IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 751:

  Condensed monthly operating income data for Korbin, Inc. for May follows:

  

  Additional information regarding Korbin's operations follows:

  One-fourth of each store's direct fixed costs would continue if either store is closed.

  Korbin allocates common fixed costs to each store on the basis of sales dollars.

  Management estimates that closing the Suburban Store would result in a 10% decrease in the Urban Store's sales, while closing the Urban Store would not affect the Suburban Store's sales.

  The operating results for May are representative of all months.

  One-half of the Suburban Store's dollar sales are from items sold at variable cost to attract customers to the store. Korbin is considering the deletion of these items, a move that would reduce the Suburban Store's direct fixed expenses by

  15% and result in a 20% loss of Suburban Store's remaining sales volume. This change would not affect the Urban Store. A decision by Korbin to eliminate the items sold at cost would result in a monthly increase (decrease) in Korbin's

  operating income of

  A. $(5,200)
  B. $(1,200)
  C. $(7,200)
  D. $2,000
  B. $(1,200)

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  Explanation

  If 50% of the Suburban Store's sales are at variable cost, its contribution margin (sales- variable costs) must derive wholly form sales of other items. However, eliminating sales at variable cost reduces other sales by 20%. Thus, the effect is to reduce the contribution margin to $28,800 ($36,000x.8). Moreover, fixed costs will be reduced by 15% to $ 34,000 ($40,000x.85). Consequently, the new segment margin is $(5,200) ($34,000 direct fixed costs-$28,800 contribution margin), a decrease of $1,200[$(5,200)-$(4,000)].

• Question 752:

  A large firm may be ,iewed as a portfolio of investments in the form of

  A. MGRs.
  B. SBUs.
  C. RMSs.
  D. BOGs.
  B. SBUs.

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  Explanation

  A strategic business unit (SBU) is a business (or a group) for which separate planning is possible An SBU also has its own competitors and a manager who engages in strategic planning and is responsible for the major determinants of proflt According, a large firm may be viewed as a portfolio of investments in the form of SBUs.

• Question 753:

  The percentage change in earnings before interest and taxes associated with the percentage change in sales volume is the degree of

  A. Operating leverage.
  B. Financial leverage.
  C. Breakeven leverage.
  D. Combined leverage.
  A. Operating leverage.

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  Explanation

  Operating leverage is based on the degree to which fixed costs are used in production. Firms may increase fixed costs, such as by automation, to reduce variable costs. The result is a greater degree of operating leverage (DOL), which is the percentage change in net operating income (earnings before interest and taxes) divided by the percentage change in unit sales. Thus, operating leverage is related to the price elastically concept in economics. It can also be determined from dividing the total contribution margin by operating income as expressed in the following formula, given that Q is quantity of units sold, P is unit price, V is unit variable cost, and F is fixed cost Q(P--V) Q(P--V)--F

• Question 754:

  Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device:

  

  Madengrad's income tax rate is 40%, and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years.If Madengrad Company achieves a sales and production volume of 8.000 units, the annual before-tax income (loss) will be

  A. $(4,200000)
  B. $1,780,000
  C. $(2,520,000)
  D. $(420,000)
  A. $(4,200000)

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  Explanation

  At a volume of 8000 units, sales will be $7,200,000 (8000 units x $900). Variable costs will ,be $4,800,000 (8,000 units x $600). Thus. the contribution margin is $2,400,000. Deducting the $6,600,000 of fixed 9costs from the contribution margin leaves a net loss of $4,200,000.

• Question 755:

  Henderson, Inc. has purchased a new fleet of trucks to deliver its merchandise. The trucks have a useful life of 8 years and cost a total of $500.000. Henderson expects its net increase in after-tax cash flow to be $150,000 in Year 1, $175,000 in Year 2, $125,000 in Year 3, and $100,000 in each of the remaining years. Based on a 6% annual interest rate, what is the discounted payback period for Henderson's fleet of trucks?

  A. 3. Syears.
  B. 3. 98 years.
  C. 4. 25years.
  D. 5. 0 years.
  C. 4. 25years.

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  Explanation

  The discounted payback period for an investment, assuming a 6% discount1 can be found by accumulating each year's discounted net cash flows until the initial investment is recovered.

  

  Thus, the answer is something greater than four years. After four years, an additional $18,581 .75 ($500,000-- $481 .418.25) is needed. The calculation for the fifth year is $74,726 ($100,000 x .74726). Consequently, the discounted payback period is approximately 4. 25 years [4 + ($18581.75 + $74,726)].

• Question 756:

  A firm sells its product in a foreign market for a much higher price than in its home market. The reason is most likely

  A. Price elasticity of demand.
  B. Dumping.
  C. Gray market activity,
  D. Price escalation
  D. Price escalation

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  Explanation

  Price escalation is caused by an accumulation of additional costs. e.g., currency fluctuations, transportation expenses; profits earned by importers, wholesalers, and retailers; and import duties.

• Question 757:

  The customer value triad includes

  A. Loyalty.
  B. Cost.
  C. Quantity.
  D. Serco.
  D. Serco.

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  Explanation

  Value is an aggregate of the elements of the customer value triad: quality, service, and price. It increases as quality and service increase and price decreases.

• Question 758:

  The difference between variable costs and fixed costs is

  A. Variable costs per unit fluctuate and fixed costs per unit remain constant.
  B. Variable costs per unit are fixed over the relevant range and fixed costs per unit are variable.
  C. Total variable costs are variable over the relevant range and fixed in the long term, while fixed costs never change.
  D. Variable costs per unit change in varying increments, while fixed costs per unit change in equal increments.
  B. Variable costs per unit are fixed over the relevant range and fixed costs per unit are variable.

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  Explanation

  Fixed costs remain unchanged within the relevant range for a given period despite fluctuations in activity, but per unit fixed costs do change as the level of activity changes. Thus, fixed costs are fixed in total but vary per unit as activity changes. Total variable costs vary directly with activity. They are fixed per unit, but vary in total.

• Question 759:

  Which of the following price adjustment strategies is designed to stabilize production for the selling firm?

  A. Cash discounts.
  B. Quantity discounts.
  C. Functional discounts.
  D. Seasonal discounts.
  D. Seasonal discounts.

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  Explanation

  Seasonal discounts are designed to smooth prod chon by the selling firm.. For example, a ski I manufacturer offers seasonal discounts to retailers in the song and summer to encourage early lording.

• Question 760:

  A printing company is considering replacing an old printing press. The old printing press has a book value of $24,000 and a trade-in value of $14,000. A new printing press would cost $85,000 after trade-in of the old press. It is estimated that the new printing press would reduce operating costs by $20,000 per year. If the company decides not to purchase the new press, the $85,000 could instead be used to retire debt that is currently costing $9,000 per year in interest. Which of the given is an example of a sunk cost?

  A. The book value of the old printing press.
  B. The trade-in value of the old printing press.
  C. The estimated reduction in operating costs.
  D. The interest on the existing debt.
  A. The book value of the old printing press.

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  Explanation

  A sunk cost is a cost already incurred or committed to be incurred. Consequently, sunk costs are not relevant to decision making because they cannot be affected by the choices made. The old machine's book value of $24,000 is an outlay made in the past that cannot be changed.