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Free CMA Exam Braindumps (page: 45)

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View Related Case Study

Gleason Co. has two products, a frozen dessert and ready-to-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 $26,000, 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.
The expected value of Gleason's operating profit directly traceable to the sale of frozen desserts is

  1. $198,250
  2. $150,250
  3. $120,250
  4. Some amount other than those given.

Answer(s): C

Explanation:

The expected volume for sales of frozen desserts is 305,000 [(250000 x .30) + (300000 x
40) + (350,000 x .20) + (400 .000 x .10)]. At $1 .80 each1 the total revenue from 305,000 units would be $549,000. Variable costs would total $1.15 each ($40 + $35 + $40), or $350750 for 305.000 units. Fixed costs total $78,000 ($48,000 + $30000). Thus, operating profit would be $120,250 ($549,000 --$350,750-- $78,000).



View Related Case Study

Gleason Co. has two products, a frozen dessert and ready-to-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 $26,000, 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.In order to recover the costs of production tooling and advertising for the breakfast rolls, Gleason's sales of the breakfast rolls would have to be

  1. 37500 units.
  2. 100,000 units.
  3. 60,000 units.
  4. Some amount other than those given.

Answer(s): B

Explanation:

Fixed costs of $45,000 ($25,000 + $20,000) should be divided by the unit contribution margin of $45 ($1 .20 selling price -- $.25 -- $30 -- $.20). The unit breakeven point is therefore 100,000 units ($45,000 ÷ $45).



View Related Case Study

Gleason Co. has two products, a frozen dessert and ready-to-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 $26,000, 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.
The cost incurred by Gleason for the market study is a(n)

  1. Incremental cost.
  2. Prime cost.
  3. Opportunity cost.
  4. Sunk cost.

Answer(s): D

Explanation:

A sunk cost is a previously incurred cost that is the result of a past irrevocable management decision. Nothing can be done in the future about sunk costs. The market study cost is an example.



View Related Case Study

Gleason Co. has two products, a frozen dessert and ready-to-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 $26,000, 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. The advertising expense estimated by Gleason for the introduction of the new products is an example of a(n)

  1. Conversion cost.
  2. Discretionary cost.
  3. Committed cost.
  4. Opportunity cost.

Answer(s): B

Explanation:

Discretionary costs refer to fixed costs that are not absolutely necessary to operate in the current period. The level of these costs is subject to a decision made by management each period. A key characteristic of discretionary costs is that there is no clearly measurable relationship between input (the costs) and output. Advertising is a good example of a discretionary fixed cost.






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