IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 421:

  Intense rivalry among firms in an industry increases when there is

  l- A low degree of product differentiation ll- Low consumer switching costs

  A. l only
  B. ll only
  C. Both l and ll
  D. Neither l nor ll
  C. Both l and ll

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  Explanation

  The degree of product differentiation and the costs of switching from one competitor's product to another increase the intensity of rivalry and competition in an industry. Less differentiation tends to heighten competition based on price, with price cutting leading to lower profits. Low costs of switching products also increase competition

• Question 422:

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

  

  What will the contribution margin per unit be if the company sells 10,000 units?

  A. $206
  B. $200
  C. $140
  D. $120
  B. $200

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  Explanation

  Contribution margin is the excess of sales over variable costs Sales will be at $300 per unit. Variable costs are $100. consisting of $40 of direct materials, $30 of direct labor, $24 of variable overhead. and $6 of variable selling costs. Thus, the

  contribution .

  margin will be $200 per unit ($300 --$100)

• Question 423:

  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-ofproduction 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.
  C. Whitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $5. 00.

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  Explanation

  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 424:

  The equity section of Smith Corporation's Statement of Financial Position is presented below. Preferred stock, $100 par $12,000,000 Common stock, $5 par 10,000,000 Paid-in capital in excess of par 18,000,000 Retained earnings 9,000000

  Net worth $49,000,000

  The common shareholders of Smith Corporation have preemptive rights. If Smith Corporation issues 400,000 additional shares of common stock at $6 per share, a current holder of 20,000 shares of Smith Corporation's common stock must be given the option to buy

  A. 1,000 additional shares
  B. 3,774 additional shares.
  C. 4,000 additional shares.
  D. 3,333 additional shares.
  C. 4,000 additional shares.

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  Explanation

  Common shareholders usually have preemptive rights, which means they have first right to purchase any new issues of stock in proportion to their current ownership percentages. The purpose of a preemptive right is to allow stockholders to maintain their current percentages of ownership. Given that Smith had 2,000,000 shares outstanding ($10,000,000?$5 par), an investor with 20.000 shares has a 1% ownership. Hence, this investor must be allowed to purchase 4,000 (400,000 shares x 1%) of the additional shares.

• Question 425:

  The following forms of short-term borrowing are available to a firm: Floating lien Factoring Revolving credit Chattel mortgages Bankers' acceptances Lines of credit Commercial paper

  The forms of short-term borrowing that are unsecured credit are

  A. Floating lien, revolving credit, chattel mortgage, and commercial paper.
  B. Factoring, chattel mortgage, bankers' acceptances, and line of credit.
  C. Floating lien, chattel mortgage, bankers' acceptances, and line of credit.
  D. Revolving credit, bankers' acceptances, line of credit, and commercial paper
  D. Revolving credit, bankers' acceptances, line of credit, and commercial paper

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  Explanation

  An unsecured loan is a loan made by a bank based on credit information about the borrower and the ability of the borrower to repay the obligation The loan is not secured by collateral, but is made on the signature of the borrower. Revolving credit, bankers' acceptances, lines of credit, and commercial paper are all unsecured means of borrowing.

• Question 426:

  Harrison's Spot scars is able k borrow at an annual rate of 7% for two years, using its automobile loans as collateral The loans are made from Nanto Acceptance Company, a whole owned subsidiary. It estimates that its overhaul return from car loans is 11%, once the return on the loans (6. 9%) and economies realized from manifesting costs are factored into the analysis. If the average automobile loan is three years in length, what forward interest rate is implied by this homemade forward contract?

  A. 3. 84%
  B. 7. 82%
  C. 19.45%
  D. 23. 21%
  C. 19.45%

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  Explanation

• Question 427:

  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.
  A. Scrap, $5950.

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  Explanation

  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 428:

  The budget data for the Bid well Company appear below

  

  If fixed costs increased $31 .500 with no other cost or revenue factors changing, the breakeven sales in units is

  A. 34,500 units
  B. 80,500 units.
  C. 69,000 units.
  D. 94,150 units.
  B. 80,500 units.

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  Explanation

  The breakeven point equals fixed costs divided by the contribution margin per unit. The new total for fixed costs is $241,500, and the contribution margin per unit is still $3 The breakeven point is 80,500 units.

• Question 429:

  The DCL Corporation is preparing to evaluate the capital expenditure proposals for the coming year. Because the firm employs discounted cash flow methods of analyses. the cost of capital for the firm must be estimated. The following

  information for DCL Corporation is provided.

  Market price of common stock is $50 per share.

  The dividend next year is expected to be $2. 50 per share.

  Expected growth in dividends is a constant 10%.

  New bonds can be issued at face value with a 13% coupon rate.

  The current capital structure of 40% long-term debt and 60% equity is considered to be optimal

  Anticipated earnings to be retained in the coming year are $3 million.

  The firm has a 40% marginal tax rate.

  If the firm must assume a 10% flotation cost on new stock issuances. what is the cost of new common stock?

  A. 1611%.
  B. 15. 56%.
  C. 15. 05%.
  D. 15. 00%.
  B. 15. 56%.

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  Explanation

  The formula to determine the cost of retained earnings, with the additional flotation cost entered into the calculation, is Cost of new common stock = {D, + [P x (1 -- Flotation cost)]} + G Where: Di = next dividend Po = current price G = growth rate in dividends per share (but the model assumes that the dividend-payout ratio, retention rate, and therefore the EPS growth rate are constant). This yields a cost of new common stock of 15. 56%. Cost of new common stock = {$2. 50 ` [$50.00 x (1.0-- 0..1)] + 01 = ($2. 50 + $45. 00) + 01 = 0.0556 + 0.1 = 0.1556

• Question 430:

  Price Publishing is considering a change in its credit terms from n/30 to 2/10, n/30. The company's budgeted sales for the coming year are $24,000,000, of which 90% are expected to be made on credit. If the new credit terms are adopted. Price estimates that discounts will be taken on 50% of the credit sales; however, uncollectible accounts will be unchanged. The new credit terms will result in expected discounts taken in the coming year of

  A. $216,000.
  B. $432,000.
  C. $240,000.
  D. $480,000.
  A. $216,000.

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  Explanation

  If 90% of the $24,000,000 of sales are on credit, $21,600,000 of sales will be subject to the discount. If 50% of the credit customers take the discount, discounts will be taken on sales of $10,800,000. The expected discount will be $216,000 ($10,800,000 x 2%).