IMANET IMANET Certifications IMANET-CMA Questions & Answers

• Question 801:

  The following information regarding inventory policy was assembled by tee WE Corporation. The company uses a 50-.week year in all calculations.

  

  The reorder point is

  A. 5 .500 units

  B. 2,700 units

  C. 1,200 units

  D. 240 units

  Correct Answer: B

  The reorder point equals the inventory to be sold during the lead time plus any safely stock. If the weekly sales are 240 units (12,000 ?50 weeks) and the lead time is 5 weeks, sales during the lead time should be 1,200 units. Adding the 1,200 units of expected sales to the 1,500 units of safely stock produces a reorder point of 2,700 units'

• Question 802:

  The following information regarding a change in credit policy was assembled by the Wilson Wax Company. The company has a required rate of return of 11% and a variable cost ratio of 50%. The opportunity' cost oaf longer collection period is assumed to be negligible.

  

  The pretax cost of carrying the additional investment in receivables, assuming a 360- dayyear, is

  A. $5,439

  B. $10,878

  C. $13,778

  D. $98,890

  Correct Answer: A

  The cost of carrying receivables equals average receivables times the variable cost ratio times the cost of money. Under the old policy, average daily sales are $12,778 ($4,600,000 ?360 days). Given a 30- day average collection period, the average receivables balance is $383,340 ($12,778 x 30 days). Under the new policy, average daily sales are $13,778 ($4,960,000 ?360 days), and the average receivables balance is $482,230 ($13,778 x 35 days). Hence, the average balance is $98,890 higher under the new policy. Because the company's incremental (variable) costs are 50% of sales, the additional investment is $49,445 ($98,890 x 50%). The interest rate, or required rate of return1 is 11%. Thus, the incremental pretax carrying cost is $5,439 ($49,445 x 11%).

• Question 803:

  Franklin Inc. is a medium-size manufacturer of toys that makes 25% of its sales to Mega Company, a major national discount retailing firm. Mega will be requiring Franklin and other suppliers to use Electronic Data Interchange (EDI) for inventory replenishment and trade payment transactions as opposed to the paper-based systems previously used. Franklin would consider all of the following to be advantages of using EDI in its dealings with Mega except

  A. Access to Megan's inventory balances of Franklin's products.

  B. Better status tracking of deliveries and payments.

  C. Compatibility with Franklin's other procedures and systems.

  D. Reduction in the payment float.

  Correct Answer: C

  Electronic data interchange is the electronic transfer of documents between businesses. EDI was developed to enhance just-in-time (JIT) inventory management. Advantages include speed, reduction of clerical errors, and elimination of repetitive clerical tasks and their costs. Improved business relationships result because of the mutual benefits conferred by EDI. Accordingly, some organizations require EDI. However, EDI entails the exchange of common business data converted into standard message formats. Thus, two crucial requirements are that the participants agree on transaction formats and that translation software be developed to convert messages into a form understandable by other companies. Accordingly, establishing compatibility with Megan's procedures and systems will require Franklin to resolve issues regarding compete ability with its other procedures and systems.

• Question 804:

  Mason Compass board of directors has determined 4 options to increase working capital next year.

  Option 1 is to increase current assets by $120 and decrease current liabilities by $50.

  Option 2 is to increase current assets by $180 and increase current liabilities by $30.

  Option 3 is to decrease current assets by $140 and increase current liabilities by $20.

  Option 4 is to decrease current assets by $100 and decrease current liabilities by $75.

  Whitch option should Mason choose to maximize networking capital?

  A. Option 1.

  B. Option 2.

  C. Option 3.

  D. Option 4.

  Correct Answer: A

  Net working capital is the excess of current assets over current liabilities. An increase in current assets or a decrease in current liabilities will increase networking capital. Option 1 maximizes Mason Doman's networking capital, increasing it by $170 ($120 + $50).

• Question 805:

  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.

  Correct Answer: C

  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.

• Question 806:

  Which one of the following financial instruments generally provides the largest source of short-term credit for small firms?

  A. Installment loans.

  B. Commercial paper.

  C. Trade credit.

  D. Bankers' acceptances.

  Correct Answer: C

  Trade credit is a spontaneous source of financing because it arises automatically as part of a purchase transaction. Because of its ease in use, trade credit is the largest source of short-term financing for many firms both large and small.

• Question 807:

  When the Economic Order Quantity' (EOQ) model is used for firm that manufactures its inventor, ordering costs consist primarily of

  A. Insurance and taxes.

  B. Obsolescence and deterioration

  C. Storage and handling.

  D. Production set-up.

  Correct Answer: D

  A manufacturer can use the EOQ model by substituting production set-up costs for ordering costs. Set-up costs are the manufacturer's equivalent of ordering costs. The result is sometimes referred to as the economic batch quantity.

• Question 808:

  Average daily cash outflows are $3 million for Evans Inc. A new cash management system can add 2 days to the disbursement schedule. Assuming Evans earns 10% on excess funds, how much should the firm be

  willing to pay per year for this cash management system?

  A. $6,000,000

  B. $3,000,000

  C. $1,500,000

  D. $600000

  Correct Answer: D

  If cash outflows are $3 million per day, holding cash 2 extra days means that average balances should increase by $6 million. At a 10% interest rate, the additional $6 million would generate interest revenue of $600000 per year. Thus, if the system can be acquired for $600,000 or less, it would be beneficial to do so.

• Question 809:

  The working capital financing policy that subjects the firm to the greatest risk of being unable to meet the firm's maturing obligations is the policy that finances

  A. Fluctuating current assets with long-term debt.

  B. Permanent current assets with long-term debt.

  C. Permanent current assets with short-term debt.

  D. Fluctuating current assets with short4erm debt.

  Correct Answer: C

  Fluctuating current assets can often be financed with short-term debt because the periodic liquidation of the assets provides funds to pay off the debt. However, financing permanent current assets with short-term debt is a risky strategy because the assets may not be liquidated in time to pay off the debt at maturely.

• Question 810:

  If firm increases its cash balance by issuing additional shares of common stock, networking capital

  A. Remains unchanged and the current ratio remains unchanged.

  B. Increases and the current ratio remains unchanged.

  C. Increases and the current ratio decreases.

  D. Increases and the current ratio increases.

  Correct Answer: D

  Net working capital is the excess of current assets over current liabilities. The current ratio equals current assets divided by current liabilities. Selling stock for cash increases current assets and stockholders' equity', with no effect on current liabilities. The result is an increase in working capital and the current ratio.