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IMANET Exam CMA Topic 5 Question 94 Discussion

Actual exam question for IMANET's CMA exam
Question #: 94
Topic #: 5
[All CMA Questions]

Two companies produce and sell the same product in a competitive industry. Thus, the selling price of the product for each company is the same. Company 1 has a contribution margin ratio of 40% and fixed costs of $25 million. Company 2 is more automated, making its fixed costs 40% higher than those of Company 1. Company 2 also has a contribution margin ratio that is 30% greater than that of Company 1. By comparison, Company 1 will have the breakeven point in terms of dollar sales volume and will have the dollar profit potential once the indifference point in dollar sales volume is exceeded.

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Suggested Answer: B

If the 8% return exactly equals the present value of the future flows ., NPV is zero), then simply determine the present value of the future inflows. Thus, Hopkins Company's initial cash outlay is $19,090 [($2,500)(PVIFA at 8% for 10 periods) + ($5J00)(PVlF at 8% for 10 periods ($2,500)(6.710) + ($5,000)(.463)].


by Ming at Aug 07, 2024, 03:10 AM

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Rosendo
15 days ago
Alright, let's do this! Time to put my economics knowledge to the test. I'm feeling confident I can crack this case.
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Thomasena
18 days ago
Ha, this is like a game of business strategy! Gotta love these kinds of questions that make you think. I'm gonna give it my best shot.
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Emerson
23 days ago
Hmm, this is a tough one. I'm not sure if I have all the information I need to answer this. Maybe I should draw out a diagram or do some calculations to see how the different factors play out.
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Alease
2 months ago
This question seems tricky, but I think I can figure it out. The key information is the contribution margin ratios and fixed costs of the two companies. If Company 2 has higher fixed costs and a higher contribution margin ratio, that should give it an advantage in terms of breakeven point and profit potential.
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Marsha
25 days ago
B) Option B
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Bernardine
26 days ago
A) Option A
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Esteban
2 months ago
But Company 2 has a higher contribution margin ratio, so they might have higher profit potential in the long run.
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Yuette
2 months ago
I agree with you, Shaun. Company 1's higher contribution margin ratio will also help them reach profitability sooner.
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Shaun
2 months ago
I think Company 1 will have a lower breakeven point because its fixed costs are lower.
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