IMANET IMANET Certifications IMANET-CMA Questions & Answers

• Question 511:

  Conversion cost pricing

  A. Places minimal emphasis on the cost of materials used in manufacturing a product.

  B. Could be used when the customer furnishes the material used in manufacturing a product.

  C. Places heavy emphasis on indirect costs and disregards consideration of direct costs.

  D. Places heavy emphasis on direct costs and disregards consideration of indirect costs.

  Correct Answer: B

  Conversion costs consist of direct labor and factory overhead, the costs of converting raw materials into finished goods. Normally, a company does not consider only conversion costs in making pricing decisions, but if the customer were to furnish the raw materials, conversion cost pricing would be appropriate.

• Question 512:

  Conversion costs do not include

  A. Depreciation.

  B. Direct materials.

  C. Indirect labor.

  D. Indirect materials.

  Correct Answer: B

  Conversion costs are necessary to convert raw materials into finished products. They include all manufacturing costs, for example, direct labor and factory overhead, other than direct materials.

• Question 513:

  Controllable costs

  A. Arise from periodic appropriation decisions and have no well-specified function relating inputs to outputs.

  B. Are primarily subject to the influence of a given manager of a given responsibility center for a given time span.

  C. Arise from having property, plant, and equipment, and a functioning organization.

  D. Result specifically from a clear-cut measured relationship between inputs and outputs.

  Correct Answer: B

  Controllable costs can be changed by action taken at the appropriate management (responsibility) level. All costs are controllable, but they are controlled at different management levels; e.g., the decision to build another plant is made at a higher level of management than the decision to buy office supplies.

• Question 514:

  The segmented income statement for a retail company with three product lines is presented below: The company buys the goods in the three product lines directly from manufacturers' representatives. Each product line is directed by a manager whose salary is included in the administrative expenses. Administrative expenses are allocated to the three product lines equally because the administration is spread evenly among the three product lines. Salaries represent payments to the workers in each product line and therefore are traceable costs of each product line. Advertising promotes the entire company rather than the individual product lines. As a result, the advertising is allocated to the three product lines in proportion to the sales revenue. Commissions are paid to the salespersons in each product line based on 2% of gross sales. Rent represents the cost of the retail store and warehouse under a lease agreement with 5 years remaining. The product lines share the retail and warehouse space, and the rent is allocated to the three product lines based on the square footage occupied by each of the product lines. The company buys the goods in the three product lines directly from manufacturers' representatives. Each product line is directed by a manager whose salary is included in the administrative expenses. Administrative expenses are allocated to the three product lines equally because the administration is spread evenly among the three product lines. Salaries represent payments to the workers in each product line and therefore are traceable costs of each product line. Advertising promotes the entire company rather than the individual product lines. As a result1 the advertising is allocated to the three product lines in proportion to the sales revenue. Commissions are paid to the salespersons in each product line based on 2% of gross sales. Rent represents the cost of the retail store and warehouse under a lease agreement with 5 years remaining. The product lines share the retail and warehouse space, and the rent is allocated to the three product lines based on the square footage occupied by each of the product lines. The segmented income statement for this retail company does not facilitate performance evaluation because it does not distinguish between controllable and uncontrollable costs. The only costs and expenses controllable at the product-line level for this retail company are

  

  A. Commissions, cost of sales, and rent.

  B. Advertising, cost of sales, and salaries.

  C. Commissions, cost of sales, and salaries.

  D. Administration, advertising, and rent.

  Correct Answer: C

  Commissions, cost of sales, and salaries are all traceable to each of the product lines and are therefore controllable. Administrative expenses are common or corporate-level expenses, advertising does not promote a specific product line, and rent is paid on a building shared by all product lines.

• Question 515:

  When a decision is made in an organization, it is selected from a group of alternative courses of action. The loss associated with choosing the alternative that does not maximize the benefit is the

  A. Net realizable value.

  B. Expected value.

  C. Opportunity cost.

  D. Incremental cost.

  Correct Answer: C

  Opportunity' cost is the maximum benefit obtainable from the next best alternative use of a resource. It is the benefit given up by not selecting that option.

• Question 516:

  Which one of the following costs would be relevant in short-term decision making?

  A. Incremental fixed costs.

  B. All costs of inventory.

  C. Total variable costs that are the same in the considered alternatives.

  D. Costs of fixed assets to be used in the alternatives.

  Correct Answer: A

  Relevant costs are those future costs that differ among the options. Incremental or differential cost is the difference in total cost between two decisions. Consequently, incremental fixed cost is a relevant cost.

• Question 517:

  A company will produce 20000 units of product A at a unit variable cost of $7 and a unit selling price of $13. Fixed costs are $40,000. However, the company will still have 40% idle capacity. The company can use this idle capacity to produce 6,000 units of a different product B, which it can sell for $7 per unit. The incremental variable cost of producing a unit of B is $6. Present fixed costs that will be allocated to B amount to $10,000. To decide whether to produce B, the company should use

  A. Differential cost analysis.

  B. Information economics.

  C. Regression analysis.

  D. Markov chain analysis.

  Correct Answer: A

  Nonroutine decisions involve such questions as whether to make or buy or accept a special order. These decisions should be made in part on the basis of relevant costs. Analysis of differential costs is therefore 1essentiaI. The difference between the relevant costs of two decision choices is differential (incremental) cost.

• Question 518:

  Incremental cost is

  A. The difference in total costs that results from selecting one choice instead of another.

  B. The profit forgone by selecting one choice instead of another.

  C. A cost that continues to be incurred in the absence of activity.

  D. A cost common to all choices in question and not clearly or feasibly allocable to any of them.

  Correct Answer: A

  Incremental cost is the difference in total cost between two courses of action. "Decremental cost" is the term used when the difference is noted as a decline although "incremental" is the more common term. Incremental cost is also referred to as differential cost.

• Question 519:

  When a firm prepares financial reports by using absorption costing,

  A. Profits will always increase with increases in sales.

  B. Profits will always decrease with decreases in sales.

  C. Profits may decrease with increased sales even if there is no change in selling prices and costs.

  D. Decreased output and constant sales result in increased profits.

  Correct Answer: C

  In an absorption costing system, fixed overhead costs are included in inventory When sales exceed production, more overhead is expensed under absorption costing due to fixed overhead carried over from the prior inventory. If sales increase over production, more than one period's overhead is recognized as expense. Accordingly, if the increase in overhead expensed is greater than the contribution margin of the increased units sold, profit may be lower with an increased level of sales.

• Question 520:

  Which one of the following is least likely to be an objective of a cost accounting system?

  A. Product costing.

  B. Department efficiency.

  C. Inventory valuation.

  D. Sales commission determination.

  Correct Answer: D

  A cost accounting system has numerous objectives, including product costing, assessing departmental efficiency, inventory valuation. income determination, and planning, evaluating, and controlling operations. Determining sales commissions is not an objective of a cost accounting system because such commissions are based on sales, not costs.