IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 741:

  In equipment-replacement decisions1 which one of the following does not affect the decision-making process?

  A. Current disposal price of the old equipment.
  B. Operating costs of the old equipment.
  C. Original fair market value of the old equipment.
  D. Cost of the new equipment.
  C. Original fair market value of the old equipment.

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  Explanation

  All relevant costs should be considered when evaluating an equipment-replacement decision. These include the cost of the new equipment1 the disposal price of the old equipment, and the operating costs of the old equipment versus the operating costs of the new equipment. The original cost or fair market value of the old equipment is a sunk cost and is irrelevant to future decisions.

• Question 742:

  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.
  C. Commissions, cost of sales, and salaries.

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  Explanation

  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 743:

  In equipment replacement decisions, which one of the following does not affect the decision-making process?

  A. Current disposal price of the old equipment.
  B. Operating costs of the old equipment.
  C. Original fair value of the old equipment.
  D. Operating costs of the new equipment.
  C. Original fair value of the old equipment.

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  Explanation

  All relevant costs should be considered when evaluating an equipment replacement decision. `These include the iniflal investment in the new equipment, any required investment in working capital, the disposal price, of the new equipment, the disposal price of the old equipment, the operating costs of the old equipment, and the operating costs of the new equipment. The original cost or fair value of the old equipment is a sunk cost and is irrelevant to future decisions.

• Question 744:

  Oradell Company sells its single product at a price of $60 per unit and incurs the following variable costs per unit of product

  

  Oradell's annual fixed costs are $880.000, and Oradell is subject to a 30% income tax rate. The number of units of product that Oradell Company must sell annual' to break even is?

  A. 22,000 units
  B. 44,000 units.
  C. 35. 200 units.
  D. 30,800 units.
  B. 44,000 units.

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  Explanation

  The breakeven point in units equals fixed costs divided by the contribution margin per unit at a selling price of $60 per unit and with variable costs of $40 per unit, the unit contribution margin is $20. Thus, the breakeven point is 44,000 units ($880,000 $20).

• Question 745:

  In working on a CVP analysis1 the accountant is unsure of the exact results and/or assumptions under which to operate. What can the accountant do to help management in this CVP decision?

  A. Nothing. It is not the responsibility of the accountant to be concerned with the ambiguity of the results and/or assumptions.
  B. Ascertain the probabilities of various outcomes and work with management on understanding those probabilities in reference to the CVP decision.
  C. Calculate the probabilities of various outcomes and make the decision for management.
  D. Use a random number table to generate a decision model and make the decision for management.
  B. Ascertain the probabilities of various outcomes and work with management on understanding those probabilities in reference to the CVP decision.

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  Explanation

  The assumptions under which CVP analysis operates primarily hinge on certainty. Once [uncertainty enters the situation, the results are not so clear. Thus, the accountant should make an appropriate effort to ascertain the probabilities of various outcomes. The accountant can then work with management to help make the appropriate decision.

• Question 746:

  Using the capital asset pricing model (CAPM), the required rate of return for a firm with a beta of 1.25 when the market return is 14% and the risk-free rate is 6% is

  A. 6. 0%
  B. 7. 5%
  C. 17. 5%
  D. 16. 0%
  D. 16. 0%

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  Explanation

• Question 747:

  Which of the following is most likely to be a disadvantage of decentralization?

  A. Lower-level employees will develop less rapidly than in a centralized organization.
  B. Lower-level employees will complain of not having enough to do.
  C. Top management will have less time available to devote to unique problems.
  D. Lower-level managers may make conflicting decisions.
  D. Lower-level managers may make conflicting decisions.

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  Explanation

  The disadvantages of decentralization include a tendency to focus on short-run results to me detriment of the long-term health of the entity, an increased risk of loss of control by top management, the increased difficulty of coordinating interdependent units, and less cooperation and communication among competing decentralized unit managers

• Question 748:

  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.
  A. Incremental fixed costs.

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  Explanation

  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 749:

  The internal rate of return is

  A. The breakeven borrowing rate for the project in question.
  B. The yield rate/effective rate of interest quoted on long-term debt and other instruments.
  C. Favorable when it exceeds the hurdle rate.
  D. All of the answers are correct.
  D. All of the answers are correct.

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  Explanation

  The internal rate of return (IRR) is the discount rate at which the present value of the cash flows equals the original investment. Thus, the NPV of the project is zero at the IRR. The IRR is also the maximum borrowing cost the firm could afford to pay for a specific project. The IRR is similar to the yield rate/effective rate quoted in the business media.

• Question 750:

  After the goals of the company have been established and communication, the next step in the planning process is development of the?

  A. Production budget
  B. Direct materials budget
  C. Selling and administrative budget
  D. Sales budget
  D. Sales budget

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  Explanation

  The sales budget is the first step in the operating budget process because it is needed to prepare all of the other budget. For example, the production budget cannot be prepared until the sales department has determined how many until are needed.