IMANET IMANET Certifications IMANET-CMA Questions & Answers

• Question 501:

  Assuming all manufacturing costs for finished goods are known1 which of the following statements explains why the accountant's unit cost used in inventory valuation for the annual financial statements would differ from the economist's marginal unit cost?

  A. The company used LIEO or EIEO assumptions to compute inventory cost.

  B. Accounting information that is based on historical manufacturing costs ignores current cost trends.

  C. The economist's definition of marginal cost excludes a provision for profit per unit.

  D. The manufacturing cost per unit reflected in financial statements includes fixed costs.

  Correct Answer: D

  The economist's marginal cost equals the cost to produce one additional unit no fixed costs are included in the computation. It is the equivalent of the accountants unit variable cost, which is an incremental unit cost. However, the accountant's unit cost for financial statement purposes includes an allocation of fixed costs.

• Question 502:

  The following data were collected from the records of the shipping department of a company:

  

  The cost of shipping supplies is most likely to be a

  A. Variable cost.

  B. Fixed cost.

  C. Step cost.

  D. Semi-fixed cost.

  Correct Answer: A

  Variable costs are constant per unit but fluctuate in total with activity or volume (the rate of use of capacity). The cost per unit for shipping supplies is relatively constant at about $5, so this cost is variable.

• Question 503:

  Quo Co. rented a building to Hava Fast Food. Each month Quo receives a fixed rental amount plus a variable rental amount based on Hava's sales for that month. As sales increase, so does the variable rental amount but at a reduced rate. Which of the following curves reflects the monthly rentals under the agreement?

  

  A. I

  B. II

  C. III

  D. IV

  Correct Answer: A

  Fixed cost remains unchanged within the relevant range for a given period despite fluctuations in activity, but variable costs vary directly with the activity. Because a portion of the rental revenue is a fixed cost, it will never be zero regardless of sales. Because the total variable cost increases at a reduced rate as sales increase, the per-unit variable cost is not fixed. Furthermore, as sales increase overtime1 the rental revenue increases at a diminishing amount as represented by Curve I.

• Question 504:

  Costs that increase as the volume of activity decreases within the relevant range are

  A. Average costs per unit.

  B. Average variable costs per unit.

  C. Total fixed costs.

  D. Total variable costs.

  Correct Answer: A

  As production levels decrease, total fixed costs must be allocated over fewer units. This increase in average fixed costs per unit increases total average cost per unit.

• Question 505:

  When the number of units manufactured increases, the most significant change in average unit cost will be reflected as

  A. An increase in the nonvariable element.

  B. A decrease in the variable element.

  C. A decrease in the nonvariable element.

  D. An increase in the semivariable element.

  Correct Answer: C

  As production increases or decreases, the most significant change in the average unit cost will occur in the fixed (nonvariable) cost element. When production increases, the average cost of the nonvariable element per unit will decrease because total fixed cost is constant.

• Question 506:

  A company has always used the full cost of its product as the starting point in the pricing of that product. The price set by competitors and the demand for the company's only product, the Widget, have never been predictable. Lately, the company's market share has been increasing as it continues to lower its price, but total revenues have not changed significantly relative to the gain in sales volume. The likely reason for the stability of total revenues is the

  A. Variable cost component of the full cost.

  B. Unstable contribution margin.

  C. Fixed cost component of the full cost.

  D. Drop in the incremental cost of the units in the increased sales volume.

  Correct Answer: C

  Fixed costs remain fixed in total at different activity levels. Thus, unit fixed cost will vary inversely with the activity level. The use of full cost pricing results in a lowering of unit fixed cost used as a basis for unit price as sales increase. The consequence is a reduction of the unit sales price (assuming a constant unit profit margin is maintained). Total revenues may remain approximately the same as sales volume increases.

• Question 507:

  Unit fixed costs

  A. Are constant per unit regardless of units produced or sold.

  B. Are determined by dividing total fixed costs by a denominator such as production or sales volume.

  C. Vary directly with the activity level when stated on a per-unit basis.

  D. Include both fixed and variable elements.

  Correct Answer: B

  A unit fixed cost is equal to total fixed costs divided by an appropriate denominator or activity level. The resulting average or unit fixed cost must be used with extreme caution in decision making.

• Question 508:

  The difference between the sales price and total variable costs is

  A. Gross operating profit.

  B. Net profit.

  C. The breakeven point.

  D. The contribution margin.

  Correct Answer: D

  Contribution margin equals sales revenue minus all variable costs. It is the portion of sales available for covering fixed costs and profit.

• Question 509:

  Joint costs are those costs

  A. Of products requiring the services of two or more processing departments.

  B. Of a product from a common process that has relatively little sales value and only a small effect on profit.

  C. Of production that are combined in the overhead account.

  D. Of two or more products produced from a common process.

  Correct Answer: D

  Joint costs are the common costs of producing two or more inseparable products up to the point at which they become separable (the split-off point). The products are then sold as identifiably separate products or are processed further.

• Question 510:

  Life-cycle costing

  A. Is sometimes used as a basis for cost planning and product pricing.

  B. Includes only manufacturing costs incurred over the life of the product.

  C. Includes only manufacturing cost, selling expense, and distribution expense.

  D. Emphasizes cost savings opportunities during the manufacturing cycle.

  Correct Answer: A

  Life-cycle costing estimates a product's revenues and expenses over its expected life cycle. This approach is especially useful when revenues and related costs do not occur in the same periods. It emphasizes the need to price products to cover all costs, not just those for production. Hence, costs are determined for all value chain categories: upstream (RandD, design), manufacturing, and downstream (marketing, distribution, and customer service). The result is to highlight upstream and downstream costs in the cost planning process that often receive insufficient attention.