IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 411:

  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.
  B. Depreciation.

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  Explanation

  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 412:

  Assume that the Entertainment Division is able to purchase a large quantity of video cards from an outside source at $8.70 per unit. The Video Cards Division, having excess capacity, agrees to lower its transfer price to $8.70 per unit. This action would

  A. Optimize the profit goals of the Entertainment Division while subverting the profit goals of Parkside.
  B. Allow evaluation of both divisions on the same basis.
  C. Subvert the profit goals of the Video Cards Division while optimizing the profit goals of the Entertainment Division.
  D. Optimize the overall profit goals of Parkside.
  D. Optimize the overall profit goals of Parkside.

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  Explanation

• Question 413:

  When a company offers credit terms of 2/101 net 301 the annual interest cost1 based on a 360-dayyear, is

  A. 24. 0%.
  B. 35. 3%.
  C. 35. 3%.
  D. 36. 7%.
  D. 36. 7%.

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  Explanation

  Assume that the gross amount of an invoice is $1 .000. With a 2% discount1 the buyer will pay only $980 on the tenth day. Thus, the seller is forgoing $20 to receive payment 20 days sooner than would otherwise be required. The 20-day interest rate is .0204 ($20 $980). The number of 20-day periods in years 18(360 + 20). If the interest rate is 2. 04% for each 20-day period, the annual interest rate (rounded to the nearest tenth) is 36. 7% (18 x ,2. 04%).

• Question 414:

  Folsom Fashions sells a line of women's dresses. Folsom's performance report for November is shown below. The company uses a flexible budget to analyze its performance and to measure the effect on operating income of the various factors affecting the difference between budgeted and actual operating income.

  

  What additional information is needed for Folsom to calculate the dollar impact of a change in market share on operating income for November?

  A. Folsom's budgeted market share and the budgeted total market size
  B. Folsom's budgeted market share, the budgeted total market size, and average market selling price
  C. Folsom's budgeted market share and the actual total market size
  D. Folsom's actual market share and the actual total market size
  C. Folsom's budgeted market share and the actual total market size

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  Explanation

  A change in market share reflects a change in relative competitiveness. To isolate the effect on operating income of an increase or a decrease in market share, the company must know its budgeted and actual market shares, the actual size of the market for November, and the budgeted weighted-average unit contribution margin. Such computations may help Folsom to determine whether its decline in sales resulted from a loss of competitiveness or shrinkage of the market.

• Question 415:

  Capital Invest, Inc. uses a 12% hurdle rate for all capital expenditures and has done the following analysis for four projects for the upcoming year:

  

  Which project(s) should Capital Invest, Inc. undertake during the upcoming year if it has only $600,000 of funds available?

  A. Projects 1 and 3.
  B. Projects 2, 3, and 4.
  C. Projects 2 and 3.
  D. Projects 3 and 4.
  D. Projects 3 and 4.

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  Explanation

  Given that only $600,000 is available and that each project costs $200,000 or more, no more than two projects can be undertaken. Because Projects 3 and 4 have the greatest NPVs, profitability indexes, and IRRs, they are the projects in which the company should invest.

• Question 416:

  The recommended technique for evaluating projects when capital is rationed and there are no mutually exclusive projects from which to choose is to rank the projects by

  A. Accounting rate of return.
  B. Payback.
  C. Internal rate of return.
  D. Profitability index.
  D. Profitability index.

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  Explanation

  The profitability index (P1) is often used to decide among investment alternatives when more than one is acceptable. The profitability' index is the ratio of the present value of future net cash inflows to the initial net cash investment. The P1, although a variation of the net present value method, facilitates comparison of different-sized investments.

• Question 417:

  Which of the following pricing policies involves the selling company setting freight charges to customers at the actual average freight cost?

  A. Freight absorption pricing
  B. Uniform delivered pricing
  C. Zone pricing
  D. FOB-origin pricing.
  B. Uniform delivered pricing

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  Explanation

  In uniform delivered pricing, the company charges the same price, inclusive of shipping costs, to all customers regardless of their location. This price is the company's average actual freight cost. Thus, both nearby and distant customers are charged the same amount. This policy is easy to administer, permits the company to advertise one price nationwide, and facilitates marketing to faraway customers.

• Question 418:

  When managing cash and short-term investments, a corporate treasurer is primarily concerned with

  A. Maximizing rate of return.
  B. Minimizing taxes.
  C. Investing in Treasury bonds since they have no default risk.
  D. Liquidly and safety.
  D. Liquidly and safety.

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  Explanation

  Cash and short-term investments are crucial to a firm's continuing success. Sufficient liquidly must be available to meet payments as they come due. At the same time, liquid assets are subject to significant control risk. Therefore, liquidly and safety are the primary concerns of the treasurer when dealing with highly liquid assets. Cash and short-term investments are held because of their ability to facilitate routine operations of the company. These assets are not held for purposes of achieving investment returns.

• Question 419:

  When used in cost-volume-profit analysis, sensitivity! Analysis

  A. Determines the most profitable mix of products to be sold.
  B. Allows the decision maker to introduce probabilities in the evaluation of decision alternatives.
  C. Is done through various possible scenarios and computes the impact on profit of various predictions of future events.
  D. Is limited because, in cost-volume-profit analysis, costs are not separated into fixed and variable components.
  C. Is done through various possible scenarios and computes the impact on profit of various predictions of future events.

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  Explanation

• Question 420:

  Which of the following is a favorable condition for a firm competing in profitable, expanding industry?

  A. The firm does not have a strong customer base.
  B. A few suppliers who can restrict supply.
  C. Competitors find it difficult to acquire the firm's customers.
  D. The firm has high costs relative to other firms in the industry.
  C. Competitors find it difficult to acquire the firm's customers.

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  Explanation

  A firm that has successfully differentiated its products through developing a desirable image, better services, cost leadership, the features of the product, or other means is in a favorable competitive position Competitors find it difficult to acquire the firm's customers, for example, by price cutting. The reason is that the firm's products are perceived to have few substitutes, and brand loyalty is high. Futhermore, barriers to entry are favorable to the firm. These barriers deter competitors from entering the market. Existing firm can increase market share and emphasize cutting costs and increasing value?