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Financial CMA Exam Prep
Certified Management Accountant (Page 26 )

Updated On: 15-Sep-2026
Page 26 of 270
PDF with 1336 Questions
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Kator Co. is a manufacturer of industrial components. One of their products that is used as a subcomponent in auto manufacturing is KB-96. This product has the following financial structure per unit.


KatorCo. has received a special, one-time order for 1,000 KB-96 parts. Assume that Kator is operating at full capacity and that the contribution margin of the output that would be displaced by the special order is $10,000. Using the original data, the minimum price that is acceptable for this one-time special order is in excess of

  1. $60
  2. $70
  3. $87
  4. $100

Answer(s): A

Explanation:

Given no excess capacity, the price must cover the incremental costs. The incremental costs for KB-96 equal $50 ($20 direct materials + $15 direct labor + $12 variable overhead + $3 shipping and handling).Opportunity cost is the benefit of the next best alternative use of scarce resources. Because acceptance of the special order would cause the company to forgo a contribution margin of $10,000, that amount must be reflected in the price. Hence, the minimum unit price is $60 [$50 unit incremental cost +($10,000 lost CM / 1,000 units )].



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In joint-product costing and analysis, which one of the following costs is relevant when deciding the point at which a product should be sold to maximize profits?

  1. Separable costs after the split-off point.
  2. Joint costs to the split-off point.
  3. Sales salaries for the period when the units were produced.
  4. Purchase costs of the materials required for the joint products.

Answer(s): A

Explanation:

Joint products are created from processing a common input. Common costs are incurred prior to the split-off point and cannot be identified with a particular joint product. As a result, common costs are irrelevant to the timing of sale. However, separable costs incurred after the split-off point are relevant because, if incremental revenues exceed the separable costs, products should be processed further, not sold at the split-off point.



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A firm produces two joint products (A and B) from one unit of raw material, which costs $1,000. Product A can be sold for $700 and product B can be sold for $500 at the split-off point. Alternatively, both A and/or B can be processed further and sold for $900 and $1 ,200, respectively. The additional processing costs are $100 for A and $750 for B. Should the firm process products A and B beyond the split-off point?

  1. Both A and B should be processed further.
  2. Only B should be processed further.
  3. Only A should be processed further.
  4. Neither product should be processed further.

Answer(s): C

Explanation:

The incremental costs ($100) for A are less than the incremental revenue ($200). However, the incremental costs of B ($750) exceed the incremental revenue ($700). Consequently, the firm should process A further and sell B at the split-off point.



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Copeland Inc. produces X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade the product to become Xylene. The following information has been gathered:

I). Selling price per pound of X-547
II). Variable manufacturing costs of upgrade process
Ill). Avoidable fixed costs of upgrade process
IV). Selling price per pound of Xylene
V). Joint manufacturing costs to produce X-547

Which items should be reviewed when making the upgrade decision?

  1. I, II, and IV only.
  2. I, II, Ill, and IV only.
  3. I, II, IV, and V only.
  4. II and Ill only.

Answer(s): B

Explanation:

Common, or joint, costs cannot be identified with a particular joint product. By definition, joint products have common costs until the split-off point. Costs incurred after the split-off point are separable costs. The decision to continue processing beyond split- off is made separately for each product. The costs relevant to the decision are the separable costs because they can be avoided by selling at the split-off point. They should be compared with the incremental revenues from processing further. Thus, items I). (revenue from selling at split-off point), II). (variable costs of upgrade), Ill). (avoidable fixed costs of upgrade), and IV). (revenue from selling after further processing) are considered in making the upgrade decision.



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N-Air Corporation uses a joint process to produce three products: A, B, and C, all derived from one input. The company can sell these . products at the point of split-off (end of the joint process) or process them further. The joint production costs during October were $10,000. N-Air allocates joint costs to the products in proportion to the relative physical volume of output. Additional information is presented in the opposite column.


Assuming that all products were sold at the split-off point during October, the gross profit from the production process would be

  1. $13,000
  2. $10,000
  3. $8,625
  4. $3,000

Answer(s): D

Explanation:

If all products are sold at split-off, the gross profit is computed as follows:
Product A (1,000 x $4.00) $ 4,000
Product B (2,000 x $2.25) 4,500
Product C (1,500 x $3.00) 4,500
Total sales $13,000
Joint costs (10,000)
Gross profit $ 3,000



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