IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 651:

  A proposed transfer price may be based upon the outlay cost. Outlay cost plus opportunity cost is the

  A. Retail price
  B. Price representing the cash outflows of the supplying division plus the contribution to the supplying division from an outside sale
  C. Price usually set by an absorption-costing calculation
  D. Price set by charging for variable costs plus a lump sum or an additional markup, but less than full markup
  B. Price representing the cash outflows of the supplying division plus the contribution to the supplying division from an outside sale

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  Explanation

  At this price, the supplying division is indifferent as to whether it sells internally or externally. Outlay cost plus opportunity cost therefore represents a minimum acceptable price for a seller However, no transfer price formula is appropriate in all circumstances.

• Question 652:

  Which of the five promotional tools of the marketing communications mix involves lobbying, sponsorship, community outreach, and gifts to charity?

  A. Direct marketing.
  B. Personal selling.
  C. Sales promotions.
  D. Public relations.
  D. Public relations.

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  Explanation

  Public relations consists of methods of protecting the image of the firm or a product. Typical platforms are lobbying, sponsorships (e.g., the U.S. Postal Service's sponsorship of a cycling team), community outreach, gifts to charity, and the firm's annual report.

• Question 653:

  The Sommers Company manufactures a vanity of industrial valves. Current', the company is operating at about 70% capacity and is earning a satisfactory return on investment. Management has been approached by Glascow Industries Ltd. of Scotland with an offer to buy 120.000 units of a pressure valve. Glascow manufactures a valve that is almost identical to Sommers' pressure valve; however, a fire in Glascow Industries' valve plant has shut down its manufacturing operations. Glascow needs the 120,000 valves over the next 4 months to meet commitments to its regular customers; the company is prepared to pay $19 each for the valves, FOB shipping point. Sommers' product cost, based on current attainable standards, foi the pressure valve is

  

  Manufacturing overhead is applied to production at the rate of $18 per standard direct labor hour. This overhead rate is made up of the following components

  

  What is the minimum unit price that Sommers could accept without reducing net income?

  A. $14
  B. $14. 40
  C. $20
  D. $20.40
  B. $14. 40

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  Explanation

  The minimum unit price without reducing net income must cover variable costs plus the additional fixed cost. Therefore, the three variable costs of $5. 00 for direct materials, $6. 00 for direct labor, and $3. 00 for variable overhead are added to the additional fixed cost per unit $40 ($48,000 + 120,000). The total is $14. 40.

• Question 654:

  The Moore Corporation is considering the acquisition of a new machine. The machine can be purchased for $90,000; twill cost $6,000 to transport to Moore's plant and $9,000 to install. It is estimated that the machine will last 10 years, and it is expected to have an estimated salvage value of $5,000. Over its 10-year life, the machine is expected to produce 2,000 units per year with a selling price of $500 and combined material and labor costs of $450 per unit. Federal tax regulations permit machines of this type to be depreciated using the straight-line method over 5 years with no estimated salvage value. Moore ha a marginal tax rate of 40%. What is the net cash flow for the tenth year of the project that Moore Corporation should use in a capital budgeting analysis?

  A. $100,000
  B. $81,000
  C. $68,400
  D. $63,000
  D. $63,000

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  Explanation

  The company will receive net cash inflows of $50 per unit ($500 selling price -- $450 of variable costs), or a total of $100,000 per year. This amount will be subject to taxation, as will the $5,000 gain on sale of the investment, bringing taxable income to $105,000. No depreciation will be deducted in the tenth year because the asset was fully depreciated after 5 years. Because the asset was fully depreciated (book value was zero), the $5,000 salvage value received would be fully taxable. After income taxes of $42,000 ($105,000 x 40%), the net cash flow in the tenth year is $63,000 ($105,000 --$42,000).

• Question 655:

  Which factor most likely encourages entry into an existing market?

  A. Governmental subsidies for new investors.
  B. High product differentiation, principally produced by trademarks.
  C. Knowledge of the industry, wit high investments in development.
  D. Low fixed exit costs.
  A. Governmental subsidies for new investors.

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  Explanation

  Subsidies for new firms lower entry barriers. Thus, new firms may enter the industry and intensify competition. Government policy also may affect competition via regulations that encourages or discourage substitutes or affect costs, that govem competitive behavior, or that limit growth. Government also may be a buyer or supplier.

• Question 656:

  When calculating a firm's cost of capital, all of the following are true except that

  A. The cost of capital of a firm is the weighted average cost of its various financing components.
  B. The calculation of the cost of capital should focus on the historical costs of alternative forms of financing rather than market or current costs.
  C. All costs should be expressed as after-tax costs.
  D. The time value of money should be incorporated into the calculations.
  B. The calculation of the cost of capital should focus on the historical costs of alternative forms of financing rather than market or current costs.

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  Explanation

  The cost of capital of a firm is the current, weighted average, after-tax cost of the firm's various financing components Historical costs are irrelevant.

• Question 657:

  Several surveys point out that most managers use full product costs, including unit fixed costs and unit variable costs, in developing cost-based pricing. Which one of the following is least associated with cost-based pricing?

  A. Price stability
  B. Price justification.
  C. Target pricing.
  D. Fixed-cost recovery.
  C. Target pricing.

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  Explanation

  A target price is the expected market price of a product, given the company's knowledge of its customers and competitors. Hence, under target pricing, the sales price is known before the product is developed. Subtracting the unit target profit margin determines the long-term unit target cost. If cost-cutting measures do not permit the product to be made at or below the target cost, it will be abandoned.

• Question 658:

  Which of the following is not a typical benefit of an outsourcing arrangement?

  A. Reduced costs.
  B. Access to technology
  C. Avoidance of risk of obsolescence
  D. Increased control over a necessary function.
  D. Increased control over a necessary function.

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  Explanation

  Outsourcing results in a loss of control over the outsourced function

• Question 659:

  A company obtained a short-term bank loan of $500,000 at an annual interest rate of 8%. As a condition of the loan, the company is required to maintain a compensating balance of $100,000 in its checking account. The checking account earns interest at an annual rate of 3%. Ordinarily, the company maintains a balance of $50,000 in its account for transaction purposes. What is the effective interest rate of the loan?

  A. 7. 77%
  B. 8.22%
  C. 9.25%
  D. 8.56%
  D. 8.56%

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  Explanation

  Of the $500,000 borrowed, the debtor has the use of only $450,000. The compensating balance provision requires a minimum balance that is $50,000 greater than the balance that the company usually maintains. At 8% on a $500,000 loan, the annual interest expense is $40,000. However, this amount is reduced by the interest earned on the extra $50,000 in the checking account. At 3%, the extra $50,000 earns $1,500 per year. Thus, the net expense is $38,500. The effective interest rate is 8.56% ($38500 ?$450,000)

• Question 660:

  Poster Inc. is considering implementing a Lock box collection system at a cost of $80,000 per year. Annual sales are $90 million, and the lockbox system will reduce collection time by 3 days. If Poster can invest funds at 8%, should it use the lockbox system? Assume a 360-day year.

  A. Yes, producing savings of $140,000 per year.
  B. Yes, producing savings of $60,000 per year.
  C. No, producing a loss of $20,000 per year.
  D. No, producing a loss of $60,000 per year.
  C. No, producing a loss of $20,000 per year.

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  Explanation

  Dividing the $90 million of annual sales by 360 days produces daily sales of $250,000. If collection time is reduced by 3 days, then $750,000 (3 x $250,000) will be available for investment. At an 8% rate of return, the additional $750,000 will earn $60,000 annually. This is $20,000 less than the $80,000 cost of the system. The_$20,000 loss means the company should not invest in the new system.