IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 501:

  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.
  C. Predatory pricing

  ---

  Explanation

  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 502:

  Romashka, Inc. plans to introduce a new product. The marketing manager forecasts a unit selling price of $500. The variable cost per unit is estimated to be $100. In addition1 there is a total of $110,000 fixed indirect manufacturing costs, and $150000 in fixed operating costs associated with these units. What quantity will the company have to sell to break even?

  A. 220 units.
  B. 275 units.
  C. 520 units.
  D. 650 units.
  D. 650 units.

  ---

  Explanation

• Question 503:

  The CEO of a rapidly growing high-technology firm has exercised centralized authority over all corporate functions. Because the company now operates in four states, the CEO is considering the advisability of decentralizing operational control over production and sales. Which of the following conditions probably will result from and be a valid reason for decentralizing"

  A. Greater local control over compliance with federal regulations.
  B. More efficient use of headquarters staff officials and specialists.
  C. Quicker and better operating decisions
  D. Greater economies in purchasing
  C. Quicker and better operating decisions

  ---

  Explanation

  Decentralization results in greater speed in making operating decisions because they are made by lower-level managers instead of being referred to top management. The quality of operating decisions should also be enhanced, assuming proper training of managers, because those closest to the problems should be the most knowledgeable about them.

• Question 504:

  An organization's executive committee, meeting to solve an important problem, spent 30 minutes analyzing data and debating the cause of the problem. Finally, they agreed and could move onto the next step. Possible steps in the creative problem-solving process are listed below. Which step should the committee perform next?

  A. Select a solution.
  B. Generate alternative solutions.
  C. Identify the problem.
  D. Consider the reaction of competitors to various courses of action.
  B. Generate alternative solutions.

  ---

  Explanation

  Robert Kreisler [Management, 9th ed., Houghton-Mifflin (2004), page 268] states that "managerial problem solving consists of a four-step sequence: (1) identifying the problem, (2) generating alternative solutions, (3) selecting a solution, and

  (4) implementing and evaluating the solution." In the first step, management determines what the actual situation is, what the desired situation is, and the reason for the difference.

• Question 505:

  The Dixon Corporation has an outstanding 1-year bank loan of $300,000 at a stated interest rate of 8% In addition, Dixon is required to maintain a 20% compensating balance in its checking account. Assuming the company would normally maintain a zero balance in its checking account, the effective interest rate on the loan is

  A. 6. 4%
  B. 8.0%
  C. 20%
  D. 10.0%
  D. 10.0%

  ---

  Explanation

  The requirement to maintain a compensating balance of 20% of the $300,000 loan means that the borrower has effective use of only 80% of the loan, or $240,000. The 8% interest rate applied to a $300,000 loan requires an annual interest expenditure of $24,000. In turn, paying $24,000 for the use of $240,000 indicates an effective interest rate of 10%.

• Question 506:

  Barnes Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented in the next column.

  

  For the coming year1 the management of Barnes Corporation anticipates a 10% increase in sales, a 12% increase in variable costs, and a $45,000 increase in fixed expenses. The breakeven point for next year will be

  A. $729,027
  B. $862,103
  C. $214,018
  D. $474,000
  A. $729,027

  ---

  Explanation

• Question 507:

  Decisions are frequently classified as those made under certainly and those made under uncertainly. Certainly exists when

  A. The probability of the event is less than 1. B. There is absolutely no doubt that an event will occur.
  C. There is more than one outcome for each possible action.
  D. There is risk involved.
  B

  ---

  Explanation

  An event is certain if there is no doubt that it will occur. The probability is I if an event is certain to occur and 0 if it is certain not to occur. Under conditions of certainly, consequences are therefore deterministic, not 1probabilistic or unknown.

• Question 508:

  The Keego Company is planning a $200,000 equipment investment which has an estimated 5-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment.

  

  Assuming that the estimated cash inflows occur evenly during each year, the payback period for the investment is

  A. 1.67years.
  B. 4. 91 years.
  C. 2. 50 years.
  D. 1.96years.
  C. 2. 50 years.

  ---

  Explanation

  The payback period is the number of years required to complete the return of the original investment. The principal problems with the payback method are that it does not consider the time value of money and the inflows after the payback period. The inflow for the first year is $120,000, the second year is $60,000, and the third year is $40,000, a total of $220,000. Given an initial investment of $200,000. the payback period must be between 2 and 3 years. If the cash inflows occur evenly throughout the year, $20,000 ($200,000 --$120,000-- $60,000) of cash inflows are needed in year 3, which is 50% of that year's total. Thus, the answer is 2. 5 years.

• Question 509:

  A decision model is a formal means of choosing future courses of action. The programmed decision process and the non programmer decision process are used for making decisions. What is the difference between the two?

  A. The programmed decision process is used for complex situations.
  B. The programmed decision process is not based upon decision rules.
  C. The non programmer decision process requires answers to four questions.
  D. No difference exists between the two.
  C. The non programmer decision process requires answers to four questions.

  ---

  Explanation

  Management accountants provide qualitative information as well as quantitative financial and 1nonfinancial information useful in applying a decision model, The programmed decision process is used for routine or repetitive decisions. The non programmer decision process is used for complex. no routine situations calling for the use of the problem- solving process. Pour questions need to be answered before making a non programmer decision.

• Question 510:

  Handy operates a chain of hardware stores across Ohio. The controller wants to determine the optimum safely stock levels for an air purifier unit. The inventory manager compiled the following data:

  ?The annual carrying cost of inventory approximates 20% of the investment in inventory. ?The inventory investment per unit averages $50. ?The stock out cost is estimated to be $5 per unit. ?The company orders inventory on the average of

  10 times per year. ?Total cost = carrying cost + expected stock out cost. ?The probabilities of a stock out per order cycle with varying levels of safely stock are as follows:

  

  The total cost of safely stock on an annual basis with a safely stock level of 100 units is

  A. $1750
  B. $1950
  C. $550
  D. $2000
  A. $1750

  ---

  Explanation

  Total cost is defined as carrying cost plus expected stock out cost. At 20% of the $50 unit inventory cost, carrying cost is $10 per unit per year. Thus. carrying cost for 100 units of safely stock is $1 .000. A stock out has a 15% probability at this level of safely stock, and stock out costs are $500 (100 x $5) for each occurrence. If the firm orders 10 times per year, the expected number of stock outs is 1.5(15% x 10). Hence, total expected stock out cost for they aeries $750 ($500x1.5). Total cost is $1750 per year ($1 .000 + $750).