IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 581:

  A firm's dividend policy may treat dividends either as the residual part of a financing decision or as an active policy strategy. Treating dividends as an active policy strategy assumes that

  A. Dividends provide information to the market.
  B. The firm should pay dividends only after investing in all investment opportunities having an expected return greater than the cost of capital
  C. Dividends are irrelevant.
  D. Dividends are costly, and the firm should retain earnings and issue stock dividends
  A. Dividends provide information to the market.

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  Explanation

  Stock prices often move in the same direction as dividends. Moreover, companies dislike cutting dividends. They tend not to raise dividends unless anticipated future earnings will be sufficient to sustain the higher payout. Thus, some theorists have proposed the information content or signaling hypothesis. According to this view, a change in dividend policy is a signal to the market regarding management's forecast of future earnings. Consequently, the relation of stock price changes to changes in dividends reflects not an investor preference for dividends over capital gains but rather the effect of the information conveyed.

• Question 582:

  When a multinational firm decides to sell its products abroad, one of the risks it faces is that the government of the foreign market charges the firm with dumping. Dumping occurs when

  A. The same product sells at different prices in different countries
  B. A firm charges less than it costs to make the product to enter or win a market
  C. Lower quality versions of the product are sold abroad so as to be affordable
  D. Transfer prices are set artificially high so as to minimize tax payments
  B. A firm charges less than it costs to make the product to enter or win a market

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  Explanation

  Dumping is an unfair trade practice that violates imitational agreements. It occurs when firm charges a price

  (1)

  lower than that in its home market or

  (2)

  less than the cost to make the product. Dumping may be done to penetrate a market or as a result of export subsidies.

• Question 583:

  The length of a product line should be structured to maximize profits and meet other objectives of the firm. Accordingly, the line may be structured to allow

  A. Upselling of a related product
  B. Cross-selling of a more expensive product
  C. Filling to reach an upmarket
  D. Stretching to reach th downmarket
  D. Stretching to reach th downmarket

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  Explanation

  Line stretching may be downmarket to provide lower-priced products. The purpose may be to exploit a growth opportunity, to move against a low-price competitor that has invaded the firm's markets, or to shift out of a declining market. Upmarket stretching may reflect a search for growth, greater profit margins, or positioning as a full-product- line seller. Two-way stretching is a middle market firm's move into the upmarket and downmarket

• Question 584:

  Which of the following is a characteristic of a contribution income statement?

  A. Fixed and variable expenses are combined as one line.
  B. Fixed expenses are listed separately from variable expenses.
  C. Fixed and variable manufacturing costs are combined as one line item, but fixed operating expenses are shown separately from variable operating expenses.
  D. Fixed and variable operating expenses are combined as one line item, but fixed manufacturing expenses are shown separately from variable manufacturing expenses.
  B. Fixed expenses are listed separately from variable expenses.

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  Explanation

  The contribution income statement emphasizes the distinction between fixed and variable costs. Making this distinction facilitates determination of CVP relationships and the effects of changes in sales volume on income. Thus, fixed manufacturing costs and other fixed costs are separated from variable manufacturing costs and other variable costs. The basic categories in the contribution income statement are variable costs, contribution margin, fixed costs, and operating income.

• Question 585:

  A company wants to open a new store in one of three nearby shopping malls. In Mall A. the rent will be $300,000 per year. In Mall B. the rent will be 4% of gross revenues In Mall C. the rent will be $150,000 per year pius 3% of gross revenues. Assume that revenues and and other elements under consideration are the same for all three malls. Which mall should the company choose it revenues are expected to be $6,000,000 per year?

  A. MaII A.
  B. MaII B.
  C. Mall C.
  D. The company will be indifferent between two of the Choices.
  C. Mall C.

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  Explanation

  The answer depends on the expected level of revenues. If the company expects revenues to be $6,000,000 per year, the calculation is as follows: Mall A: $300.000 Mall B $6,000,000 x 4% = $240,000 1Mall C: $6,000,000 x 3% $180000 + $150,000 $330.000 Thus, Mall B is preferable

• Question 586:

  If Brewer Corporations bonds ere currently yielding 8% in the marketplace, why is the firms cost of debt lower'?

  A. Market interest rates have increased.
  B. Additional debt can be issued more cheaply then the original debt.
  C. There should be no difference; cost of debt is the same as the bonds' market yield.
  D. Interest is deductible for tax purposes.
  D. Interest is deductible for tax purposes.

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  Explanation

  Because interest is deductible for tax purposes, the actual cost of debt capital is the net effect of the interest payment and the offsetting tax deduction. The actual cost of debt equals the interest rate times (1 -- the marginal tax rate). Thus, if a firm with an 8% market rate is in a 40% tax bracket, the net cost of the debt capital is 4. 8%.

• Question 587:

  The amount of inventory that a company would tend to hold in stock would increase as the

  A. Sales level falls to a permanently lower level.
  B. Cost of carrying inventory decreases.
  C. Variability' of sales decreases.
  D. Cost of running out of stock decreases.
  B. Cost of carrying inventory decreases.

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  Explanation

  Inventory management attempts to minimize the total costs of ordering, carrying inventory, and stock outs. Thus, affirm incurs carrying costs to reduce ordering and stock out costs. If the cost of carrying inventory declines, the inventory level must increase to minimize total inventory costs.

• Question 588:

  Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26,000, to determine which product will be more profitable. The results of the study follow.

  

  The costs associated with the two products have been estimated by Gleason's cost accounting department and are shown as follows:

  

  *Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset. The cost incurred by Gleason for the market study is a(n)

  A. Incremental cost.
  B. Prime cost.
  C. Opportunity cost.
  D. Sunk cost.
  D. Sunk cost.

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  Explanation

  A sunk cost is a previously incurred cost that is the result of a past irrevocable management decision. Nothing can be done in the future about sunk costs. The market study cost is an example.

• Question 589:

  A manufacturing company is attempting to implement a just-in-time(JIT)purchase policy system by negotiating with its primary suppliers to accept long-term purchase orders which result in more frequent deliveries of smaller quantiteies of raw materials.if the JIT purchase policy is successful in reducing the total inventory costs of the manufacturing company,which of the following combinations of cost changes would be most likely to occur?

  

  A. Purchasing costs Stockout costs
  B. Purchasing costs Quality costs
  C. Quality costs Ordering costs
  D. Stockout costs Carrying costs
  D. Stockout costs Carrying costs

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  Explanation

  The objective of a a JIT sytem is JIT system is to reduce carrying costs by eliminating inventories and increasing the deliveries made by suppliers.ideally,shipments are received just in time to be incorporated into the manufacturing process.this system increases the risk of stockout costs because the inventory buffer is reduced or eliminated.

• Question 590:

  Total unit costs are

  A. Relevant for cost-volume-profit analysis.
  B. Needed for determining sunk costs.
  C. Irrelevant in marginal analysis.
  D. Independent of the cost system used to generate them.
  C. Irrelevant in marginal analysis.

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  Explanation

  Marginal (incremental or differential) analysis determines the differences in costs among decision choices. Total unit costs are not relevant in marginal analysis because of the inclusion of costs that may not 1[vary among the possible choices considered. In marginal analysis, only the incremental costs are relevant.