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Financial CMA Exam
Certified Management Accountant (Page 35 )

Updated On: 1-Feb-2026
Page 35 of 270
PDF with 1336 Questions
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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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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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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.


During the next year, KB-96 sales are expected to be 10000 units. All of the costs will remain the same except that fixed manufacturing overhead will increase by 20% and direct materials will increase by 10%. The selling price per unit for next year will be

  1. $620.000
  2. $750,000
  3. $1,080,000
  4. $1,110,000

Answer(s): C

Explanation:

Contribution margin equals sales minus variable costs. All variable costs will remain the same except that direct materials will increase to $22 per unit (1.1 x $20). Thus, total unit variable costs will be $52 ($22+ &15+$12+$3), and the contribution margin will be &1,080,000[10,000 units ($160 unit selling price -$52)].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



View Related Case Study

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


Kator Co. has received a special, one-time order for 1,000 KB-96 parts. Assuming Kator has excess capacity, the minimum price that is acceptable for this one-time special order is in excess of

  1. $47
  2. $50
  3. $60
  4. $77

Answer(s): B

Explanation:

A company must cover the incremental costs of a special order when it has excess capacity. The incremental costs for product KB-96 are $50 ($20 direct materials + $15 direct labor + $12 variable overhead + $3 shipping and handling). The fixed costs will not change as a result of the special order, so they are not relevant. Thus, any price in excess of $50 per unit is acceptable.



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Whitehall Corporation produces chemicals used in the cleaning industry. During the previous month, Whitehall incurred $300,000 of joint costs in producing 60,000 units of AM-12 and 40,000 units of BM-36. Whitehall uses the units-of-production method to allocate joint costs. Currently, AM-12 is sold at split-off for $3.50 per unit. Flank Corporation has approached Whitehall to purchase all of the production of AM-12 after further processing. The further processing will cost Whitehall $90,000. Concerning AM- 12, which one of the following alternatives is most advantageous?

  1. Whitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $3.00, which covers the joint costs.
  2. Whitehall should continue to sell at split-off unless Flank offers at least $4.50 per unit after further processing, which covers Whitehall's total costs.
  3. Whitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $5.00.
  4. Whitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $5.25, which maintains the same gross profit percentage.

Answer(s): C

Explanation:

The unit price of the product at the split-off point is known to be $3.50, so the joint costs are irrelevant. The additional unit cost of further processing is $1.50 ($90,000 ÷ 60,000 units). Consequently, the unit price must be at least $5.00 ($3.50 opportunity cost + $1 .50)



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