IMANET CMA Exam - Topic 1 Question 87 Discussion

Actual exam question for IMANET's CMA exam

Question #: 87
Topic #: 1

[All CMA Questions]

BE&H Manufacturing is considering dropping a product line. It currently produces a multi-purpose woodworking clamp in a simple manufacturing process that uses special equipment. Variable costs amount to $6.00 per unit. Fixed overhead costs, exclusive of depreciation, have been allocated to this product at a rate of $3.50 a unit and will continue whether or not production ceases. Depreciation on the special equipment amounts to $20,000 a year. If production of the clamp is stopped, the special equipment can be sold for $18,000; if production continues, however, the equipment will be useless for further production at the end of 1 year and will have no salvage value. The clamp has a selling price of $10 a unit. Ignoring tax effects, the minimum number of units that would have to be sold in the current year to break even on a cash flow basis is

A4,500 units.

B5,000 units.

C20.000 units.

D36,000 units.

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 Rodolfo at May 12, 2024, 04:32 PM

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Jesse

3 months ago

36,000 units? That seems way too high!

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Lindsey

3 months ago

I disagree, they should sell the equipment instead.

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Catalina

3 months ago

Wait, so they lose money if they stop?

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Rashad

4 months ago

I think they should keep the product line!

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William

4 months ago

The variable cost is $6 per unit.

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Glenna

4 months ago

I think the selling price and variable costs are key here. If I recall correctly, we need to calculate the contribution margin first.

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Tu

4 months ago

I’m a bit confused about the salvage value of the equipment. Does that factor into the break-even calculation?

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Eliseo

4 months ago

This question seems similar to the practice problems we did on break-even analysis. I think I need to focus on the cash flow aspect.

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Leigha

5 months ago

I remember we talked about fixed and variable costs in class, but I'm not sure how to apply them here.

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Annamaria

5 months ago

Whoa, this is a lot of information to process. I better take my time and make sure I don't miss any important details. Break-even analysis can be tricky, but I think I can figure it out.

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Laurel

5 months ago

This looks straightforward enough. I'll start by calculating the contribution margin per unit, then divide the total fixed costs by that to get the break-even units. Shouldn't take me more than a few minutes.

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Jeannetta

5 months ago

Hmm, I'm a bit confused by all the different costs and the salvage value of the equipment. I'll have to read through this a few times to make sure I understand all the variables.

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Dell

5 months ago

This looks like a classic break-even analysis problem. I'll need to carefully calculate the contribution margin per unit and the total fixed costs to determine the break-even point.

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Dong

5 months ago

Okay, I think I've got this. I just need to plug the numbers into the break-even formula and solve for the units. Shouldn't be too hard as long as I don't mess up the calculations.

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Bethanie

5 months ago

This question seems straightforward, but I want to make sure I understand the key features of a GSI in Oracle E-Business Suite Release 12 before selecting my answers.

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Josefa

5 months ago

Okay, I've got this. The question is asking about the BGP attribute that can be used to avoid the high-delay ISP link, so the answer must be LOCAL_PREF. That's the attribute that determines the preferred path for a route.

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Georgiann

5 months ago

Okay, I've got this. Prime cost is the total of direct materials and direct labor costs, without any overhead or indirect costs included. So the correct answer here is B, "The material cost of the product".

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Sang

5 months ago

I feel like I remember Geth being the main implementation of Ethereum, but I'm not sure if the others are closed-source.

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Rachael

9 months ago

Clearly, the answer is C) 20,000 units. That's the number of units you'd need to sell to make enough money to buy a new set of clamps for the entire office.

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Wade

8 months ago

I agree with you, C) 20,000 units makes sense when you take into account all the costs involved.

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Sharen

8 months ago

Actually, I'm pretty sure it's C) 20,000 units. That's the number of units needed to break even on a cash flow basis.

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Rima

8 months ago

No, I believe the answer is B) 5,000 units. We have to consider all the fixed and variable costs.

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Peggy

9 months ago

I think the answer is A) 4,500 units. That's the minimum number of units we need to sell to cover all costs.

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Jamal

9 months ago

Hmm, this is a tough one. Maybe the answer is to just drop the product line and sell the equipment for $18,000. That seems like the easiest way to break even, no?

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Corazon

10 months ago

I'm going with D) 36,000 units. The question mentions that the special equipment will have no salvage value if production continues, so we need to account for the full $20,000 in depreciation. That's a lot of units to break even!

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Jennifer

8 months ago

I agree with D) 36,000 units. The depreciation on the special equipment is a significant cost that needs to be covered, so a high number of units would need to be sold to break even.

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Delisa

8 months ago

I'm leaning towards B) 5,000 units. The selling price of $10 per unit will help offset some of the costs, but we still need to sell a decent amount to break even.

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Lashaunda

8 months ago

I think it's A) 4,500 units. The fixed overhead costs will continue whether or not production ceases, so we need to consider those in the break-even calculation.

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Celestina

10 months ago

I think the answer is B) 5,000 units. The variable costs are $6 per unit, and the fixed overhead is $3.50 per unit. With a selling price of $10 per unit, we need to sell at least 5,000 units to cover the fixed costs and depreciation.

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Stephaine

8 months ago

So, it looks like we would still need to sell 5,000 units to break even on a cash flow basis.

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Ashleigh

8 months ago

That's a good point, but even if we sell the equipment, we still need to cover the fixed costs and depreciation for the current year.

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Tamesha

8 months ago

But what about the special equipment that can be sold for $18,000 if production is stopped?

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Hershel

9 months ago

I agree, the answer is B) 5,000 units. We need to cover the fixed costs and depreciation.

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Tamar

11 months ago

This is a tricky one. We need to consider the variable costs, fixed overhead, and depreciation to determine the minimum number of units to break even on a cash flow basis.

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