IMANET IMANET Certifications IMANET-CMA Questions & Answers

• Question 51:

  The relevance of a particular cost to a decision is determined by?

  A. Riskiness of the decision,

  B. Number of decision variables

  C. Amount of the cost.

  D. Potential effect on the decision.

  Correct Answer: D

  Relevance is the capacity of information to make a difference in a decision by helping users of that information to predict the outcomes of events or to confirm or correct prior expectations. Thus, relevant costs are those expected future costs that vary with the action taken. All other costs are constant and therefore h no effect on the decision.

• Question 52:

  Systematic evaluation of the trade-offs between product functionality and product cost while still satisfying customer needs is the definition of

  A. Activity-based management

  B. Theory of constraints.

  C. Total quality management.

  D. Value engineering.

  Correct Answer: D

  Systematic evaluation of the trade-offs between product functionality and product cost while still satisfying customer needs is the definition of value engineering.

• Question 53:

  Finn Products, a start-up company, wants to use cost-based pricing for its only product, a unique new video game. Finn expects to sell 10.000 units in the upcoming year. Variable costs will be $65 per unit and annual fixed operating costs (including depreciation) amount to $80,000 Finn's balance sheet is as follows:

  

  If Finn wants to earn a 20% return on equity, at what price should at sell the new product?

  A. $75.00

  B. $78.60

  C. $79.00

  D. $81.00

  Correct Answer: C

• Question 54:

  Pazer, Inc produces portable televisions. Pazer's product manager proposes to increase the cost structure by adding voice-activated volume/channel controls to the television, and also adding three additional repair personnel to deal with products returned due to defects, Are these costs value-added or nonvalue-added? Cost of Voice-Activated Controls Cost of Additional Repair Personnel

  A. Value-added Value-added

  B. Value-added Nonvalue-added

  C. Norivalue-added Value-added D. Nonvalue-added Nonvalue-added

  Correct Answer: B

  The additional cost of the voice-activated controls as a value-added cost because it provides new functionality for the consumer. The cost of additional repair personnel, on the other hand, is nonvalueadded since it is incurred to address deficiencies in quality.

• Question 55:

  The Alpha Division of a company, which is operating at capacity, produces and sells 1.000 units of a certain electronic component in a perfectly competitive market. Revenue and cost data are as follows: Sales $50,000 Variable costs 34,000 Fixed costs 12,000 The minimum transfer price that should be charged to the Beta Division of the same company for each component is

  A. $12

  B. $34

  C. $46

  D. $50

  Correct Answer: D

  In a perfectly competitive market, market price is ordinarily the appropriate transfer price. Because the market price is objective, using it avoids waste and maximizes efficiency. In a perfectly competitive market, the market price equals the minimum transfer price, which is the sum of outlay cost and opportunity cost. Outlay cost is the variable cost per unit, or $34 ($34000 + 1,000). Opportunity cost is the contribution margin forgone, or $16 ($50 - $34). Thus, the minimum transfer price is $50 ($34 + $16).

• Question 56:

  Assume that the Plastics Division has excess capacity and it has negotiated a transfer price of $5.60 per plastic component with the Entertainment Division. This price will

  A. Cause the Plastics Division to reduce the number of commercial plastic components it manufactures.

  B. Motivate both divisions as estimated profits are shared.

  C. Encourage the Entertainment Division to seek an outside source for plastic components

  D. Demotivate the Plastics Division causing mediocre performance

  Correct Answer: B

  Given that the Plastics Division (the seller) has excess capacity, transfers within the company entail no opportunity cost. Accordingly, the transfer at the negotiated price will improve the performance measures of the transferor. Purchasing internally at below the market price also benefits the transferee, so the motivational purpose of transfer pricing is achieved. The goal congruence purpose is also achieved because the internal transaction benefits the company.

• Question 57:

  Assume that the Entertainment Division is able to purchase a large quantity of video cards from an outside source at $8.70 per unit. The Video Cards Division, having excess capacity, agrees to lower its transfer price to $8.70 per unit. This action would

  A. Optimize the profit goals of the Entertainment Division while subverting the profit goals of Parkside.

  B. Allow evaluation of both divisions on the same basis.

  C. Subvert the profit goals of the Video Cards Division while optimizing the profit goals of the Entertainment Division.

  D. Optimize the overall profit goals of Parkside.

  Correct Answer: D

• Question 58:

  A per-unit transfer price from the Video Cards Division to the Entertainment Division at full cost. $9.15, would

  A. Allow evaluation of both divisions on a competitive basis.

  B. Satisfy the Video Cards Division's profit desire by allowing recovery of opportunity costs.

  C. Provide no profit incentive for the Video Cards Division to control or reduce costs.

  D. Encourage the Entertainment Division to purchase video cards from an outside source.

  Correct Answer: C

• Question 59:

  An appropriate transfer price between two divisions of The Stark Company can be determined from the following data:

  

  What is the natural bargaining range for the two divisions?

  A. Between $20 and $50.

  B. Between $50 and $70.

  C. Any amount less than $50.

  D. $50 is the only acceptable price.

  Correct Answer: A

• Question 60:

  A company has two divisions, A and B, each operated as a profit center. A charges B $35 per unit for each unit transferred to B. Other data follow:

  

  A is planning to raise its transfer price to $50 per unit Division B can purchase units at $40 each from outsiders, but doing so would idle A's facilities now committed to producing units for B. Division A cannot increase its sales to outsiders. From the perspective of the company as a whole, from whom should Division B acquire the units, assuming B's market is unaffected?

  A. Outside vendors

  B. Division A, but only at the variable cost per unit

  C. Division A, but only until fixed costs are covered, then from outside vendors,

  D. Division A, despite the increased transfer price.

  Correct Answer: D

  Opportunity costs are $0 because A's facilities would be idle if B did not purchase from A. Assuming fixed costs are not affected by the decision, the intracompany sale is preferable from the company's perspective because A's $30 variable unit cost is less than the outside vendors price of $40.