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Financial CMA Exam
Certified Management Accountant (Page 30 )

Updated On: 1-Feb-2026
Page 30 of 270
PDF with 1336 Questions
View Related Case Study

Gleason Co. has two products, a frozen dessert and ready4o-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26000, to determine which product will be more profitable. The results of the study follow.


*Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset.
Applying a deterministic approach, Gleason's revenue from sales of frozen desserts would be

  1. $549,000
  2. $540,000
  3. $216,000
  4. Some amount other than those given.

Answer(s): B

Explanation:

The word deterministic is used to characterize processes that are not probabilistic. Such an approach uses the most likely value. In this case, sales of desserts would most likely be 300,000 units. At $1.80 each1 total revenue would be $540,000.



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ABD Really manages five apartment complexes in a three-state area. Summary income statements for each apartment complex are shown as follows:


Included in the expenses is $1,200,000 of corporate overhead allocated to the apartment complexes based on rental income. The apartment complex(es) that ABD should consider selling is (are)

  1. Apartment complexes Two, Three, Pour, and Five.
  2. Apartment complexes Three, Pour, and Five.
  3. Apartment complexes Pour and Five.
  4. Apartment complex Four.

Answer(s): C

Explanation:

The amount of corporate overhead allocated to each complex is calculated below.


After eliminating the allocated costs from the income statement, Four and Five still have losses.



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Richardson Motors uses 10 units of Part No.T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is presented as follows:


Materials handling, which is not included in manufacturing overhead, represents the direct variable costs of the receiving department that are applied to direct materials and purchased components on the basis of their cost. Richardson's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Simpson Castings, one of Richardson's reliable vendors, has offered to supply T305 at a unit price of $30,000. Assume the rental opportunity does not exist and Richardson Motors could use the idle capacity to manufacture another product that would contribute $104,000 per month. If Richardson chooses to manufacture the ten T305 units in order to maintain quality control, Richardson's opportunity cost is

  1. $68,000.
  2. $88,000.
  3. $8,000.
  4. $(96,000).

Answer(s): C

Explanation:

For 10 units, the additional cost of purchasing is $96,000. However, the net effect of purchasing is a gain of $8,000($104,000 contribution from making another product - $96,000). Opportunity cost is the benefit from the next best alternative use of the resources. Hence, the company's opportunity cost of making the part is $8,000.



View Related Case Study

Richardson Motors uses 10 units of Part No.T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is presented as follows:


Materials handling, which is not included in manufacturing overhead, represents the direct van able costs of the receiving department that are applied to direct materials and purchased components on the basis of their cost. Richardson's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Simpson Castings, one of Richardson's reliable vendors, has offered to supply T305 at a unit price of $30,000.Assume Richardson Motors is able to rent all idle capacity for $50,000 per month. If Richardson decides to purchase the 10 units from Simpson Castings, Richardson's monthly cost for T305 would

  1. Decrease $14,000.
  2. Increase $46,000.
  3. Decrease $64,000.
  4. Increase $96,000.

Answer(s): B

Explanation:

For 10 components, the total cost increase would be $96,000, but the $50,000 rental would reduce the net increase to $46 J00.



View Related Case Study

Richardson Motors uses 10 units of Part No. T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is presented as follows:


Materials handling, which is not included in manufacturing overhead, represents the direct variable costs of the receiving department that are applied to direct materials and purchased components on the basis of their cost. Richardson's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Simpson Castings, one of Richardson's reliable vendors, has offered to supply T305 at a unit price of $30,000.If Richardson Motors purchases the ten T305 units from Simpson Castings, the capacity Richardson used to manufacture these parts would be idle. Should Richardson decide to purchase the parts from Simpson, the out-of- pocket cost per unit of T305 would

  1. Decrease $6,400.
  2. Increase $3,600.
  3. Increase $9,600.
  4. Decrease $12,400.

Answer(s): C

Explanation:

The out-of-pocket cost of making the part equals the total manufacturing cost minus the fixed overhead, or $26400 {$42,400 -[(2 + 3) x $24,000]}. The cost of the component consists of the $30,000 purchase price plus the $6,000 (20% of cost) of variable receiving costs, or a total of $36,000. Thus, unit out-of-pocket cost would increase by $9,600 if the components were purchased.



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