IMANET CMA Exam - Topic 1 Question 77 Discussion

Actual exam question for IMANET's CMA exam

Question #: 77
Topic #: 1

[All CMA Questions]

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

A$198,250

B$150,250

C$120,250

DSome amount other than those given.

Show Suggested Answer

Suggested Answer: D

The estimated incremental after-tax operating cash flows for each year of a capital project consist of two components: the after-tax cash inflows from operations and the depreciation tax shield arising from the purchase of new equipment. The first of these for Pauley can be calculated as follows:

Pauley's total after-tax operating cash inflow for each year of the project's life is thus $36,000 ($30,000 + $6,000). Ii the final year of the project, two additional cash flows must be taken into account, the after-tax proceeds from the disposal of the equipment purchased for the project, and the recovery of working capital devoted to the project. These two additional cash flows can be calculated as follows:

Pauley's total after-tax cash inflow for the final year of the project's life is thus $49,000

($36,000 + $13,000).

by Ozell at Nov 26, 2023, 02:07 PM

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Sabra

3 months ago

The study cost $26,000, so it better be worth it!

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Jaclyn

3 months ago

I thought it would be lower, like $150,250.

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Vincent

3 months ago

Wait, are we sure about that? Seems a bit high.

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Monroe

4 months ago

Totally agree, that number makes sense!

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Alyce

4 months ago

I think the expected profit for frozen desserts is $198,250.

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Pete

4 months ago

I vaguely recall that the expected profit could be lower than the options given. Maybe it's "some amount other than those given"?

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Avery

4 months ago

I feel like I might be overthinking this. If they treat production tooling as an expense, does that affect the profit figures directly?

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Barney

4 months ago

This question seems similar to one we practiced about product profitability. I think the expected value for frozen desserts is around $198,250, but I could be wrong.

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Wilda

5 months ago

I remember we discussed how to analyze operating profits, but I'm not sure if the market study cost should be included in the profit calculation.

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Chun

5 months ago

This seems like a pretty standard accounting/finance question. I'm feeling pretty confident I can work through the calculations and arrive at the right answer. Just need to make sure I don't miss any important details.

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Floyd

5 months ago

Okay, I think I've got a handle on this. I'll need to use the information they provided about the market study and the expected value of the operating profit to select the correct answer choice.

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Nobuko

5 months ago

Hmm, I'm a bit confused about how they're treating the production tooling. Is that something I need to factor into the operating profit calculation? I'll need to think through that carefully.

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Jerry

5 months ago

This looks like a straightforward question about calculating operating profit. I'll need to carefully review the information provided and do the calculations to determine the expected value.

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Alisha

5 months ago

Ugh, I'm not super strong in this area of accounting. I'll need to really focus and take my time to make sure I understand how to approach this properly. Can't afford to make any silly mistakes on the exam.

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Nikita

5 months ago

Okay, let me think this through. We need to automatically send emails to the adjuster, insured party, and agent when the claim is resolved. So I'm leaning towards B as well - adding a dedicated Send Email step.

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Tayna

5 months ago

Hmm, this one seems tricky. Shifting numbers to the right four times sounds like some kind of obfuscation technique, but I'll need to think it through carefully.

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Tiffiny

5 months ago

Hmm, I'm not too familiar with all these control frameworks. I'll have to review the key differences to determine the best fit.

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Emerson

9 months ago

Haha, this question reminds me of that time I accidentally expensed my personal gym membership as a business expense. The IRS did not appreciate that one.

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Jeniffer

8 months ago

I wonder what that amount could be.

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Lavina

8 months ago

D) Some amount other than those given.

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Carmen

8 months ago

Hmm, maybe not the most profitable option then.

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Rusty

8 months ago

C) $120,250

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Crista

8 months ago

Not bad, but could be better.

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Lindsay

8 months ago

B) $150,250

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Anglea

9 months ago

Oh wow, that's a hefty profit!

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Selma

9 months ago

A) $198,250

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Dorinda

9 months ago

This is a tricky one. I'd need to do some more calculations to figure out the exact operating profit. Maybe I should have paid more attention in my Accounting class.

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