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Financial CMA Exam
Certified Management Accountant (Page 34 )

Updated On: 1-Feb-2026
Page 34 of 270
PDF with 1336 Questions
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In an insourcing vs. outsourcing situation, which of the following qualitative factors is usually considered?

  1. Special technology.
  2. Skilled labor.
  3. Special materials requirements.
  4. All of the answers are correct.

Answer(s): D

Explanation:

Special technology may be available either within or outside the firm that relates to the particular product. The firm may possess necessary skilled labor or the supplier may.
Special materials requirements may also affect the decision process because one supplier may have monopolized a key component. Another factor to be considered is that assurance of quality' control is often a reason for making rather than buying.



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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 sufficient demand exists, N-Air could sell all the products at the prices previously mentioned at either the split-off point or after further processing. To maximize its profits, N-Air Corporation should

  1. Sell product A at split-oft and perform additional processing on products B and C.
  2. Sell product B at split-oft and perform additional processing on products C and A.
  3. Sell product C at split-off and perform additional processing on products A and B.
  4. Sell products A, B, and C at split-off.

Answer(s): C

Explanation:

To maximize profits, it must be determined whether each product's incremental revenues will exceed its incremental costs. Joint costs are irrelevant because they are sunk costs.


It is most profitable for N-Air to process products A and B further and to sell product C at the split-off point.



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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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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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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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