IMANET CMA Exam - Topic 6 Question 100 Discussion

Actual exam question for IMANET's CMA exam

Question #: 100
Topic #: 6

[All CMA Questions]

For one of its divisions, Buona Fortuna Company has fixed costs of $300,000 and a variable-cost percentage equal to 60% of its $10 per unit selling price. It would like to earn a pre-tax income of $90,000 per year from the division. How many units will Buona Fortuna have to sell to earn a pre-tax income of $90,000 per year?

A65.000 units.

B75.000 units.

C77.250 units,

D97,500 units.

Show Suggested Answer

Suggested Answer: B

A common misstep in regard to capital budgeting is the temptation to gauge the desirability of a project by using accrual accounting numbers instead of cash flows. Net income and book value are affected by the compas choices of accounting methods. A project's true rate of return cannot be dependent on bookkeeping decisions. Another distortion inherent in comparing a single project's book rate of return to the current one for the company as a whole is that the latter is an average of all of a firm's capital projects. Embedded in that average number 'may be a hand Full of good projects melding up for a large number of poor investments.

by Jaleesa at Sep 15, 2024, 05:13 AM

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Aja

4 months ago

Totally agree, 75,000 sounds right!

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Alisha

5 months ago

Wait, are we sure about those numbers? Seems off.

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Brigette

5 months ago

I think it's around 75,000 units.

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In

5 months ago

60% variable cost means $6 cost per unit.

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Carmelina

5 months ago

Fixed costs are $300k, selling price is $10.

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Carry

6 months ago

I feel like I might be overthinking this. I just need to set up the equation correctly to find the number of units needed for that income.

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Bea

6 months ago

I think the variable cost is 60% of $10, which means it's $6 per unit. So the contribution margin would be $4, right?

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Arminda

6 months ago

This seems similar to a practice question we did about fixed and variable costs. I think I need to calculate the contribution margin first.

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Keneth

6 months ago

I remember we calculated break-even points in class, but I'm not sure how to factor in the desired income here.

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Maxima

6 months ago

I feel pretty confident about this one. I'll start by calculating the contribution margin per unit, then use that to find the number of units needed to reach the $90,000 pre-tax income target.

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Tuyet

6 months ago

This seems tricky. I'm going to need to review my notes on break-even analysis and contribution margin to make sure I'm doing this right.

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Mertie

6 months ago

Okay, I think I've got this. We need to find the contribution margin per unit, then use that to calculate the number of units needed to reach the target pre-tax income.

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Verona

6 months ago

Hmm, I'm a little unsure about how to approach this. The variable costs and fixed costs are given, but I'm not sure how to use that information to find the number of units.

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Sean

6 months ago

This looks like a straightforward break-even analysis problem. I think I can work through this step-by-step.

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Kassandra

6 months ago

The border gateway is a term I've heard, but I'm not sure how it fits in here. I might be mixing it up with border leaf, which I think is actually the correct answer.

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Kristine

11 months ago

This question is a real 'buona fortuna' (good luck) for the exam takers. Option C looks like the way to go, but I'd recommend showing your work just in case.

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Ahmed

11 months ago

Wait, does Buona Fortuna sell fortuna cookies? If so, I'd buy a whole truckload to increase my chances of getting the right answer. But seriously, Option C seems legit.

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Nada

9 months ago

Let's go with Option C then.

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Esteban

9 months ago

I'm not sure, but Option C does sound like a good choice.

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Tamra

9 months ago

Yeah, I agree. Option C seems to make sense.

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Rashad

10 months ago

I think Option C is the correct answer.

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Tommy

11 months ago

Haha, Buona Fortuna? I hope the company lives up to its name with this calculation. Option C seems right, but I'd double-check my work just to be sure.

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Martina

11 months ago

I'm a bit confused by the variable-cost percentage. Shouldn't we be using the contribution margin instead to find the breakeven point and then add the desired pre-tax income?

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Simona

9 months ago

After calculating the contribution margin, we can then use it to find the number of units needed to earn the desired pre-tax income.

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Chantell

9 months ago

So, the contribution margin would be 40% ($10 selling price - 60% variable cost).

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Jin

10 months ago

Yes, you are correct. We can use the contribution margin to find the breakeven point and then add the desired pre-tax income.

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Reuben

10 months ago

User 3: The answer options are 65,000 units, 75,000 units, 77,250 units, and 97,500 units.

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Glenna

10 months ago

User 2: I think we should use the contribution margin to find the breakeven point first.

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Kassandra

11 months ago

User 1: We need to calculate the number of units to earn $90,000 pre-tax income.

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Launa

12 months ago

Option C looks like the correct answer. The calculation to find the required units seems straightforward, considering the fixed costs, variable costs, and desired pre-tax income.

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