IMANET IMANET Certifications IMANET-CMA Questions & Answers

• Question 231:

  Whitehall Corporation produces chemicals used in the cleaning industry. During the previous month, Whitehall incurred $300,000 of joint costs in producing 60,000 units of AM-12 and 40,000 units of BM-36. Whitehall uses the units-of-production method to allocate joint costs. Currently, AM-12 is sold at split-off for $3.50 per unit. Flank Corporation has approached Whitehall to purchase all of the production of AM-12 after further processing. The further processing will cost Whitehall $90,000. Concerning AM- 12, which one of the following alternatives is most advantageous?

  A. Whitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $3.00, which covers the joint costs.

  B. Whitehall should continue to sell at split-off unless Flank offers at least $4.50 per unit after further processing, which covers Whitehall's total costs.

  C. Whitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $5.00.

  D. Whitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $5.25, which maintains the same gross profit percentage.

  Correct Answer: C

  The unit price of the product at the split-off point is known to be $3.50, so the joint costs are irrelevant. The additional unit cost of further processing is $1.50 ($90,000 ?60,000 units). Consequently, the unit price must be at least $5.00 ($3.50 opportunity cost + $1 .50)

• Question 232:

  N-Air Corporation uses a joint process to produce three products: A, B, and C, all derived from one input. The company can sell these . products at the point of split-off (end of the joint process) or process them further. The joint production costs during October were $10,000. N-Air allocates joint costs to the products in proportion to the relative physical volume of output. Additional information is presented in the opposite column.

  

  Assuming sufficient demand exists, N-Air could sell all the products at the prices previously mentioned at either the split-off point or after further processing. To maximize its profits, N-Air Corporation should

  A. Sell product A at split-oft and perform additional processing on products B and C.

  B. Sell product B at split-oft and perform additional processing on products C and A.

  C. Sell product C at split-off and perform additional processing on products A and B.

  D. Sell products A, B, and C at split-off.

  Correct Answer: C

• Question 233:

  N-Air Corporation uses a joint process to produce three products: A, B, and C, all derived from one input. The company can sell these . products at the point of split-off (end of the joint process) or process them further. The joint production costs during October were $10,000. N-Air allocates joint costs to the products in proportion to the relative physical volume of output. Additional information is presented in the opposite column.

  

  Assuming that all products were sold at the split-off point during October, the gross profit from the production process would be

  A. $13,000

  B. $10,000

  C. $8,625

  D. $3,000

  Correct Answer: D

• Question 234:

  Copeland Inc. produces X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade the product to become Xylene. The following information has been gathered:

  I. Selling price per pound of X-547 II. Variable manufacturing costs of upgrade process Ill. Avoidable fixed costs of upgrade process

  IV.

  Selling price per pound of Xylene

  V.

  Joint manufacturing costs to produce X-547

  Which items should be reviewed when making the upgrade decision?

  A. I, II, and IV only.

  B. I, II, Ill, and IV only.

  C. I, II, IV, and V only.

  D. II and Ill only.

  Correct Answer: B

  Common, or joint, costs cannot be identified with a particular joint product. By definition, joint products have common costs until the split-off point. Costs incurred after the split-off point are separable costs. The decision to continue processing beyond split- off is made separately for each product. The costs relevant to the decision are the separable costs because they can be avoided by selling at the split-off point. They should be compared with the incremental revenues from processing further. Thus, items I. (revenue from selling at split-off point), II. (variable costs of upgrade), Ill. (avoidable fixed costs of upgrade), and IV. (revenue from selling after further processing) are considered in making the upgrade decision.

• Question 235:

  A firm produces two joint products (A and B) from one unit of raw material, which costs $1,000. Product A can be sold for $700 and product B can be sold for $500 at the split-off point. Alternatively, both A and/or B can be processed further and sold for $900 and $1 ,200, respectively. The additional processing costs are $100 for A and $750 for B. Should the firm process products A and B beyond the split-off point?

  A. Both A and B should be processed further.

  B. Only B should be processed further.

  C. Only A should be processed further.

  D. Neither product should be processed further.

  Correct Answer: C

  The incremental costs ($100) for A are less than the incremental revenue ($200). However, the incremental costs of B ($750) exceed the incremental revenue ($700). Consequently, the firm should process A further and sell B at the split-off point.

• Question 236:

  In joint-product costing and analysis, which one of the following costs is relevant when deciding the point at which a product should be sold to maximize profits?

  A. Separable costs after the split-off point.

  B. Joint costs to the split-off point.

  C. Sales salaries for the period when the units were produced.

  D. Purchase costs of the materials required for the joint products.

  Correct Answer: A

  Joint products are created from processing a common input. Common costs are incurred prior to the split-off point and cannot be identified with a particular joint product. As a result, common costs are irrelevant to the timing of sale. However, separable costs incurred after the split-off point are relevant because, if incremental revenues exceed the separable costs, products should be processed further, not sold at the split-off point.

• Question 237:

  Kator Co. is a manufacturer of industrial components. One of their products that is used as a subcomponent in auto manufacturing is KB-96. This product has the following financial structure per unit.

  

  KatorCo. has received a special, one-time order for 1,000 KB-96 parts. Assume that Kator is operating at full capacity and that the contribution margin of the output that would be displaced by the special order is $10,000. Using the original data, the minimum price that is acceptable for this one-time special order is in excess of

  A. $60

  B. $70

  C. $87

  D. $100

  Correct Answer: A

  Given no excess capacity, the price must cover the incremental costs. The incremental costs for KB-96 equal $50 ($20 direct materials + $15 direct labor + $12 variable overhead + $3 shipping and handling).Opportunity cost is the benefit of the next best alternative use of scarce resources. Because acceptance of the special order would cause the company to forgo a contribution margin of $10,000, that amount must be reflected in the price. Hence, the minimum unit price is $60 [$50 unit incremental cost +($10,000 lost CM / 1,000 units )].

• Question 238:

  Kator Co. is a manufacturer of industrial components. One of their products that is used as a subcomponent in auto manufacturing is KB-96. This product has the following financial structure per unit.

  

  During the next year, KB-96 sales are expected to be 10000 units. All of the costs will remain the same except that fixed manufacturing overhead will increase by 20% and direct materials will increase by 10%. The selling price per unit for next year will be

  A. $620.000

  B. $750,000

  C. $1,080,000

  D. $1,110,000

  Correct Answer: C

• Question 239:

  Kator Co. is a manufacturer of industrial components. One of their products that is used as a subcomponent in auto manufacturing is KB-96. This product has the following financial structure per unit

  

  Kator Co. has received a special, one-time order for 1,000 KB-96 parts. Assuming Kator has excess capacity, the minimum price that is acceptable for this one-time special order is in excess of

  A. $47

  B. $50

  C. $60

  D. $77

  Correct Answer: B

  A company must cover the incremental costs of a special order when it has excess capacity. The incremental costs for product KB-96 are $50 ($20 direct materials + $15 direct labor + $12 variable overhead + $3 shipping and handling). The fixed costs will not change as a result of the special order, so they are not relevant. Thus, any price in excess of $50 per unit is acceptable.

• Question 240:

  Which one of the following planning techniques is most likely to be used to determine which business units will receive additional capital and which will be divested?

  A. Competitive strategies model.

  B. Portfolio matrix analysis.

  C. Scenario development.

  D. Situational analysis.

  Correct Answer: B

  Business units may be treated as elements of an investment portfolio. A portfolio should be efficient in balancing the risk with the rate of return on the portfolio. The expected rate of return of a portfolio is the weighted average of the expected returns of the individual assets in the portfolio. The variability (risk) of a portfolio's return is determined by the correlation of the returns of individual portfolio assets. To the extent the returns are not perfectly positively correlated, variability is decreased. Thus, business units should be selected that increase returns and diversify and reduce risk.