IMANET CMA Exam Practice Test Instant Access

Question 1

Clay Co. has considerable excess manufacturing capacity. A special job order's cost sheet includes the following applied manufacturing overhead costs:

Fixed costs $21,000 Variable costs 33,000 The fixed costs include a normal $3,700 allocation for in-house design costs, although no in-house design will be done. Instead, the job will require the use of external designers costing $7,750. What is the total amount to be included in the calculation to determine the minimum acceptable price for the job?

A$36,700

B$40,750

C$54,000

D$58,050

Answer : B

Given excess capacity, the company presumably will not incur opportunity costs if it accepts the special order. Assuming also that fixed costs will be unaffected, the incremental cost of the order (the minimum acceptable price) will be $40,750 ($33,000 VC + $7,750 cost of external design).

Question 2

If inventories are expected to change, the type of costing that provides the best information for breakeven analysis is

AJob order costing.

BVariable (direct) costing.

CJoint costing.

DAbsorption (full) costing.

Answer : B

A variable (direct) costing system is best for providing the information needed for CVP analysis because both techniques separate the fixed costs from variable costs. CVP analysis calculates a variable cost per unit and deducts it from unit sales price to determine the unit contribution margin. The total contribution margin from a given level of unit sales measures the extent of recovery of fixed costs and the profit earned. Direct costing is likewise oriented toward determination of the contribution margin because it treats fixed manufacturing overhead as a period, not a product, cost. Thus, it facilitates CVP analysis by isolating variable manufacturing costs.

Question 3

In an organization with empowered work teams, organizational policies

AShould define the limits or constraints within which the work teams must act if they are to remain self-directing.

BBecome more important than ever. Without clear rules to follow, empowered work reams are almost certain to make mistakes.

CShould be few or none. The work reams should have the freedom to make their own decisions.

DShould be set by the teams themselves in periodic joint meetings.

Answer : A

Work reams are not ''empowered'' to do anything they please. The organization has certain expectations for what is to be accomplished and how the reams are to go about accomplishing these expectations. Once the organization defines its objectives and sets appropriate policies, the work teams are able to make and implement decisions within those boundaries. Policies in this context are usually quite broad ( e.g. , relating to ethical business conduct) but nevertheless important.

Question 4

Using a 380-day year, what is the opportunity cost to a buyer of not accepting terms 3/10, net 45?

A55.67%

B31.81%

C22.27%

D101.73%

Answer : B

Payments should be made within discount periods if the return is more than the firm's cost of capital. With terms of 3/10, net45; the buyer is earning a 3% savings for paying on the tenth day, or 35 days earlier than would otherwise be required. For example, on a $1,000 invoice, the payment would be only $970. The $30 savings is comparable to interest earned on a $970 loan to the vendor (the payment is not due for another 35 days). The interest rate on this hypothetical loan is 3.09278% ($30 - $970). That return is for a 35-day period. Annualizing the return requires determining the number of 35-day periods in a year. Multiplying the return for 35 days times the periods in a year results in an annual rate of return of about 31.81% [3.09276% x (360 days 35 days)].

Question 5

Positive operating income is shown on a cost-volume-profit chart when the

ATotal variable expense line exceeds the total fixed expense line.

BTotal expense line exceeds the total sales revenue line.

CTotal sales revenue line exceeds the total fixed expense line.

DTotal sales revenue line exceeds the total expense line.

Answer : D

A cost-volume-profit chart contains elements (lines, points, axes) that identify variable cost, fixed cost, the breakeven point, total revenue, profit, and volume in units. When the total sales revenue line rises above the total expense line, a company will have positive net income.

Question 6

If the amount to deposit today to be able to replace an asset at a specified time in the future is to be determined, which formula should be used?

AOption

BOption

COption

DOption

Answer : C

Question 7

A manufacturer contemplates a change in technology that would reduce fixed costs from $800,000 to $700 .000. However, the ratio of variable costs to sales will increase from 68% to 80%.Whatwill happen to break-even level of revenues?

ADecrease by $301,470.50

BDecrease by $500,000

CDecrease by $1,812,500

DIncrease by $1,000,000

Answer : D

Thus, there is an increase of $1 .000,000.

IMANET Certified Management Accountant CMA Exam Practice Test