IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 511:

  Yonder Motors sells 20,000 automobiles per year for $25,000 each. The firm's average receivables are $30,000,000 and average inventory is $40,000,000. Yoder's average collection period is closest to which one of the following? Assume a 365-day year.

  A. 17 days.
  B. 22 days.
  C. 29 days.
  D. 61 days.
  B. 22 days.

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  Explanation

• Question 512:

  A firm ships its product to a foreign subsidiary and charges a price that may increase import duties but lower the income taxes paid by the subsidiary. The most like' reason for these effects is that the

  A. Price is an arm's-length price.
  B. Price is a cost-plus price.
  C. Transfer price is too low.
  D. Transfer price is too high.
  D. Transfer price is too high.

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  Explanation

  A transfer price is the price charged by one subunit of a firm to another, When the subsidiary buyer is in a foreign country, the higher the transfer, the higher the potential tariffs. However, the tax levied on a subsequent sale by the subsidiary will be lower because of its higher acquisition cost.

• Question 513:

  Hermo Company has just completed a hydro-electric plant at a cost of $21,000,000. The plant will provide the company's power needs for the next 20 years. Hermo will use only 60% of the power output annually. At this level of capacity, Hermo's annual operating costs will amount to $1,800,000, of which 80% are fixed. Quigley Company currently purchases its power from MP Electric at an annual cost of $1,200,000. Hermo could supply this power, thus increasing output of the plant to 90% of capacity. This would reduce the estimated life of the plant to 14 years.If Hermo decides to supply power to Quigley, it wants to be compensated for the decrease in the life of the plant and the appropriate variable costs. Hermo has decided that the charge for the decreased life should be based on the original cost of the plant calculated on a straight-line basis. The minimum annual amount that Hermo would charge Quigley would be

  A. $450,000
  B. $630,000
  C. $990,000
  D. Some amount other than those given.
  B. $630,000

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  Explanation

  The minimum charge would include any variable costs incurred plus depreciation on a straight line basis. Currently, variable costs are $360,000 at 60% of capacity ($1 800,000 x 20%). If Quigley purchases energy equal to an additional 30% of capacity, it can be assumed that the increase in total variable costs will be half of the variable costs for 60% of capacity, or $180,000. Also, allocating $21,000,000 over 14 years results in an annual depreciation of $1,500,000. Of this amount, 30% will relate to the capacity sold. Thus, the depreciation charge to Quigley is $450,000 ($1,500,000 x 30%). The total charge is $630,000 ($450,000 depreciation + $180,000 VC).

• Question 514:

  High-Tech Industries is considering the acquisition of a new state-of-the-art manufacturing machine to replace a less efficient machine. Hi-Tech has completed a net present value analysis and found it to be favorable. Which one of the following factors should not be of concern to Hi-Tech in its acquisition considerations?

  A. The availability of any necessary financing.
  B. The probability of near-term technological changes to the manufacturing process.
  C. The investment tax credit.
  D. Maintenance requirements, warranties, and availability of service arrangements.
  C. The investment tax credit.

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  Explanation

  The investment tax credit is of no concern because it no longer exists. The 1986 Tax Reform [Act eliminated the investment tax credit.

• Question 515:

  Which one of the following would not be considered a caring cost associated with inventor?

  A. Insurance costs.
  B. Cost of capital invested in the inventory.
  C. Cost of obsolescence.
  D. Shipping costs
  D. Shipping costs

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  Explanation

  Carrying costs are incurred to hold inventory. Examples include such costs as warehousing. insurance, the cost of capital invested in inventories, inventory taxes, and the cost of obsolescence and spoilage. Neither shipping costs northe initial cost of the inventory are caring costs.

• Question 516:

  "Discretionary costs" are

  A. Costs which management decides to incur in the current period to enable the company to achieve objectives other than the filling of orders placed by customers.
  B. Costs which are likely to respond to the amount of attention devoted to them by a specified manager.
  C. Costs which are governed mainly by past decisions that established the present levels of operating and organizational capacity and which only change slowly in response to small changes in capacity.
  D. Costs which will be unaffected by current managerial decisions.
  A. Costs which management decides to incur in the current period to enable the company to achieve objectives other than the filling of orders placed by customers.

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  Explanation

  Discretionary costs are those that are incurred in the current period at the "discretion" of management and are not required to fill orders by customers.

• Question 517:

  The accountant of Ronier, Inc. has prepared an analysis of a proposed capital project using discounted cash flow techniques. One manager has questioned the accuracy of the results because the discount factors employed in the analysis have assumed the cash flows occurred at the end of the year when the cash flows actually occurred uniformly throughout each year. The net present value calculated by the accountant will

  A. Not be in error.
  B. Be slightly overstated.
  C. Be unusable for actual decision making.
  D. Be slightly understated but usable.
  D. Be slightly understated but usable.

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  Explanation

  The effect of assuming cash flows occur at the end of the year simply understates the present values of the future cash flows, in reality, they probably occur on the average at mid-year.

• Question 518:

  Capital budgeting methods are often divided into two classifications: project screening and project ranking. Which one of the following is considered a ranking method rather than a screening method?

  A. Net present value.
  B. Time-adjusted rate of return.
  C. Profitability index.
  D. Accounting rate of return.
  C. Profitability index.

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  Explanation

  The profitability index is the ratio of the present value of future net cash inflows to the initial cash investment. This variation of the net present value method facilitates comparison of different-sized investments. Were it not for this comparison feature. the profitability index would be no better than the net present value method. Thus. It is the comparison, or ranking, advantage that makes the profitability index different from the other capital budgeting tools

• Question 519:

  A company uses a planning system that focuses first on the amount and timing of finished goods demanded and then determines the derived demand for raw materials,components,and subassemblies at each of the prior stages of production.this system is

  A. An economic order quality model
  B. Materials requirement planning
  C. Linear programming
  D. Just-in-time purchasing
  B. Materials requirement planning

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  Explanation

  Materials requirements planning(MRP)is a system that translates a production schedule into requirements for each components needed to meet the schedule.it is usually implemented in the form of a computer based onformation system designed to plan and control raw materials used in production.it assumes that forecasted demand is reasonably accurate and that suppliers can deliver based upon this accurate schedule.MRP is a centralized push-through systeml;output based on foecasted demand is pushed through to the next department or to inventory.

• Question 520:

  Malony, Inc.'s $1,000 par value preferred stock paid its $100 per share annual divided on April 4 of the current year. The preferred stock's current market price is $960 a share on the date of the dividend distribution. Maloney's marginal tax rate (combined federal and state) is 40%, and the firm plans to maintain its current capital structure relationship. The component cost of preferred stock to Maloney would be closest to

  A. 6%
  B. 6. 25%
  C. 10%
  D. 10.4%
  D. 10.4%

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  Explanation

  Dividends on preferred stock are not deductible for tax purposes; therefore, there is no adjustment for tax savings. The annual dividend on preferred stock is $100 when the price of the stock is $960.This results in a cost of about 10.4% ($100

  + $960).