IMANET CMA Exam - Topic 6 Question 99 Discussion

Actual exam question for IMANET's CMA exam

Question #: 99
Topic #: 6

Condensed monthly operating income data for Korbin, Inc for May follows:

Additional information regarding Korbin's operations follows:

* One-fourth of each store's direct fixed costs would continue if either store is closed.

* Korbin allocates common fixed costs to each store on the basis of sales dollars.

* Management estimates that closing the Suburban Store would result in a 10% decrease in the Urban Store's sales, while closing the Urban Store would not affect the Suburban Store's sales.

* The operating results for May are representative of all months. Korbin is considering a promotional campaign at the Suburban Store that would not affect the Urban Store. Increasing annual promotional expense at the Suburban Store by $60,000 in order to increase this store's sales by 10% would result in a monthly increase (decrease) in Korbin's operating income during the year (rounded) of

A$(5000)

B$(1400)

C$487

D$7,000

Show Suggested Answer

Suggested Answer: A

An opportunity cost is the maximum benefit forgone by using a scarce resource for a given purpose and not for the next-best alternative. In capital budgeting, the most basic application of this concept is the desire to place the company's limited funds in the most promising capital project(s).

by France at Sep 14, 2024, 09:37 PM

Limited Time Offer

25%

Off

Get Premium CMA Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Iluminada

6 months ago

Not sure about those numbers, seems off to me.

upvoted 0 times

...

Gail

6 months ago

Definitely going with option D, $7,000 increase sounds right.

upvoted 0 times

...

Jaime

6 months ago

Surprised that closing one store affects the other so much!

upvoted 0 times

...

Maryrose

7 months ago

I think increasing promo costs at Suburban is a bad idea.

upvoted 0 times

...

Raymon

7 months ago

Closing the Suburban Store could drop Urban's sales by 10%.

upvoted 0 times

...

Cristy

7 months ago

I recall that increasing sales by 10% could offset some costs, but I’m not clear on how the fixed costs play into this. I feel like I might be missing something crucial in my analysis.

upvoted 0 times

...

Kizzy

7 months ago

I think the promotional campaign will increase sales, but I’m uncertain about how to factor in the additional costs. I might be leaning towards option B, but I need to double-check my calculations.

upvoted 0 times

...

Lacey

7 months ago

This question feels similar to one we practiced about cost allocation and its effects on profitability. I think I need to focus on the sales decrease from the Urban Store if the Suburban Store closes.

upvoted 0 times

...

Mitsue

8 months ago

I remember we discussed how fixed costs behave in different scenarios, but I'm not sure how to calculate the impact of the promotional expense on operating income.

upvoted 0 times

...

Lonny

8 months ago

Whoa, this is a lot of information to process. I better take my time and make sure I'm not missing anything important. Gotta be careful with these tricky cost allocation problems.

upvoted 0 times

...

Carol

8 months ago

This seems straightforward enough. I'll just need to plug the numbers into the right formulas and do the math. As long as I don't make any silly mistakes, I should be able to get the right answer.

upvoted 0 times

...

Stephanie

8 months ago

Okay, I think I've got a handle on this. I'll need to calculate the contribution margin for each store, then factor in the changes in sales and costs to determine the overall impact on operating income.

upvoted 0 times

...

Krissy

8 months ago

Hmm, I'm a bit confused by the information about the common fixed costs and the impact on sales. I'll need to work through this step-by-step to make sure I understand it.

upvoted 0 times

...

Gilma

8 months ago

This looks like a tricky cost-volume-profit analysis problem. I'll need to carefully consider the fixed and variable costs, as well as the impact of closing one store on the other.

upvoted 0 times

...

Jacquelyne

8 months ago

I'm a bit unsure about this one. The relationship type has to be hierarchical, but I'm not totally clear on what that means in this context. I'll have to think it through step-by-step.

upvoted 0 times

...

Nathan

1 year ago

I bet the answer is hidden somewhere in the 'condensed monthly operating income data.' Sounds like a recipe for a stomach ache to me!

upvoted 0 times

Kenny

11 months ago

D) $7,000

upvoted 0 times

...

Georgeanna

11 months ago

C) $487

upvoted 0 times

...

Thersa

11 months ago

B) $(1400)

upvoted 0 times

...

Louisa

11 months ago

A) $(5000)

upvoted 0 times

...

Ernie

1 year ago

Ugh, why do they always make these questions so complicated? I just want to know which option will give me the most points. Maybe I should've skipped the free bagels and focused more on studying.

upvoted 0 times

Melita

11 months ago

D) $7,000

upvoted 0 times

...

Larae

11 months ago

C) $487

upvoted 0 times

...

Lavonna

12 months ago

B) $(1400)

upvoted 0 times

...

Lea

1 year ago

A) $(5000)

upvoted 0 times

...

Annett

1 year ago

Okay, let's break this down step-by-step. I wonder if the correct answer is hiding in all those numbers and percentages. Time to put on my calculator hat!

upvoted 0 times

Karan

11 months ago

So, the increase in sales at the Suburban Store would result in a decrease in operating income?

upvoted 0 times

...

Joye

12 months ago

B) $(1400)

upvoted 0 times

...

Eric

12 months ago

I think we need to consider the impact of the promotional campaign on the Suburban Store's sales.

upvoted 0 times

...

Winfred

1 year ago

A) $(5000)

upvoted 0 times

...

Andrew

1 year ago

Whoa, this is some serious financial analysis! I hope I can remember all the details about the fixed costs and sales projections. Maybe I should have paid more attention in that Accounting class.

upvoted 0 times

Ahmed

1 year ago

I agree, it's a bit overwhelming. But we can work through it together.

upvoted 0 times

...

Mary

1 year ago

I know, this is a lot to take in. But let's break it down step by step.

upvoted 0 times

...

Antonio

1 year ago

Why do you think it's C)?

upvoted 0 times

...

Veda

1 year ago

This seems like a tricky one. We need to consider the impact of closing the stores, the allocation of fixed costs, and the potential increase in sales. I'm going to have to think this through carefully.

upvoted 0 times