IMANET CMA Exam Dumps

IMANET CMA Sample Question Answers

Question # 1

The maximum benefit forgone by using a scarce resource for a given purpose and not for the nextbestalternative is called

A. Opportunity cost.
B. Sunk cost.
C. Incremental cash flow.
D. Net initial investment.

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Question # 2

Book rate of return is an unsatisfactory guide to selecting capital projects becauseI. It uses accrual accounting numbers.II. It compares a single project against the average of capital projects.Ill. It uses cash flows to gauge the desirability of the project.

A. l only.
B. l & ll.
C. Ill only.
D. l, II,& III.

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Question # 3

The capital budgeting process contains several stages. At which stage are financial and non financialfactors addressed?

A. Identification and definition.
B. Selection.
C. Search.
D. Information-acquisition.

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Question # 4

Which of the following is not a category of relevant cash flows?

A. Annual net cash flows. 
B. Project termination cash flows.
C. Incremental cash flows.
D. Net initial investment.

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Question # 5

What is a challenge that the long-term aspect of capital budgeting presents to the managementaccountant?

A. Activity can be tracked for a single accounting period.
B. Capital projects affect multiple accounting periods.
C. The filexibility of the capital budgeting decision.
D. Freedom of the organization’s financial planning.

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Question # 6

A depreciation tax shield is

A. An after-tax cash outflow.
B. A reduction in income taxes.
C. The cash provided by recording depreciation.
D. The expense caused by depreciation.

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Question # 7

Which one of the following statements concerning cash flow determination for capital budgetingpurposes is not correct?

A. Tax depreciation must be considered because it affects cash payments for taxes.
B. Book depreciation is relevant because it affects net income.
C. Sunk costs are not incremental flows and should not be included.
D. Networking capital changes should be included in cash flow forecasts. 

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Question # 8

The term that refers to costs incurred in the past that are not relevant to a future decision is

A. Discretionary cost.
B. Pull absorption cost.
C. Under allocated indirect cost.
D. Sunk cost.

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Question # 9

In equipment-replacement decisions1 which one of the following does not affect the decisionmakingprocess?

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.

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Question # 10

Of the following decisions, capital budgeting techniques would least likely be used in evaluating the

A. Acquisition of new aircraft by a cargo company.
B. Design and implementation of a major advertising program.
C. Trade for a star quarterback by a football team.
D. Adoption of a new method of allocating nontraceable costs to product lines.

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Question # 11

The relevance of a particular cost to a decision is determined by

A. Riskiness of the decision.
B. Number of decision variables.
C. Amount of the cost.
D. Potential effect on the decision.

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Question # 12

Which of the following is not an example of a real option in a capital budgeting decision?

A. Abandonment.
B. Follow-up investment.
C. Option to wait and learn.
D. Risk-adjusted discount rates.

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Question # 13

When evaluating a capital budgeting project, a company’s treasurer wants to know how changes inoperating income and the number of years in the project’s useful life will affect its breakeven internalrate of return. The treasurer is most likely to use

A. Scenario analysis.
B.Sensitivity analysis.
C. Monte Carlo simulation.
D. Learning curve analysis.

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Question # 14

When determining net present value in an inflationary environment, adjustments should be made to 

A. Increase the discount rate, only.
B. Increase the estimated cash inflows and increase the discount rate.
C. Increase the estimated cash inflows but not the discount rate.
D. Decrease the estimated cash inflows and increase the discount rate.

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Question # 15

Sensitivity analysis is used in capital budgeting to

A. Estimate a project’s internal rate of return.
B. Determine the amount that a variable can change without generating unacceptable results.
C. Simulate probabilistic customer reactions to a new product.
D. Identify the required market share to make a new product viable and produce acceptable results.

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Question # 16

A widely used approach that is used to recognize uncertainly about individual economicvariables while obtaining an immediate financial estimate of the consequences of possible predictionerrors is

A. Expected value analysis.
B. Learning curve analysis.
C. Sensitivity analysis.
D. Regression analysis.

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Question # 17

A manager wants to know the effect of a possible change in cash flows on the net present value of aproject. The technique used for this purpose is

A. Sensitivity analysis.
B. Risk analysis.
C. Cost behavior analysis.
D. Return on investment analysis. 

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Question # 18

When the risks of the individual components of a project’s cash flows are different, an acceptableprocedure to evaluate these cash flows is to

A. Divide each cash flow by the payback period.
B. Compute the net present value of each cash flow using the firm’s cost of capital.
C. Compare the internal rate of return from each cash flow to its risk.
D. Discount each cash flow using a discount rate that refilects the degree of risk.

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Question # 19

The proper discount rate to use in calculating certainty equivalent net present value is the

A. Risk-adjusted discount rate.
B. Cost of capital.
C. Risk-free rate.
D. Cost of equity capital.

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Question # 20

An analysis of a company’s planned equity financing using the Capital Asset Pricing Model (orSecurity Market Line) incorporates only the

A. Expected market earnings, the current U.S. treasury bond yield, and the beta coefficient.
B. Expected market earnings and the price-earnings ratio.
C. Current U.S. treasury bond yield, the price-earnings ratio, and the beta coefficient.
D. Current U.S. treasury bond yield and the dividend payout ratio.

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Question # 21

Sensitivity analysis, if used with capital projects,

A. Is used extensively when cash flows are known with certainty.
B. Measures the change in the discounted cash flows when using the discounted payback methodrather than the net present value method.
C. Is a ”what-if” technique that asks how a given outcome will change if the original estimates of thecapital budgeting model are changed.
D. Is a technique used to rank capital expenditure requests.

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Question # 22

Mega, Inc., a large conglomerate with operating divisions in many industries, uses riskadjusteddiscount rates in evaluating capital investment decisions. Consider the following statementsconcerning Mega’s use of risk-adjusted discount rates.I. Mega may accept some investments with internal rates of return less than Mega’s overall averagecost of capital.II. Discount rates vary depending on the type of investment.Ill. Mega may reject some investments with internal rates of return greater than the cost of capital.IV. Discount rates may vary depending on the division. Which of the above statements are correct?

A. I and Ill only.
B. II and IV only.
C. II, Ill, and IV only.
D. I, II, Ill, and IV.

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Question # 23

A company uses portfolio theory to develop its investment portfolio. If the company wishes to obtainoptimal risk reduction through the portfolio effect, it should make its next investment in aninvestment that

A. Correlates negatively to the current portfolio holdings.
B. Is uncorrelated to the current portfolio holdings.
C. Is highly correlated to the current portfolio holdings.
D. Is perfectly correlated to the current portfolio holdings.

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Question # 24

For capital budgeting purposes, management would select a high hurdle rate of return for certainprojects because management

A. Wants to use equity funding exclusively.
B. Believes too many proposals are being rejected.
C. Believes bank loans are riskier than capital investments.
D. Wants to factor risk into its consideration of projects.

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Question # 25

Rex Company is considering an investment in a new plant which will entail an immediate capitalexpenditure of $4,000,000. The plant is to be depreciated on a straight-line basis over 10 years tozero salvage value. Operating income (before depreciation and taxes) is expected to be $800,000 peryear over the 10-year life of the plant. The opportunity cost of capital is 14%. Assume that there areno taxes.What is the NPV for the investment?

A. $172,800
B. $(1,913,600)
C. $520,000
D. $362,400 

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Question # 26

Rex Company is considering an investment in a new plant which will entail an immediate capitalexpenditure of $4,000,000. The plant is to be depreciated on a straight-line basis over 10 years tozero salvage value. Operating income (before depreciation and taxes) is expected to be $800,000 peryear over the 10-year life of the plant. The opportunity cost of capital is 14%. Assume that there areno taxes.What is the discounted payback period for the investment?

A. 5.5years.
B. 7.1 years.
C. 9.2 years.
D. 11.7years.

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Question # 27

Capital budgeting methods are often divided into two classifications: project screening and projectranking. Which one of the following is considered a ranking method rather than a screening method?

A. Net present value.
B. Time-adjusted rate of return.
C. Profitability index.
D. Accounting rate of return.

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Question # 28

The technique that measures the number of years required for the after-tax cash flows to recover theinitial investment in a project is called the

A. Net present value method.
B. Payback method.
C. Profitability index method.
D. Accounting rate of return method.

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Question # 29

The technique that incorporates the time value of money by determining the compound interest rateof an investment such that the present value of the after-tax cash inflows over the life of theinvestment is equal to the initial investment is called the

A. Internal rate of return method.
B. Capital asset pricing model.
C. Profitability index method.
D. Accounting rate of return method.

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Question # 30

The technique that measures the estimated performance of a capital investment by dividing theproject’s annual after4ax net income by the average investment cost is called the

A. Average rate of return method.
B. Internal rate of return method.
C. Capital asset pricing model.
D. Accounting rate of return method.

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Question # 31

The technique that refilects the time value of money and is calculated by dividing the present value ofthe future net after- tax cash inflows that have been discounted at the desired cost of capital by theinitial cash outlay for the investment is called the

A. Capital rationing method.
B. Average rate of return method.
C. Profitabilityr index method.
D. Accounting rate of return method.

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Question # 32

The technique that recognizes the time value of money by discounting the after-tax cash flows for aproject over its life to time period zero using the company’s minimum desired rate of return is calledthe

A. Net present value method.
B. Payback method.
C. Average rate of return method.
D. Accounting rate of return method.

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Question # 33

Future1 Inc. is in the enviable situation of having unlimited capital funds. The best decision rule, in aneconomic sense, for it to follow would be to invest in all projects in which the

A. Accounting rate of return is greater than the earnings as a percent of sales.
B. Payback reciprocal is greater than the internal rate of return.
C. Internal rate of return is greater than zero.
D. Net present value is greater than zero.

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Question # 34

A company has unlimited capital funds to invest. The decision rule for the company to follow in orderto maximize shareholders’ wealth is to invest in all projects having a(n)

A. Present value greater than zero.
B. Net present value greater than zero.
C. Internal rate of return greater than zero.
D. Accounting rate of return greater than the hurdle rate used in capital budgetinganalyses.

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Question # 35

The technique that measures the estimated performance of a capital investment by dividing theproject’s annual after-tax net income by the average investment cost is called the

A. Bail-out payback method.
B. Internal rate of return method.
C. Profitability index method.
D. Accounting rate of return method.

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Question # 36

The recommended technique for evaluating projects when capital is rationed and there are nomutually exclusive projects from which to choose is to rank the projects by

A. Accounting rate of return.
B. Payback.
C. Internal rate of return.
D. Profitability index.

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Question # 37

Flex Corporation is studying a capital acquisition proposal in which newly acquired assets will bedepreciated using the straight-line method. Which one of the following statements about theproposal would be incorrect if a switch is made to the Modified Accelerated Cost Recovery System (MACRS)?

A. The net present value will increase.
B. The internal rate of return will increase.
C. The payback period will be shortened.
D. The profitability index will decrease.

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Question # 38

Mesa Company is considering an investment to open a new banana processing division. The projectin question would entail an initial investment of $45000, and as a result of the project cash inflows of$20000 can be expected in each of the next 3 years. The hurdle rate is 10%. What is the profitabilityindex for the project?

A. 1.0784
B. 1.1053
C. 1.1379
D. 1.1771

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Question # 39

The method that recognizes the time value of money by discounting the after-tax cash flows over thelife of a project, using the company’s minimum desired rate of return is the

A. Accounting rate of return method.
B. Net present value method.
C. Internal rate of return method.
D. Payback method.

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Question # 40

Which one of the following capital investment evaluation methods does not take the time value ofmoney into consideration?

A. Net present value.
B. Discounted payback.
C. Internal rate of return.
D. Accounting rate of return.

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Question # 41

The method that divides a project’s annual after—tax net income by the average investment cost tomeasure the estimated performance of a capital investment is the

A. Internal rate of return method.
B. Accounting rate of return method.
C. Payback method.
D. Net present value (NPV) method.

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Question # 42

The profitability index (present value index)

A. Represents the ratio of the discounted net cash outflows to cash inflows.
B. Is the relationship between the net discounted cash inflows less the discounted cash outflowsdivided by the discounted cash outflows.
C. Is calculated by dividing the discounted profits by the cash outflows.
D. Is the ratio of the discounted net cash inflows to discounted cash outflows.

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Question # 43

The technique used to evaluate all possible capital projects of different dollar amounts and then rankthem according to their desirability is the

A. Profitability index method.
B. Net present value method.
C. Payback method.
D. Discounted cash flow method.

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Question # 44

If an investment project has a profitability index of 1.15,the

A. Project’s internal rate of return is 15%.
B. Project’s cost of capital is greater than its internal rate of return.
C. Project’s internal rate of return exceeds its net present value.
D. Net present value of the project is positive.

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Question # 45

The profitability index approach to investment analysis

A. Fails to consider the timing of project cash flows.
B. Considers only the project’s contribution to net income and does not consider cash flow effects.
C. Always yields the same accept/reject decisions for independent projects as the net present valuemethod.
D. Always yields the same accept/reject decisions for mutually exclusive projects as the net presentvalue method.

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Question # 46

Barker, Inc. has no capital rationing constraint and is analyzing many independent investmentalternatives. Barker should accept all investment proposals

A. If debt financing is available for them.
B. That have positive cash flows.
C. That provide returns greater than the before-tax cost of debt.
D. That have a positive net present value.

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Question # 47

A company sells two products, X and Y. The sales mix consists of a composite unit of 2 units of X foreven 5 units of Y (2:5). Fixed costs are $49,500 The unit contribution margins for X and Y are $2.50and $1.20. respectively. If the company had a profit of $22,000. the unit sales must have been?

A. 5.000 12,500
B. 13.000 32,500
C. 23.800 59,500
D. 32.500 13,000

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Question # 48

A company sells two products, X and Y. The sales mix consists of a composite unit of 2 units of X forevery 5 units of V (2.5). Fixed costs are $49.500. The unit contribution margins for X arid V are $2.50and $1.20. respectively. Considering the company as a whole, the number of composite units tobreak even is?

A 1.650
B. 4.500
C. 8,250
D. 22,500

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Question # 49

The ratio of fixed costs to the unit contribution margin is the?  

A. Breakeven point  
B. Profit margin.  
C. Operating profit 
D. Contribution margin ratio.  

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Question # 50

Donne Corporation manufactures and sells T-shirts imprinted with collage names and slogans. Lastyear. the shirts sold for $750 each, and the variable cost to manufacture them was $2.25 per unit. Thecompany needed to sell 20.000 shirts to break even. The net income last year was $5,040. Donnelly’sexpectations for the coming year include the following:• The sales price of the T-shirts will be $9• Variable cost to manufacture will increase by one-third• Fixed costs will increase by 10%• The income tax rate of 40% will be unchanged121. If Donnelly Corporation wishes to earn $22,500 in net income for the coming year, thecompany’s sales volume in dollars must be? 

A. $213.750
B. $257.625
C. $207.000
D. $229.500

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Question # 51

Donnelly Corporation manufactures and sells T-shirts imprinted with collage names and slogans. Lastyear, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit,The company needed to sell 20.000 shirts to break even. The net income last year was $5,040.Donnelly’s expectations for the coming year include the following:• The sales price of the T-shirts will be $9 • Variable cost to manufacture will increase by one-third• Fixed costs will increase by 10%• The income tax rate of 40% will be unchangedSales for the coming year are expected to exceed last year’s by 1000 units. If this occurs. Donnelly’ssales volume in the coming year will be?

A. 22,600 units.  
B. 21,960units.  
C. 23.400 units.  
D. 21,000 units.  

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Question # 52

Donnelly Corporation manufactures and sells T-shirts imprinted with college names and slogans. astyear. the shirts sold for $750 each, and the variable cost to manufacture them was $2.25 per nit. Thecompany needed to sell 20.000 shirts to break even. The net income last year was $5,040. onnelly’sexpectations for the coming year include the following:• The sales price of the T-shirts will be $9• Variable cost to manufacture will increase by one-third• Fixed costs Will increase by 10%• The income tax rate of 40% will be unchangedThe number of T-shirts Donnelly Corporation must sell to break even in the coming year is? 

A. 17.500  
B. 19.250  
C. 20,000  
D. 22.000  

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Question # 53

Donnelly Corporation manufactures and sells T-shirts imprinted with college names and slogans. Lastyear. the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit.The company needed to sell 20.000 shirts to break even. The net income last year was $5,040 Donnelly expectations for me coming year include the following:• The sales price of the T-shirts will be $9• Variable cost to manufacture Will increase by one-third• Fixed costs will increase by 10%• The income tax rate of 40% will be unchangedThe selling price that would maintain the same contribution margin rate as last year is?

A. $9.00  
B $8.25  
C. $10.00  
D $9.75  

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Question # 54

When an organization is operating above the breakeven point, the degree or amount that sales maydecline before losses are incurred is called the?

A. Residual income rate.
B. Marginal rate of return,
C. Margin of safety.
D. Target (hurdle) rate of return.

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Question # 55

Barney Corporation sells sets of encyclopedias. Barney sold 4,000 sets last year at $250 a set if thevariable cost per set was $175 and the fixed costs for Barney were $100000. What is Barney’s degreeof operating leverage (DOL)?

A. 0.67
B. 0.75
C. 1.5
D. 3.0

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Question # 56

Based on potential sales of 1.000 units per year, a new product has estimated mated costs of$600.000. Vat is the target price to obtain a 20% return on sales?

A. $720
B. $750
C. $1080
D. $3,000

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Question # 57

A company wants to open a new store in one of three nearby shopping malls. In MallA. the rent will be $300,000 per year. In Mall B, the rent will be 4% of gross revenues In Man C, rentwill be $150,000 per year plus 3% of gross revenues. Assume that revenues and all other elementsunder consideration are the same for all three malls. What is the maximum level of revenues atwhich Mall C will be the most desirable of the three options?

A. $149,999
B $5,000,000
C. $15,000,000
D. Man C will never be the most desirable choice.

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Question # 58

company wants to open a new store in one of three nearby shopping malls. In Mall A, the rent will be$300,000 per year. In 4alI B, the rent will be 4% of gross revenues. In Mall C, the rent will be$150,000 per year pIus 3% of gross revenues Assume hat revenues and all other elements underconsideration are the same for all three malls. If the company expects revenues to be $ 10.000.000per year. which mall should be chosen?

A. Mall A,
B. MaII B.
C. Mall C.
D. The company will be indifferent between two of the choices.

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Question # 59

A company wants to open a new store in one of three nearby shopping malls. In MallA. the rent will be $300,000 per year. In Mall B. the rent will be 4% of gross revenues In Mall C. therent will be $150,000 per year pius 3% of gross revenues. Assume that revenues and and otherelements under consideration are the same for all three malls. Which mall should the companychoose it revenues are expected to be $6,000,000 per year?

A. MaII A.
B. MaII B. 
C. Mall C.
D The company will be indifferent between two of the Choices.

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Question # 60

Cat fur Company has fixed costs of $300,000. It produces two products, X and Y. Product X has avariable cost percentage equal to 60% of its $10 per unit selling price Product Y has a variable costpercentage equal to 70% of its $30 selling price For the past several years, sales of Product X haveaveraged 66% of the sales of Product Y. That ratio is not expected to change. Assume that Cat furCompany achieved its planned breakeven level of sales in dollars, but the mix of products sold wasone-toone. All actual costs and unit selling prices equaled budgeted amounts. What is the impact onprofitability?

A. The company is operating at the breakeven point.
B. The company earned a profit.
C. The company sustained a loss.
D. Cannot be deterrence from the informant given.

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Question # 61

Cat fur Company has fixed costs of $300.000. It produces two products, X and Y Product X has avariable cost percentage equal to 60% of its $10 per unit selling price. Product Y has a variable costpercentage equal to 70% of its $30 selling price. For the past several years, sales of Product X haveaveraged 66% of the sales of Product Y. That ratio is not expected to change. How many units ofProduct Y will Cat fur sell at the breakeven point? 

A. 8,571 units.
B. 20.454 units.
C. 23.377 units.
D. 25,714 units.

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Question # 62

Cat fur Company has fixed costs of $300,000. It produces two products, X and Y Product has a vanable cost percentage equal to 60% of its $10 per unit selling price Product Y has a variable costpercentage equal to 70% of its $30 selling price. For the past several years, sales of Product X haveaveraged 66% of the sales of Product Y. That ratio is not expected to change. What is Cat fursbreakeven point in dollars?

A. $300,000
B. $750,000
C. $857,142
D. $942,857

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Question # 63

A company wants to open a new store in one of two nearby shopping malls. In MallA. the rent willbe $250 .000 per year. In Mall B. the rent will be 4% of gross revenues. Assuming that revenues andall other elements under consideration are the same for both malls, at what level of revenues willthe company be indifferent between the two malls?

A. $1 .000.000
B. $4.000.000
C. $6.250.000
D. $12,500,000

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Question # 64

For one of its divisions, Buona Fortuna Company has fixed costs of $300,000 and a variable-costpercentage equal to 60% of its $10 per unit selling price. It would like to earn a pre-tax income of$90,000 per year from the division. How many units will Buona Fortuna have to sell to earn a pre-taxincome of $90,000 per year?

A. 65.000 units.
B. 75.000 units.
C. 77.250 units,
D. 97,500 units.

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Question # 65

For one of its divisions, Buona Fortune Company has fixed costs of $300,000 and a van able-costpercentage equal to 60% of its $10 per unit selling price. It would like to earn a pre-tax income 01$90,000 per year from the division. What is the breakeven point in dollars?

A. $300,000
B. $500,000
C. $750,000
D. $1,050,000

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Question # 66

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

A. Total variable expense line exceeds the total fixed expense line.  
B. Total expense line exceeds the total sales revenue line.  
C. Total sales revenue line exceeds the total fixed expense line.  
D. Total sales revenue line exceeds the total expense line. 

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Question # 67

A retail company determines its selling price by marking up variable costs 60%. In addition, the company uses frequent selling price markdowns to stimulate sales. If the markdowns average 10%, what is the company’s contribution margin ratio?

A. 27.5%  
B. 30.6%  
C. 37.5%  
D. 41.7%  

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Question # 68

What is the breakeven point in units for a product that sells for $10 if fixed costs are $4,000 and variable costs are 20%? 

A. 250  
B. 500  
C. 800  
D. 2,000  

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Question # 69

The change in period-to-period operating income when using variable costing can be explained by the change in the 

A. Unit sales level multiplied by the unit sales price.  
B. Finished goods inventory level multiplied by the unit sales price.  
C. Unit sales level multiplied by a constant unit contribution margin.  
D. Finished goods inventory level multiplied by a constant unit contribution margin.  

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Question # 70

The breakeven point in units sold for Tierson Corporation is 44,000. If fixed costs for Tierson are equal to $880, 000 annually and variable costs are $10 per unit1 what is the contribution margin per unit for Tierson Corporation? 

A. $0.05  
B. $20.00  
C. $44.00  
D. $88.00  

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Question # 71

Which one of the following is true regarding a relevant range? 

A. Total variable costs will not change.  
B. Total fixed costs will not change.  
C. Actual fixed costs usually fall outside the relevant range.  
D. The relevant range cannot be changed after being established.  

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Question # 72

For a profitable company, the amount by which sales can decline before losses occur is known as the  

A. Sales volume variance. 
B. Hurdle rate.  
C. Variable sales ratio.  
D. Margin of safety.  

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Question # 73

The breakeven point in units increases when unit costs  

A. Increase and sales price remains unchanged.  
B. Decrease and sales price remains unchanged.  
C. Remain unchanged and sales price increases.  
D. Decrease and sales price increases.  

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Question # 74

Which of the following is a characteristic of a contribution income statement?  

A. Fixed and variable expenses are combined as one line.  
B. Fixed expenses are listed separately from variable expenses.  
C. Fixed and variable manufacturing costs are combined as one line item, but fixed operating expenses are shown separately from variable operating expenses. 
D. Fixed and variable operating expenses are combined as one line item, but fixed manufacturing expenses are shown separately from variable manufacturing expenses. 

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Question # 75

A company’s breakeven point in sales dollars may be affected by equal percentage increases in both selling price and variable cost per unit (assume all other factors are constant within the relevant range). The equal percentage changes in selling price and variable cost per unit will cause the breakeven point in sales dollars to 

A. Decrease by less than the percentage increase in selling price. 
B. Decrease by more than the percentage increase in the selling price.  
C. Increase by the percentage change in variable cost per unit.  
D. Remain unchanged.  

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Question # 76

Which of the following will result in raising the breakeven point?  

A. A decrease in the variable cost per unit.  
B. An increase in the semivariable cost per unit.  
C. An increase in the contribution margin per unit.  
D. A decrease in income tax rates.  

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Question # 77

Marston Enterprises sells three chemicals: petrol, septine, and tridol. Petrol is the company’s most profitable product tridol is the least profitable. Which one of the following events will definitely decrease the firm’s overall breakeven point for the upcoming accounting period? 

A. The installation of new computer-controlled machinery and subsequent layoff of assembly-line workers. 
B. A decrease in tridol’s selling price.  
C. An increase in the overall market for septine.  
D. An increase in anticipated sales of petrol relative to sales of septine and tridol.  

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Question # 78

The margin of safety is a key concept of CVP analysis. The margin of safety is the  

A. Contribution margin rate. 
B. Difference between budgeted contribution margin and Break even contribution margin.  
C. Difference between budgeted sales and breakeven sales.  
D. Difference between the breakeven point in sales and cash flow breakeven.  

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Question # 79

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 theresults and/or assumptions.
B. Ascertain the probabilities of various outcomes and work with management on understandingthose 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 formanagement. 

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Question # 80

One of the major assumptions limiting the reliability of breakeven analysis is that  

A. Efficiency and productivity will continually increase.  
B. Total variable costs will remain unchanged over the relevant range.  
C. Total fixed costs will remain unchanged over the relevant range.  
D. The cost of production factors varies with changes in technology.  

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Question # 81

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

A. Job order costing.  
B. Variable (direct) costing.  
C. Joint costing.  
D. Absorption (full) costing.  

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Question # 82

Cost-volume-profit (CVP) analysis is a key factor in many decisions, including choice of product lines, pricing of products, marketing strategy, and use of productive facilities. A calculation used in a CVP analysis is the breakeven point. Once the breakeven point has been reached, operating income will increase by the 

A. Gross margin per unit for each additional unit sold.  
B. Contribution margin per unit for each additional unit sold.  
C. Fixed costs per unit for each additional unit sold.  
D. Variable costs per unit for each additional unit sold.  

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Question # 83

In the decision making process, differential cost is a (n)  

A. Sunk cost of alternative courses of action.  
B. Fixed cost of alternative courses of action.  
C. Opportunity cost of alternative courses of action.  
D. Cost that changes among alternative courses of action.  

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Question # 84

When an organization decides on a course of action that is selected from a group of alternative courses of action, the benefit lost by not choosing the best alternative course of action is the

A. Expected value.  
B. Incremental cost.  
C. Net realizable value.  
D. Opportunity cost. 

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Question # 85

When management must decide to accept or reject a one-time-only special order, given sufficient idle capacity, which one of the following is not relevant to the decision? 

A. Absorption costs.  
B. Differential costs.  
C. Direct costs.  
D. Variable costs.  

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Question # 86

In a manufacturing environment, the best short4erm profit maximizing approach would be to  

A. Maximize unit gross profit times the number of units sold.  
B. Minimize variable costs per unit times the number of units produced.  
C. Minimize fixed overhead cost per unit by producing at full capacity.  
D. Maximize contribution per unit times the number of units sold.  

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Question # 87

Sunk costs  

A. Are substitutes for opportunity costs.  
B. In and of themselves are not relevant to decision making.  
C. Are relevant to decision making.  
D. Are fixed costs.  

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Question # 88

The term relevant cost applies to all the following decision situations except the  

A. Acceptance of a special order.  
B. Manufacture or purchase of component parts.  
C. Determination of a product price.  
D. Replacement of equipment.  

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Question # 89

Total unit costs are  

A. Relevant for cost-volume-profit analysis.  
B. Needed for determining sunk costs.  
C. Irrelevant in marginal analysis.  
D. Independent of the cost system used to generate them.  

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Question # 90

The cost described in situation II is a  

A. Prime cost.  
B. Discretionary cost.  
C. Relevant cost.  
D. Imputed cost. 

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Question # 91

The costs described in situations Ill and V are  

A. Prime costs.  
B. Sunk costs.  
C. Discretionary costs.  
D. Imputed costs.  

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Question # 92

The costs described in situations land IV are  

A. Prime costs.  
B. Sunk costs.  
C. Discretionary costs.  
D. Relevant costs.  

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Question # 93

Which costs are relevant to the decision to further process a product beyond its current state?  

A. Joint costs.  
B. Incremental costs.  
C. Absorption costs.  
D. Fixed factory overhead.  

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Question # 94

There is a market for both product X and product Y. Which of the following costs and revenues would be most relevant in deciding whether to sell product X or process it further to make product Y? 

A. Total cost of making X and the revenue from sale of X and Y. 
B. Total cost of making Y and the revenue from sale of Y.  
C. Additional cost of making Y, given the cost of making K and additional revenue from Y.  
D. Additional cost of making K given the cost of making Y, and additional revenue from Y.  

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Question # 95

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.  

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Question # 96

Relevant costs refer to  

A. All fixed costs.  
B. Costs that would be incurred within the relevant range of production.  
C. Past costs that are expected to be different in the future.  
D. Anticipated future costs that will differ among various alternatives.  

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Question # 97

The opportunity cost of making a component part in a factory with no excess capacity is the  

A. Variable manufacturing cost of the component.  
B. Total manufacturing cost of the component. 
C. Cost of the production given up in order to manufacture the component.  
D. Net benefit forgone from the best alternative use of the capacity required.  

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Question # 98

Opportunity costs are  

A. Not used for decision making.  
B. The same as variable costs.  
C. Equal to historical costs.  
D. Relevant to decision making.  

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Question # 99

Relevant or differential cost analysis  

A. Takes all variable and fixed costs into account to analyze decision alternatives.  
B. Considers only variable costs as they change with each decision alternative.  
C. Considers all variable and fixed costs as they change with each decision alternative.  
D. Allows the decision maker to group all types of costs together to facilitate decision making.  

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Question # 100

The costs described in situations 2, 3, and 5 are  

A. Sunk costs.  
B. Discretionary costs.  
C. Relevant costs.  
D. Differential costs.  

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Question # 101

The costs described in situations 1 and 4 are  

A. Prime costs.  
B. Sunk costs.  
C. Discretionary costs.  
D. Relevant costs.  

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Question # 102

BCD Corp. outsourced an order for shovel handles to RST Corp. because BCD could not fill the order. By having RST produce the order, BCD was able to realize $10000 in sales profits that otherwise would have been lost. The outsourcing cost added a cost of $1 .000, but BCD was ahead by $9000 when the order was completed. Which of the following statements is correct regarding BCD’s action? 

A. The use of resource markets outside of BCD involves opportunity cost.  
B. Accounting profit is total revenue minus explicit costs and implicit costs.  
C. Implicit costs are not opportunity costs because they are internal costs.  
D. Explicit costs are opportunity costs from purchasing shovel handles from a resource market.  

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Question # 103

Which concept of costs includes only explicit costs?  

A. Economic.  
B. Opportunity  
C. Accounting.  
D. Sunk.  

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Question # 104

The relevance of a particular revenue to a decision is determined by  

A. Riskiness of the decision.  
B. Number of decision variables.  
C. Amount of the revenue.  
D. Potential effect of the decision.  

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Question # 105

A manufacturing firm planned to manufacture and sell 100,000 units of product during the year at a variable cost per unit of $4.00 and a fixed cost per unit of $2.00. The firm fell short of its goal and only manufactured 80,000 units at a total incurred cost of $515,000. The firm’s manufacturing cost variance was 

A. $85,000 favorable.  
B. $35,000 unfavorable.  
C. $5,000 favorable.  
D. $5,000 unfavorable.  

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Question # 106

Assuming all manufacturing costs for finished goods are known1 which of the following statements explains why the accountant’s unit cost used in inventory valuation for the annual financial statements would differ from the economist’s marginal unit cost? 

A. The company used LIEO or EIEO assumptions to compute inventory cost.  
B. Accounting information that is based on historical manufacturing costs ignores current cost trends.  
C. The economist’s definition of marginal cost excludes a provision for profit per unit.  
D. The manufacturing cost per unit refilected in financial statements includes fixed costs.  

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Question # 107

Costs that increase as the volume of activity decreases within the relevant range are  

A. Average costs per unit.  
B. Average variable costs per unit.  
C. Total fixed costs.  
D. Total variable costs.  

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Question # 108

When the number of units manufactured increases, the most significant change in average unit cost will be refilected as 

A. An increase in the nonvariable element.  
B. A decrease in the variable element.  
C. A decrease in the nonvariable element. 
D.   An increase in the semivariable element.

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Question # 109

A company has always used the full cost of its product as the starting point in the pricing of that product. The price set by competitors and the demand for the company’s only product, the Widget, have never been predictable. Lately, the company’s market share has been increasing as it continues to lower its price, but total revenues have not changed significantly relative to the gain in sales volume. The likely reason for the stability of total revenues is the 

A. Variable cost component of the full cost.  
B. Unstable contribution margin.  
C. Fixed cost component of the full cost.  
D. Drop in the incremental cost of the units in the increased sales volume.  

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Question # 110

Unit fixed costs  

A. Are constant per unit regardless of units produced or sold.  
B. Are determined by dividing total fixed costs by a denominator such as production or sales volume.  
C. Vary directly with the activity level when stated on a per-unit basis.  
D. Include both fixed and variable elements.  

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Question # 111

The difference between the sales price and total variable costs is  

A. Gross operating profit.  
B. Net profit.  
C. The breakeven point.  
D. The contribution margin.  

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Question # 112

Joint costs are those costs  

A. Of products requiring the services of two or more processing departments.  
B. Of a product from a common process that has relatively little sales value and only a small effect on profit.
C. Of production that are combined in the overhead account.  
D. Of two or more products produced from a common process.  

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Question # 113

Life-cycle costing  

A. Is sometimes used as a basis for cost planning and product pricing.  
B. Includes only manufacturing costs incurred over the life of the product.  
C. Includes only manufacturing cost, selling expense, and distribution expense.  
D. Emphasizes cost savings opportunities during the manufacturing cycle.  

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Question # 114

Conversion cost pricing  

A. Places minimal emphasis on the cost of materials used in manufacturing a product.  
B. Could be used when the customer furnishes the material used in manufacturing a product.  
C. Places heavy emphasis on indirect costs and disregards consideration of direct costs.  
D. Places heavy emphasis on direct costs and disregards consideration of indirect costs.  

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Question # 115

Conversion costs do not include  

A. Depreciation.  
B. Direct materials.  
C. Indirect labor.  
D. Indirect materials.  

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Question # 116

Controllable costs  

A. Arise from periodic appropriation decisions and have no well-specified function relating inputs to outputs
B. Are primarily subject to the influence of a given manager of a given responsibility center for a given time span. 
C. Arise from having property, plant, and equipment, and a functioning organization.  
D. Result specifically from a clear-cut measured relationship between inputs and outputs.  

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Question # 117

When a decision is made in an organization, it is selected from a group of alternative courses of action. The loss associated with choosing the alternative that does not maximize the benefit is the 

A. Net realizable value.  
B. Expected value.  
C. Opportunity cost.  
D. Incremental cost.  

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Question # 118

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.  

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Question # 119

A company will produce 20000 units of product A at a unit variable cost of $7 and a unit selling price of $13. Fixed costs are $40,000. However, the company will still have 40% idle capacity. The company can use this idle capacity to produce 6,000 units of a different product B, which it can sell for $7 per unit. The incremental variable cost of producing a unit of B is $6. Present fixed costs that will be allocated to B amount to $10,000. To decide whether to produce B, the company should use

A. Differential cost analysis.  
B. Information economics.  
C. Regression analysis.  
D. Markov chain analysis.  

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Question # 120

Incremental cost is  

A. The difference in total costs that results from selecting one choice instead of another.  
B. The profit forgone by selecting one choice instead of another.  
C. A cost that continues to be incurred in the absence of activity.  
D. A cost common to all choices in question and not clearly or feasibly allocable to any of them.  

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Question # 121

When a firm prepares financial reports by using absorption costing,  

A. Profits will always increase with increases in sales.  
B. Profits will always decrease with decreases in sales.  
C. Profits may decrease with increased sales even if there is no change in selling prices and costs.  
D. Decreased output and constant sales result in increased profits.  

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Question # 122

Which one of the following is least likely to be an objective of a cost accounting system?  

A. Product costing.  
B. Department efficiency.  
C. Inventory valuation.  
D. Sales commission determination.  

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Question # 123

Costs are allocated to cost objects in many ways and for many reasons. Which one of the following is a purpose of cost allocation? 

A. Evaluating revenue center performance.  
B. Measuring income and assets for external reporting.  
C. Budgeting cash and controlling expenditures.  
D. Aiding in variable costing for internal reporting.  

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Question # 124

A cost that may be eliminated by performing an activity more efficiently is a(n)  

A. Opportunity cost.
B. Avoidable cost.
C. Cost driver.
D. Indirect cost.  

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Question # 125

The sum of the costs necessary to effect a one-unit increase in the activity level is a(n)  

A. Differential cost. 
B. Opportunity cost.  
C. Marginal cost.  
D. Incremental cost.  

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Question # 126

Which of the following is the best example of a variable cost?  

A. The corporate president’s salary. 
B. Cost of raw material. 
C. Interest charges. 
D. Property taxes. 

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Question # 127

“Controllable costs” are  

A. Costs which management decides to incur in the current period to enable the company to achieveobjectives other than the filling of orders placed by customers.
B. Costs which are likely to respond to the amount of attention devoted to them by a specifiedmanager.
C. Costs which fluctuate in total in response to small changes in the rate of utilization of capacity.
D. Costs which will be unaffected by current managerial decisions. 

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Question # 128

“Discretionary costs” are  

A. Costs which management decides to incur in the current period to enable the company to achieveobjectives other than the filling of orders placed by customers.
B. Costs which are likely to respond to the amount of attention devoted to them by a specifiedmanager.
C. Costs which are governed mainly by past decisions that established the present levels of operatingand organizational capacity and which only change slowly in response to small changes in capacity.
D. Costs which will be unaffected by current managerial decisions. 

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Question # 129

“Committed costs” are  

A. Costs which management decides to incur in the current period to enable the company to achieveobjectives other than the filling of orders placed by customers.
B. Costs which are likely to respond to the amount of attention devoted to them by a specifiedmanager.
C. Costs which are governed mainly by past decisions that established the present levels of operatingand organizational capacity and which only change slowly in response to small changes in capacity.
D. Amortization of costs which were capitalized in previous periods. 

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Question # 130

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 fixedcosts never change.
D. Variable costs per unit change in varying increments, while fixed costs per unit change in equalincrements.

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Question # 131

An assembly plant accumulates its variable and fixed manufacturing overhead costs in a single cost pool, which is then applied to work in process using a single application base. The assembly plant management wants to estimate the magnitude of the total manufacturing overhead costs for different volume levels of the application activity base using a filexible budget formul A. If there is an increase in the application activity base that is within the relevant range of activity for the assembly plant, which one of the following relationships regarding variable and fixed costs is true?  

A. The variable cost per unit is constant, and the total fixed costs decrease.  
B. The variable cost per unit is constant, and the total fixed costs increase.  
C. The variable cost per unit and the total fixed costs remain constant.  
D. The variable cost per unit increases, and the total fixed costs remain constant.  

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Question # 132

The terms direct cost and indirect cost are commonly used in accounting. A particular cost might be considered a direct cost of a manufacturing department but an indirect cost of the product produced in the manufacturing department. Classifying a cost as either direct or indirect depends upon 

A. The behavior of the cost in response to volume changes.  
B. Whether the cost is expensed in the period in which it is incurred.  
C. The cost object to which the cost is being related.  
D. Whether an expenditure is unavoidable because it cannot be changed regardless of any action taken. 

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Question # 133

Which one of the following is most relevant to a manufacturing equipment replacement decision?  

A. Original cost of the old equipment.  
B. Disposal price of the old equipment.  
C. Gain or loss on the disposal of the old equipment.  
D. A lump-sum write-off amount from the disposal of the old equipment.  

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Question # 134

A cost that can be saved by not adopting a particular option is a(n)  

A. Imputed cost.  
B. Avoidable cost. 
C. Unavoidable cost.  
D. Postponable cost.  

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