IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 531:

  The profitability index approach to investment analysis

  A. Fails to consider the timing of project cash flows.
  B. Considers only the project's contribution to net income and does not consider cash flow effects.
  C. Always yields the same accept/reject decisions for independent projects as the net present value method.
  D. Always yields the same accept/reject decisions for mutually exclusive projects as the net present value method.
  C. Always yields the same accept/reject decisions for independent projects as the net present value method.

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  Explanation

  The profitability index is the ratio of the present value of future net cash inflows to the initial net cash investment. It is a variation of the net present value (NPV) method and facilitates the comparison of different-sized investments. Because it is based on the NPV method, the profitability index will yield the same decision as the NPV for independent projects. However, decisions may differ for mutually exclusive projects of different sizes.

• Question 532:

  The opportunity cost of making a component part in a factory with no excess capacity is the

  A. Variable manufacturing cost of the component.
  B. Total manufacturing cost of the component.
  C. Cost of the production given up in order to manufacture the component.
  D. Net benefit forgone from the best alternative use of the capacity required.
  D. Net benefit forgone from the best alternative use of the capacity required.

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  Explanation

  An opportunity cost is the return from the next best opportunity that could have been selected for the use of scarce resources. It does not represent an actual receipt or disbursement of resources and is not recorded in the accounting records. If the part could be made using otherwise idle capacity, there would be no opportunity cost.

• Question 533:

  Panyer Co is a producer of a tank component. This product, J.5, has the following selling price and costs per unit

  

  Panyer has again received a special, one-time offer for 2. 000 units of J-5. Panyer is now operating at full capacity. 10,000 units, at a total cost of $2,300,000. To produce this order would cause a 20% increase in fixed costs what is the minimum price that is acceptable for this one-time, special order?

  A. $205
  B. $260
  C. $230
  D. $300
  C. $230

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  Explanation

  To determine the minimum price per unit, while at full capacity, the differential costs must be found. The total cost of producing 12. 000 units is $2,760,000 {(12. 000 units x $205 variable cost) + [(10,000 units x $25 fixed cost) x I .2]}. Thus, the total differential cost is $460,000 ($2,760.000 -- $2,300,000), and the unit differential cost is $230 ($460,000 2. 000 units).

• Question 534:

  Nonprice competitive differentiation of a firm's services may be achieved by

  l.

  A superior image ll. Varying the offering lll. Innovation lV. Improving reliability

  A. ll and lll only
  B. l, ll, and lV only
  C. l, lll and lV only
  D. l, ll, lll and lV
  D. l, ll, lll and lV

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  Explanation

  Nonprice competitive differentiation is a major issue for services firms. It may be achieved by (1) varying the offering by including secondary service features with the primary service features;(2) improving delivery through greater reliability, resilience (e.g., coping with customer inquiries, recalls, and emergencies), and innovation, and (3) superior image conveyed by symbols and branding

• Question 535:

  A company's approach to an insourcing vs. outsourcing decision

  A. Depends on whether the company is operating at or below normal volume.
  B. Involves an analysis of avoidable costs.
  C. Should use absorption (full) costing.
  D. Should use activity-based costing.
  B. Involves an analysis of avoidable costs.

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  Explanation

  Available resources should be used as efficiently as possible before outsourcing. If the total relevant costs of production are less than the cost to buy the item, it should be produced in-house. The relevant costs are those that can be avoided.

• Question 536:

  Strategic planning, as practiced by most modem organizations, includes all of the following expect

  A. Top-level management predication
  B. A long-term focus
  C. Strategies that will help in achieving long-range goals
  D. Analysis of the current month's actual variances from budget
  D. Analysis of the current month's actual variances from budget

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  Explanation

  Strategic planning is the process of setting overall organizational objectives and goals. It is a long-term process aimed at charting the future course of the organization. Strategic planning is based on assessing risk levels, evaluating the strengths and weaknesses of the organization, and forecasting the future direction an influences of factors relevant to the organization such as market trends, changes in technology, international competition, and social change. Analysis of the current month's budget variances is not an aspect of strategic planning.

• Question 537:

  The weighted number of exposures to an advertising message equals

  A. Reach times frequency.
  B. Gross rating points times impact.
  C. Gross rating points
  D. Frequency times impact.
  B. Gross rating points times impact.

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  Explanation

  Reach, frequency, and impact are key variables in determining the relationship of exposures to1 audience awareness. Reach (R) is the total number of individuals (or households) exposed during a defined interval of time. Frequency(F) is the average number of exposures per interval of time. impact(l) is the qualitative electoral exposure. Total exposures (gross rating points) equals R times F. Thus, the weighted number of exposures to an advertising message in a given medium equals gross rating points times impact that is, R times F times

• Question 538:

  Power Systems. Inc. manufactures jet engines for the United States armed forces on a cost-plus basis. The cost of a particular jet engine the company manufactures is shown as follows:

  

  If production of this engine were discontinued1 the production capacity would be idle, and the supervisor would be laid off. When asked to bid on the next contract for this engine, the minimum unit price that Power Systems should bid is

  A. $408,000
  B. $365,000
  C. $391,000
  D. $385,000
  D. $385,000

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  Explanation

  The company will need to cover its variable costs and any other incremental costs. Thus, direct materials ($200,000), direct labor ($150,000), the supervisor's salary ($20,000), and fringe benefits on direct labor ($15,000) are the incremental unit costs of manufacturing the engines. The breakeven price is therefore $385,000 ($200,000 + $150,000 + $20,000 + $15,000).

• Question 539:

  The after-tax weighted marginal cost of capital for Rogers' second financing alternative consisting solely of bonds would be

  A. 5. 13%
  B. 5. 40%
  C. 6. 27%
  D. 6. 60%
  D. 6. 60%

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  Explanation

  The cost of the bonds equals the interest rate times one minus the tax rate, or 66O% [11% x (100% --40%)]. Rogers. Inc. operates a chain of restaurants located in the Southeast. The company has steadily grown to its present size of 48 restaurants. The board of directors recently approved a large-scale remodeling of the restaurant, and the company is now considering two financing alternatives.

  o The first alternative would consist of

  o Bonds that would have a 9% coupon rate and reissued at their base amount would net $19.2 million after a 4% flotation cost

  o Preferred stock with a stated rate of 6% that would yield $4. 8 million after a 4% flotation cost

  o Common stock that would yield $24 million after a 5% flotation cost o The second alternative would consist of a public offering of bonds that would have an 11% market rate and would net $48 million after flotation costs. Rogers' current capital structure, which is considered optimal, consists of 40% long-term debt, 10% preferred stock, and 50% common stock. The current market value of the common stock is $30 per share, and the common stock dividend during the past 12 months was $3 per share Investors are expecting the growth rate of dividends to equal the historical rate of 6%. Rogers is subject to an effective income tax rate of 40%.

• Question 540:

  The statement of income for Dimmell Co. presented below represents the operating results for the fiscal year just ended. Dimmell had sales of 1.800 tons of product during the current year, The manufacturing capacity of Dimmell's facilities is 3,000 tons of product.

  

  Dimell plans to market its product in a new territory Dimmell estimates that an advertising and promotion program costing $81,500 annually would need to be undertaken for the next 2 or 3 years In addition, a $25 per ton sales commission over and above the current commission to the sales force in the new territory would be required. How many tons would have to be sold in the new territory to maintain Dimell's current after-t income of $94. 500?

  A. 307. 5 tons.
  B. 1,0950 tons
  C. 273 333tons
  D. 1,5450 tons.
  A. 307. 5 tons.

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  Explanation

  Given that $61,500 is required for advertising and promotion, these are fixed costs that will have to be covered by the CM for sales in the new market of $200 each. The UCM for regular sales was $225 ($500 selling price x 45%), and there is a $25 additional variable commission expense for sales in the new territory. The 45% CM is computed by dividing the $405,000 CM by the $900,000 of sales. Thus, the new unit contribution of $200 is divided into $61,500 of incremental fixed costs, resulting in additional sales from the new program of 307. 5 tons at the breakeven point.