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Free CMA Exam Braindumps (page: 108)

Page 108 of 336
PDF with 1336 Questions
View Related Case Study

Specialty Cakes, Inc. produces two types of cakes, a round cake and a heart-shaped cake. Total fixed costs for the firm are $92,000 Variable costs and sales data for these cakes are presented below


How many cakes will be required to reach the breakeven point?

  1. 8.000 round cakes and 12.000 heart-shaped cakes
  2. 9.000 round cakes and 11.000 heart-shaped cakes
  3. 10.000 round cakes and 10,000 heart-shaped cakes
  4. 23,000 round cakes and 18.400 heart-shaped cakes.

Answer(s): A

Explanation:

In a multiproduct setting, the contribution margin of each product must be weighted according to its proportion of total sales. Specialty's breakeven quantities can therefore be derived thus:


The breakeven point in round cakes is therefore 8,000 units (20.000 composite x 40%), and the breakeven point in heart-shaped cakes is 12,000 units (20,000 composite x 60%).



View Related Case Study

In a decision analysis situation, which one of the following costs is not likely to contain a variable cost component?

  1. Labor.
  2. Overhead.
  3. Depreciation.
  4. Selling.

Answer(s): C

Explanation:

Most types of costs either are variable or contain some mix of fixed and variable components. For example, labor and materials are primarily variable. Their amounts fluctuate with the relevant cost drivers. Selling expenses and overhead costs can be either fixed or variable. Depreciation, however, is strictly a fixed cost when viewed in a decision analysis situation because it requires no cash outlay. Instead, the initial acquisition of the long-lived asset requires the cash outlay.



View Related Case Study

An important concept in decision making is described as "the contribution to income that is forgone by not using a limited resource in its best alternative use." This concept is called

  1. Marginal cost.
  2. Incremental cost.
  3. Potential cost.
  4. Opportunity cost.

Answer(s): D

Explanation:

An opportunity cost is the maximum benefit sacrificed by employing a scarce productive resource in a specified manner. In other words, it is the value or worth of that resource in its next best alternative use.



View Related Case Study

American Coat Company estimates that 60,000 special zippers will be used in the manufacture of men's jackets during the next year. Reese Zipper Company has quoted a price of $.60 per zipper. American would prefer to purchase 5,000 units per month1 but Reese is unable to guarantee this delivery schedule. In order to ensure availability' of these zippers, American is considering the purchase of all 60,000 units at the beginning of the year. Assuming American can invest cash at 8%, the company's opportunity' cost of purchasing the 60,000 units at the beginning of the year is

  1. $1,320
  2. $1,440
  3. $1,500
  4. $2,640

Answer(s): A

Explanation:

The cost of 60,000 zippers is $36,000 (60,000 x $60). The monthly cost is $3,000 (5,000 x $60). Because the company wants to purchase the items monthly, it will invest at least $3,000 in January. Accordingly, the zippers to be used in January will be purchased at the first of the year even if no special purchase is made. Thus, the incremental advance purchase will be only $33,000, not $36,000. The incremental investment will decline at a constant rate of $3,000 per month, so the amount for February will be $30,000, for March $27,000, etc. Hence, the incremental investment for December will be $0. Accordingly, assuming consumption is uniform, the average incremental investment during the year will be $16,500 ($33,000 + 2) if the onetime purchase is made. Total opportunity cost is therefore $1,320 ($16,500 x 8% cost of capital).



Page 108 of 336



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