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Free CMA Exam Braindumps (page: 39)

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PDF with 1336 Questions
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In an insourcing vs. outsourcing decision1 the decision process favors the use of total costs rather than unit costs. The reason is that

  1. Unit cost may be calculated based on different volumes.
  2. Irrelevant costs may be included in the unit amounts.
  3. Allocated costs may be included in the unit amounts.
  4. All of the answers are correct.

Answer(s): D

Explanation:

Unit costs should be used with extreme care. In each situation, they may be calculated based on a different volume level from that anticipated, so comparability may be lost. Irrelevant costs included in the unit cost should be disregarded; only relevant costs should be included in the analysis. Allocated costs should also be ignored, and only the relevant costs that will change with the option chosen should be considered.



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Which of the following qualitative factors favors the buy choice in an insourcing vs.
outsourcing decision?

  1. Maintaining a long-run relationship with suppliers is desirable.
  2. Quality control is critical.
  3. Idle capacity is available.
  4. All of the answers are correct.

Answer(s): A

Explanation:

The maintenance of long-run relationships with suppliers may become paramount in a make-or-buy decision. Abandoning long-run supplier relationships may cause difficulty in obtaining needed parts when terminated suppliers find it advantageous not to supply parts in the future.



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The ABC Company manufactures components for use in producing one of its finished products. When 12,000 units are produced, the full cost per unit is $35, separated as follows:
Direct materials $ 5
Direct labor 15
Variable overhead 10
Fixed overhead 5
The XYZ Company has offered to sell 12,000 components to ABC for $37 each. If ABC accepts the offer, some of the facilities currently being used to manufacture the components can be rented as warehouse space for $40,000. However, $3 of the fixed overhead currently applied to each component would have to be covered by ABC's other products. What is the differential cost to the ABC Company of purchasing the components from the XYZ Company?

  1. $8000
  2. $20,000
  3. $24,000
  4. $44,000

Answer(s): B

Explanation:

Differential (incremental) cost is the difference in total cost between two decisions. The relevant costs do not include unavoidable costs, such as the $3 of fixed overhead. It would cost ABC an additional $20,000 to purchase, rather than manufacture, the components.



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A company needs special gears. The machinery to make the gears can be rented for $100000 for 1 year, but the company can buy the gears and avoid the rental cost. Because the demand for the gears may be high (0.6 probability) or low (0.4 probability) and contribution margins vary, the company prepared the following decision tree:


Which of the following statements is true?

  1. The expected value of making is $20,000.
  2. The expected value of buying is $70000.
  3. Making the gears is the best choice.
  4. Buying the gears is the best choice.

Answer(s): B

Explanation:

The expected value of buying the gears is






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