidable fixed costs.

  B. Factory depreciation.

  C. Property taxes.

  D. Factory management costs.

  Correct Answer: A

  Relevant costs are anticipated costs that will vary among the choices available. If two courses of action share some costs, those costs are not relevant because they will be incurred regardless of the decision made. Relevant costs include fixed costs that could be avoided if the items were purchased from an outsider.

• Question 215:

  A company's approach to an insourcing vs. outsourcing decision

  A. Depends on whether the company is operating at or below normal volume.

  B. Involves an analysis of avoidable costs.

  C. Should use absorption (full) costing.

  D. Should use activity-based costing.

  Correct Answer: B

  Available resources should be used as efficiently as possible before outsourcing. If the total relevant costs of production are less than the cost to buy the item, it should be produced in-house. The relevant costs are those that can be avoided.

• Question 216:

  A company has 7,000 obsolete toys carried in inventory at a manufacturing cost of $6 per unit. If the toys are reworked for $2 per unit, they could be sold for $3 per unit. If the toys are scrapped, they could be sold for $1.85 per unit. Which alternative is more desirable (rework or scrap), and what is the total dollar amount of the advantage of that alternative?

  A. Scrap, $5950.

  B. Rework, $36,050.

  C. Scrap, $47950.

  D. Rework, $8050.

  Correct Answer: A

  The original manufacturing cost of $6 per unit is a sunk cost that is not relevant to this decision. The relevant costs are the amounts that must be expended now. Hence, selling the toys for scrap has a $5,950 advantage because rework will produce an additional $7,000 [7,000 x ($3-- $2)], whereas the alternative generates an additional $12,950 (7,000 x $1.85).

• Question 217:

  Pontotoc Industries manufactures a product that is used as a subcomponent by other manufacturers. It has the following price and cost structure: Pontotoc received a special, one-time order for 1,000 units of its product. However, Pontotoc has an alternative use for this capacity that will result in a contribution of $20,000. The minimum unit price for this special, onetime order is in excess of

  

  A. $200

  B. $180

  C. $140

  D. $120

  Correct Answer: D

• Question 218:

  Pontotoc Industries manufactures a product that is used as a subcomponent by other manufacturers. It has the following price and cost structure:

  

  Pontotoc received a special, one-time order for 1,000 of the above parts. Assuming Pontotoc has excess capacity, the minimum unit price for this special, one-time order is in excess of

  A. $180

  B. $120

  C. $100

  D. $160

  Correct Answer: C

  In a special order situation, a company with excess capacity has a $0 opportunity cost of filling the special order. Accordingly, it should be willing to sell the product at a price that exceeds its incremental costs The incremental (relevant) costs for Pontotoc equal the variable costs of SIOC (S40 direct materials + S30 direct labor + $24 variable overhead + $6 variable selling costs). Thus, if the selling price is in excess of $100, the company should be willing to accept the order.

• Question 219:

  Geary Manufacturing has assembled the data appearing in the next column pertaining to two products. Past experience has shown that the unavoidable fixed manufacturing factory overhead included in the cost per machine hour averages $10. Geary has a policy of filling all sales orders, even if it means purchasing units from outside suppliers. Total machine capacity is 50,000 hours.

  

  With all other things constant, if Geary Manufacturing is able to reduce the direct materials for an electric mixer to $6 a per unit, the company should

  A. Produce 25,000 electric mixers and purchase all other units as needed.

  B. Produce 20,000 blenders and 15,000 electric mixers, and purchase all other units as needed.

  C. Produce 20,000 blenders and purchase all other units as needed.

  D. Purchase all units as needed.

  Correct Answer: A

• Question 220:

  Geary Manufacturing has assembled the data appearing in the next column pertaining to two products. Past experience has shown that the unavoidable fixed manufacturing factory overhead included in the cost per machine hour averages $10. Geary has a policy of filling all sales orders, even if it means purchasing units from outside suppliers. Total machine capacity is 50,000 hours.

  

  If Geary Manufacturing desires to follow an optimal strategy, it should produce a

  A. 25,000 electric mixers and purchase all other units as needed.

  B. 20000 blenders and 15,000 electric mixers, and purchase all other units as needed.

  C. 20,000 blenders and purchase all other units as needed.

  D. 28,000 electric mixers and purchase all other units as needed.

  Correct Answer: B