Mega Chemical Company produces ZylexA and a related product called ZylexB. ZylexB, which sells for $17.

00 per gallon, is
made from a base of ZylexA plus additional ingredients. It takes 25 minutes to manufacture a gallon of ZylexA and an additional 10
minutes to manufacture a gallon of ZylexB. ZylexA sells for $11.00 per gallon. The cost per gallon of manufacturing ZylexA and the
additional costs to convert it into ZylexB are shown here.
ZylexA ZylexB
Material $2.00 $2.40
Labor $2.50 $0.90
Variable overhead $2.25 $1.20
Both products have been successful, and demand for both products is strong and beyond the company's capacity to fulfill. Since it
takes additional time to manufacture ZylexB, the vice-president of production is trying to determine whether ZylexB should be
produced. Mega Chemical runs four production lines and two production shifts each week, resulting in 320 available production
hours (4 lines × 2 shifts × 40 hours). Which product should Mega Chemical produce, and what is the maximum weekly contribution
margin that can be earned?
A Produce only ZylexB; $2,888 maximum contribution margin
B Produce an equal number of ZylexA and ZylexB; $3,072 maximum contribution margin
C Not enough information provided in this situation to determine the maximum weekly contribution margin.
D Produce only ZylexA; $3,264 maximum contribution margin

ZylexA
Selling price $11.00
Less: Material $2.00
Labor 2.50
Variable overhead 2.25 (6.75)
Contribution margin $ 4.25
Time to produce in minutes 25 minutes
Contribution margin per production minute $0.17
ZvlexB
Incremental revenue ($17.00 − 11.00) $ 6.00
Less: Incremental material cost $2.40
Incremental labor cost 0.90
Incremental variable overhead 1.20 (4.50)
Incremental margin $ 1.50
Incremental time to produce in minutes 10 minutes
Incremental margin per production minute $0.15
The question is, “If you have a unit of ZylexA, should you take up production time converting it into ZylexB or should you just make more ZylexA?”
The analysis indicates that production of ZylexB decreases profit based on a lower rate of $0.15 per minute. That is, the time Mega Chemical
spends producing ZylexB is more profitability spent producing additional ZylexA. Thus, ZylexB should not be produced.
Maximum weekly contribution margin is 320 hours × 60 minutes × $0.17 = $3,264

MC, Inc., produces ravioli, tortellini, and other cheese-filled pastas. Each unit of pasta contains 0.5 ounces of filling. Management
estimates that MC will use 10,000 pounds of cheese filling each month. The costs associated with each pound of filling consist of
$5.32 of direct materials, $7.48 of direct labor, $7.30 of variable overhead, and $6.50 of allocated fixed overhead. Pasta Specialties
has offered to supply 10,000 pounds of cheese filling each month for $202,600. Should MC accept the offer to buy cheese filling?
A No, because it will save $7.46 per pound by producing the filling.
B No, because it will save $0.16 per pound by producing the filling.
C Yes, because it will save $6.34 per pound by outsourcing the filling.
D No, because it will save $0.96 per pound by producing the filling.

Logan Corporation is considering eliminating a department that has incurred losses over the past several years. The department
has a contribution margin of $32,000 per year. The fixed costs charged to the department total $37,000; $15,000 of the fixed costs
is avoidable. If the department was eliminated, what would be the effect on the corporation’s operating income?
A It would decrease by $15,000.
B It would increase by $5,000.
C It would decrease by $17,000.
D It would decrease by $32,000.
Each day, Tasty Tortilla Company incurs total costs of $8,000 to process flour into tortillas. The company can then sell the tortillas
as is for total daily revenue of $22,500. Alternatively, Tasty can fold and fry the tortillas to make hard taco shells. The additional
costs for making the taco shells are $4,200 per day, and the total daily revenues from the finished shells are $26,700. Given these
figures,
A the firm will make an additional $4,200 in income per day if it sells taco shells instead of tortillas.
B the firm will make an additional $14,500 in income per day if it sells taco shells instead of tortillas.
C the firm will make an additional $8,000 in income per day if it sells tortillas instead of taco shells.
D the firm’s income will remain unchanged whether it sells tortillas or taco shells.

A company has the capacity to produce 20,000 units and it is currently producing and selling 20,000 units. Variable costs are $12
per unit, total fixed costs are $120,000, and the selling price is $32 per unit. A customer that has never purchased the product
inquires about purchasing 5,000 units of the product as a one-time special order for $26 per unit. If the order is accepted, the
variable costs of the order will be $10 per unit instead of $12 per unit. What is the sunk cost associated with the 5,000-unit order?

Ellis Instruments incurs costs of $13 per unit ($8 variable and $5 fixed) to make a widget it normally sells for $24. Ellis has
received two special offers: Wholesaler A offers to buy 12,000 units at $18 each and Wholesaler B offers to buy 14,500 units at $16
each. Assuming Ellis has the capacity to accept only one of these offers, which one should it accept?
A Ellis should accept offer A because it will result in $4,000 more in net income than offer B.
B Ellis should accept offer A because it will result in $44,000 less in lost revenue than offer B.
C Ellis should accept offer B because it will result in $16,000 more in revenue than offer A.
D Ellis should accept offer A because it will result in $16,500 more in net income than offer B.

Maxwell Tubing uses the same machine to produce 50-ft and 100-ft garden hoses. The contribution margin per machine hour for
50-ft hoses is $8.25, whereas the contribution margin per machine hour for 100-ft hoses is $9.45. It can be said that:
A the opportunity cost of producing 100-ft hoses is $9.45.
B the opportunity cost of producing 100-ft hoses is $8.25.
C the relevant cost of producing 100-ft hoses is $8.25.

At December 31, Year 4, Zar Co. had a machine with an original cost of $84,000, accumulated depreciation of $60,000, and an
estimated salvage value of zero. On December 31, Year 4, Zar was considering the purchase of a new machine having a five-year
life, costing $120,000, and having an estimated salvage value of $20,000 at the end of five years. In its decision concerning the
possible purchase of the new machine, what amount is irrelevant to Zar (i.e., a sunk cost)? (Zar does not consider the impact of
income taxes in making this decision.)

Each week, Oracle Oil Company incurs total costs of $214,000 to process several tons of olives into olive oil. The firm can then
spend $15,000 to bottle the oil as is, or it can spend $20,000 to add flavorings to the oil and then bottle it. In the weeks ahead,
Oracle expects its cost of purchasing empty bottles to increase by $3,000 and its cost of purchasing flavorings to decrease by
$1,000. Oracle’s CFO asks you what, if any, role these cost changes should play in the firm’s decision of which product to
manufacture. How should you respond?
You should tell the CFO that neither the change in bottling costs nor the change in flavoring costs need to be included in the
A
firm’s incremental analysis of which product to manufacture.
You should tell the CFO that both the change in bottling costs and the change in flavoring costs must be included in the firm’s
B
incremental analysis of which product to manufacture.
You should tell the CFO that the change in flavoring costs need not be included in the firm’s incremental analysis of which
C
product to manufacture, although the change in bottling costs must be factored in.
You should tell the CFO that the change in bottling costs need not be included in the firm’s incremental analysis of which product
D
to manufacture, although the change in flavoring costs must be factored in.

Jetson Doors manufactures several automated doors. The cost to manufacture the Doorita is as shown.
Direct Materials $150
Direct Labor $225
Variable Overhead $75
Fixed Overhead $45
Quantity per Month 20 units
Fixed overhead is 1/3 direct costs and 2/3 allocated from administration. Jetson is considering outsourcing the Doorita at a cost of
$460 per door. If Jetson outsources manufacturing employees will be let go and there is no alternative use for the space. From an
economic standpoint, should Jetson Doors outsource the manufacture of the Doorita door?
A No, Jetson will save $10 per door if it manufactures the doors in house.
B Yes, Jetson will save $35 per door if it buys the doors instead of manufacturing them.
C Yes, it costs Jetson Doors $480 per door to manufacture them.
D Yes, Jetson will save $5 per door if it purchases them from Doorita.

Hayden is currently producing 100 units of a necessary component part by incurring $42,000 in direct materials, $8,750 in direct
labor, $15,750 in variable overhead, and $10,500 in fixed overhead. Hayden can purchase the component externally for $66,500
and $1,750 of fixed costs can be avoided. What should Hayden do, and why?
A Make and save $1,750
B Make and save $5,250
C Buy and save $1,750
D Buy and save $10,500

A company currently sells 46,000 units of its product annually at a sales price of $38 per unit. Variable costs per unit total $21, and
the total fixed costs each year are $749,000. Fixed costs include the annual salary of three sales staff, which is $55,000 each.
Management is considering changing the sales staff's compensation. Under this proposal, sales staff salaries would decrease to
$25,000, but sales staff would also receive a commission of $2 per unit for each unit sold. Management estimates this option will
increase sales 10%. Should management change to the commission-based plan, and why?
*Source: Retired ICMA CMA Exam Questions.
A Yes, because it will increase operating income by $67,000.
B Yes, because it will increase net income by $67,000.
C No, because it will decrease net income by $23,000.
D No, because it will decrease operating income by $23,000.

Gaming Tables Ltd. has the following revenue and costs for manufacturing craps tables for casinos. Indirect fixed costs are
allocated overhead that are unavoidable costs for Gaming Tables Ltd.
Sales Price $1,895
Direct Material – Wood $225
Direct Material – Felt 37
Direct Material – Ink 5
Direct Labor 130
Variable Overhead 17
Total Variable Costs $414
Contribution Margin $1,481
Direct Fixed Overhead $39
Total Direct Costs $453
Indirect Fixed Costs $72
Total Costs $525
Net Income $1,370
Gaming Tables Ltd can outsource the production of craps tables to Smith Carpentry for $475 per table. If they outsource the
production, Gaming Tables can rent the machinery and factory space for another company for $18,000 per year. What is the
opportunity cost, if any, for Gaming Tables if they decide to manufacture the tables in house?
A There is no opportunity cost.
B $22 per table
C $61 per table
D $18,000 per year
Titanium Industries is deciding whether or not to discontinue one of its divisions. The division’s contribution margin is $350,000
per year. The fixed costs charged to the division total $245,000, but $205,000 would be eliminated if the division was discontinued.
If the division is eliminated, what will be the result on overall operating income?
A It would decrease by $350,000.
B It would decrease by $145,000.
C It would decrease by $105,000.
D It would increase by $205,000.
Hat Trick Manufacturing is considering opening a new market on mouth guards. The product normally sells for $20 per unit, and
relevant costs are $11 to produce a unit and $4 to sell a unit. What is the minimum price for the company to sell mouth guards into
this new market?
A $9
B $20
C $15
D $11

Widgets Inc. is thinking about replacing a piece of manufacturing equipment with a remaining useful life of three years. The book
value of the equipment is $25,000, and the machine can be sold in its current condition for $7,000. The new machine would cost
$83,000 and would have no salvage value at the end of its three-year useful life. With the new machine, Widgets’ variable
manufacturing costs would drop from $189,500 to $169,900 per year. If Widgets opts to buy the new machine,
A it will be recording a loss of $25,000 on the current machine.
B it will see a $24,200 decrease in income over the next three years.
C its total variable manufacturing costs over the next three years will be $58,800 lower than with the current machine.
D it will see a $58,800 increase in income over the next three years.

A company produces regular knives and steak knives. The contribution margin per machine hour for regular knives is $1.75,
whereas the contribution margin per machine hour for steak knives is $2.45. It can be said that:
A the opportunity cost of producing steak knives is $1.75.
B the opportunity cost of producing steak knives is $2.45.
C the relevant cost of producing steak knives is $1.75.
D the opportunity cost of producing steak knives is $0.70.

Gaming Tables Ltd. has the following revenue and costs for manufacturing craps tables for casinos. Indirect fixed costs are
allocated overhead that are unavoidable costs for Gaming Tables Ltd.
Sales Price $1,895
Direct Material – Wood $225
Direct Material – Felt 37
Direct Material – Ink 5
Direct Labor 130
Variable Overhead 17
Total Variable Costs $414
Direct Fixed Overhead $39
Total Direct Costs $453
Indirect Fixed Costs $72
Total Costs $525
Net Income $1,370
Gaming Tables Ltd can outsource the production of craps tables to Smith Carpentry for $475 per table. What is management’s best
course of action regarding manufacturing or outsourcing the production of craps tables?
A Purchase the tables from Smith Carpentry because net income is positive.
B Manufacture the tables because total variable costs are less than the purchase price.
C Manufacture the tables because total direct costs are less then the purchase price.
D Purchase the tables from Smith Carpentry because the purchase price is less than total costs.

Delicious Desserts is thinking about ending production of two types of ice cream. Financial data related to the products are
provided below:
Rum Raisin Blue Moon
Sales $680,000 $573,000
Variable expenses 246,000 219,000
Fixed expenses 468,000 364,000
If Delicious stops making Rum Raisin ice cream, it estimates it can eliminate 75% of the fixed costs associated with that product.
Similarly, if it stops making Blue Moon, it estimates it can eliminate 70% of the fixed costs associated with that product. Given these
figures, which of the following statements is true?
A Delicious will lose money if it discontinues either product, but it will lose a greater amount by discontinuing the Rum Raisin.
B Delicious will lose money if it discontinues either product, but it will lose a greater amount by discontinuing the Blue Moon.
C Delicious will lose money if it discontinues Rum Raisin and make money if it discontinues Blue Moon.
D Delicious will make money if it discontinues Rum Raisin and lose money if it discontinues Blue Moon.
A company has a portfolio of four products and incurs $175,000 of allocated fixed costs per year. Financial data for the four
products are shown below.
Product A Product B Product C Product D
Units sold 25,000 18,750 3,750 2,500
Revenue $750,000 $600,000 $150,000 $100,000
Unit variable costs $24 $24 $37 $41
Which product should the company discontinue?
*Source: Retired ICMA CMA Exam Questions.
A Product A
B Product B
C Product C
D Product D

Dave operates his business out of a small storefront, so he does not have a lot of shelf space for his products. Recently, a section
of shelf space became available because a product was discontinued. Dave is trying to decide which of his products to put in that
space. Product 1 has a contribution margin per unit of space of $2,000 and is very large in size. Product 2 has a contribution
margin per unit of space of $1,200 and is very small in size. Based on this information alone, what product would be best for the
open space?
A Product 1 because it has a higher contribution margin per unit of space
B Product 1 because it is larger in size and will be easier to see
C Product 2 because it is smaller than Product 1, so more can fit in the space
D Product 2 because the lower contribution margin per unit of space and smaller size will result in more profit

A company must decide whether to accept an order that will generate $500,000 of revenue and $200,000 of contribution margin to
offset $100,000 of fixed cost. The company’s capacity has been mostly utilized. When making this decision, the company’s
financial analyst should consider
*Source: Retired ICMA CMA questions.
A marginal costs of $300,000 since these are the only relevant costs for decision making.
B marginal costs of $400,000 and revenue of $500,000.
C whether qualitative factors outweigh $100,000 of marginal income on the order.
D if other orders might generate more marginal income than $100,000 of marginal income on this order.

The MUW Company is currently producing 30,000 units of a product that it currently sells for $25 per unit. It has the capacity to
produce 40,000 units of the product. Variable production costs are $11 per unit, shipping costs are $5 per unit, and fixed costs are
$120,000. A customer approaches MUW about a one-time purchase of 10,000 units of the product for $19 per unit. The customer
agrees to be directly billed for shipping costs. How will MUW’s income change if it accepts the special order?
A It will decrease by $10,000.
B It will increase by $50,000.
C It will increase by $80,000.
D It will decrease by $60,000.

International Doors Inc. has the following production and cost data for their two products.
Automatic Door Semi-Automatic Door
Contribution Margin each $200 $175
Labor Hours (LH) each 8 5
Contribution Margin per LH $25 $35
Demand per month 4,000 4,000
International Doors has been approached by Doors To Go to produce a special order of 1,200 Automatic Doors. Doors To Go has
offered to purchase these doors for $25 less than the normal selling price. International Doors will not need to individually package
each door and will save $7 in supplies on each door.
International Doors has only 60,000 labor hours available. If International Doors accepts this order and adjusts production to
maximize their contribution margin, what will be the effect on their current operating income?
A Operating income will increase $218,400.
B Operating income will increase $162,400.
C Operating income will increase $170,400.
D Operating income will increase $178,400
A company has the capacity to produce 40,000 units and it is currently producing and selling 40,000 units. Variable costs are $20
per unit, total fixed costs are $200,000, and the selling price is $42 per unit. A customer that has never purchased the product
inquires about purchasing 4,000 units of the product as a one-time special order for $37 per unit. If the order is accepted, the
variable costs of the order will be $17 per unit instead of $20 per unit. What is the sunk cost associated with the 4,000-unit order?
A $920,000
B $20,000
C $80,000
D $12,000

A company has two business units, Division 1 and Division 2, that are currently operating as profit centers. Management is
evaluating the possibility of discontinuing Division 2 because of the operating losses it has experienced over the last few years.
Select information from the operating budget for the upcoming fiscal year is shown below.
Division 1 Division 2
Sales $800,000 $400,000
Cost of goods sold 300,000 250,000
Gross margin 500,000 150,000
Variable selling and administrative expenses 100,000 80,000
Fixed selling and administrative expenses 75,000 75,000
Operating income (loss) $325,000 ($5,000)
Fixed selling and administrative expenses are allocated equally between the two units. If Division 2 is discontinued, fixed selling
and administrative expenses are expected to decrease by 20% from the current level, and Division 1's sales are expected to
increase by 15%. Based on the budget information above, should the company discontinue Division 2, and why?
*Source: Retired ICMA CMA Exam Questions.
A Yes, because operating income will increase by $80,000.
B Yes, because operating income will increase by $20,000.
C No, because operating income will decrease by $40,000.
D No, because operating income will decrease by $10,000.

Connie produces dog sofas in a variety of sizes and designs. Each of Connie’s dog sofas has a memory foam interior and a
bedding area of stain-resistant, Comfort-Plus ™ sheepskin. Recently, Connie has been approached by Glen J. with a proposal to
provide Connie with all the memory foam interiors for her large dog sofas at a price of $6.20. Connie currently produces the large
memory foam inserts with a total unit cost of $6.88, comprising the following costs:
Direct materials $1.95
Direct labor $1.74
Variable overhead $2.12
Fixed overhead $1.07
If the fixed costs of production are unavoidable, should Connie accept Glen’s offer?
A No, because Connie will pay $.39 more per unit.
B Yes, because Connie will save $.68 per unit.
C Yes, because Connie will save $1.44 per unit.
D No, because Connie will pay $2.51 more per unit.
A retailer planned to purchase 55,000 units and sell 50,000 units, yielding the following operating income:
Sales $50,000,000
Cost of goods sold 33,000,000
Variable selling costs 5,000,000
Fixed selling and administrative costs 7,000,000
Operating income $ 5,000,000
The company expects to receive an additional order that would allow it to sell all 55,000 units. If the company accepts this order, its
total operating income will be
*Source: Retired ICMA CMA Exam Questions.
A $5,500,000.
B $6,200,000.
C $6,700,000.
D $9,500,000.

A company produces two specialty chemicals, products A and B, which are derived from a base mixture. The company incurs
$1,000,000 of production costs for the base mixture and then an additional $250,000 in conversion costs for product A and
$250,000 for product B. Management is seeking to diversify its product portfolio and must decide whether to produce a third
specialty chemical, product C. Manufacturing product C will require an additional $500,000 for the additional base mixture and the
conversion into product C. When making its decision whether to proceed with product C, the company must
*Source: Retired ICMA CMA questions.
A divide the $500,000 cost for product C into joint production cost and separable processing cost.
B determine the split-off point for C in order to identify the marginal cost of product C.
C identify the relevant revenue associated with product C based on its marginal cost of $500,000.
D allocate the $1,000,000 cost for products A, B, and C based on units produced for each product.

Impala is currently producing 100 units of a necessary component part by incurring $42,000 in direct materials, $8,750 in direct
labor, $15,750 in variable overhead, and $10,500 in fixed overhead. If Impala purchases the component externally, $7,000 of fixed
costs can be avoided. At what external price for these 100 units would the company be indifferent between buying and selling?
A $66,500
B $77,000
C $70,000
D $73,500

Brandy Company is deciding whether or not to discontinue one of its divisions. The division’s contribution margin is $27,000 per
year. The fixed costs charged to the division total $32,000, but $15,000 would be eliminated if the division was discontinued. If the
division is eliminated, what will be the result on overall operating income?
A It would decrease by $12,000.
B It would increase by $5,000.
C It would decrease by $10,000.
D It would increase by $27,000.

Harmony is currently producing 100 units of a necessary component part by incurring $60,000 in direct materials, $12,500 in direct
labor, $22,500 in variable overhead, and $15,000 in fixed overhead. If Harmony purchases the component externally, $10,000 of
fixed costs can be avoided. At what external price for these 100 units would the company be indifferent between buying and
selling?
A $95,000
B $110,000
C $105,000
D $100,000

Fountain Manufacturing has received a special order for 3,000 of its most popular outdoor fountains for $54 per fountain.
Fountain’s variable costs per fountain are $43.20, fixed costs per fountain are $18, and the normal selling price is $126 per
fountain. Fountain has sufficient capacity to produce the fountains. Fountain will incur special shipping costs of $3.60 per unit for
this special order. If the order is accepted, what will be the effect on net income?
A $21,600 decrease
B $21,600 increase
C $32,400 decrease
D $162,000 increase

Bike-A-Rama manufactures custom bicycles for off-road bikers. Because each bike is unique, production capacity is limited to 500
custom bikes per year. Bike-A-Rama has been approached by management of a major sports store that believes they can sell 300
of their bikes a year in their stores. These bikes would be in three standard configurations and customers would be able to
purchase additional customizations directly from Bike-A-Rama if they desired.
Currently, demand for custom bikes is 400 bikes per year. Management believes that they would be able to produce two standard
bikes at the same time that they currently manufacture one custom bike. Based on the following financial information, how would
you advise management to respond to the sports store?
Custom Standard

Sales Price $3,500 $2,000

Direct Materials $250 $240
Direct Labor $500 $250
Variable Overhead $50 $50
Allocated Fixed Overhead $100 $50
A Turn down the offer because the contribution margin is $1,240 less than custom bikes and Bike-A-Rama will lose money.
B Accept the offer because combined net income will be $1,518,000 which is more than selling just the custom bikes.
C Reject the offer because Bike-A-Rama will lose $135,000 in sales for custom bikes.
D Accept the offer because the additional operating income is $303,000.

A company sells two products: Sparta and Volta. Volta is manufactured by a third-party supplier, which charges the company a
contractual price for each unit of Volta manufactured. A summary of revenue and costs assumptions for each product follows.
 Sparta Volta
Planned sales units prior to promotion 100,000 20,000
Unit selling price $10 $20
Unit variable cost $3 $10
Fixed costs $500,000 0
The company has the opportunity to spend an additional $10,000 in promotional expenditures on either Sparta or Volta, anticipating
a 10% increase in unit sales volume as a result. Both product lines have idle capacity and can support the increase in unit volume.
The company should spend the additional promotional expenditure on
*Source: Retired ICMA CMA Exam Questions.
A Sparta, because it would generate an additional $10,000 in operating profit.
B Sparta, because it would generate an additional $60,000 in operating profit.
C Volta, because it would generate an additional $20,000 in operating profit.
D Volta, because it would generate an additional $10,000 in operating profit.

The Howell Corporation produces an executive jet for which it currently manufactures a fuel valve. The cost of the valve is
reported below.
Cost per Unit
Variable costs
Direct material $ 950
Direct labor 650
Variable overhead 300
Total variable costs $1,900
Fixed costs
Depreciation of equipment $ 500
Depreciation of building 200
Supervisory salaries 300
Total fixed costs $1,000
Total cost $2,900
The company has an offer from Duvall Valves to produce the part for $2,100 per unit and supply 1,000 valves (the number needed
in the coming year). If the company accepts this offer and shuts down production of valves, production workers and supervisors will
be reassigned to other areas where, unfortunately, they are not actually needed. The equipment cannot be used elsewhere in the
company, and it has no market value. However, the space occupied by the production of the valve can be used by another
production group that is currently leasing space at an outside site for $55,000 per year.
What is the incremental benefit or cost of buying? Should the company make or buy the valve?
A $795,000 incremental benefit to buy; buy the valves
B $850,000 incremental cost to buy; make the valves
C $145,000 incremental cost to buy; make the valves
D $795,000 incremental cost to buy; make the valves
A small delivery company received an order that requires nine deliveries lasting two hours each on the same day. The company
owns two vans that together can make eight trips per day. The company can rent a van on a daily eight-hour basis for $72, and the
fuel cost is $20 per trip. The company has several van drivers, each of whom earns $30,000 annually and is expected to make
1,000 deliveries each year. The marginal cost of the ninth delivery is
*Source: Retired ICMA CMA Exam Questions.
A $122.
B $92.
C $38.
D $28.

Oakland College is considering outsourcing grounds maintenance. In this regard, Oakland has received a bid from Highline
Grounds Maintenance for $300,000 per year. Highline states that its bid will cover all services and planting materials required to
“keep Oakland's grounds in a condition comparable to prior years.” Oakland's costs for grounds maintenance in the preceding year
were $309,000, as shown here.
Salary of three full-time gardeners $195,000
Plant materials 80,000
Fertilizer 10,000
Fuel 12,000
Depreciation of tractor, mowers, and other miscellaneous equipment 12,000
Total $309,000
If Oakland College outsources maintenance, it will be able to sell equipment for $30,000 in Year 1, and the three gardeners will be
laid off.
Based on relevant costs, what is the incremental value to Oakland College in Year 1 of accepting the bid from Highline?
A $(3,000)
B $41,000
C $27,000
D $15,000

Whitaker Wood Products manufactures chairs. One of their most popular chairs is the dining room chair which sells for $350
each. The costs associated with upholstering this chair consist of $35.00 of fabric, $7.00 of batting, and $9.00 of upholstery nails.
There is also $44.00 in direct labor, $5.50 in variable overhead and $4.75 in fixed overhead. Ursula’s Upholstery House has
inquired into the possibility of doing all of Whitaker’s upholstery for dining room chairs. If Whitaker decides to outsource the
upholstery, fixed overhead will decrease by 20%.
In addition, the space being used by the upholstery division is in a separate factory space whose lease is up for renewal. Whitaker
can save $2,800 a month on this space. Whitaker manufactures 24,000 chairs each year. What is the highest price Whitaker
should be willing to pay Ursula’s Upholstery House per chair?
A $102.85
B $101.45
C $101.57
D $101.90

A company has the capacity to produce 20,000 units and it is currently producing and selling 20,000 units. Variable costs are $12
per unit, total fixed costs are $120,000, and the selling price is $32 per unit. A customer that has never purchased the product
inquires about purchasing 5,000 units of the product as a one-time special order for $26 per unit. If the order is accepted, the
variable costs of the order will be $10 per unit instead of $12 per unit. What is the opportunity cost associated with the 5,000-unit
order?
A $6 per unit
B $0 per unit
C $2 per unit
D $20 per unit

A company is considering accepting a special order. The product normally sells for $10 per unit, and relevant costs are $6 to
produce a unit and $2 to then ship the unit (shipping costs are necessary for the special order). What is the likeliest decision about
the order?
A Accept the order if the sales price is at least $6.
B Accept the order if the sales price is at least $10.
C Accept the order if the sales price is at least $8.
D Reject the order.

A tennis equipment company produces two lines of tennis shoes, Professional and Amateur. Income statement data for the
tennis shoes is shown below.
Professional Amateur Total
Sales $550,000 $750,000 $1,300,000
Variable costs 275,000 400,000 675,000
Direct fixed costs 100,000 300,000 400,000
Allocated fixed costs 37,500 112,500 150,000
Operating income $137,500 $ (62,500) $ 75,000
Since the Amateur line shows a loss, the company is considering eliminating this line of tennis shoes. Based on the data provided,
should the company drop the Amateur tennis shoe line?
*Source: Retired ICMA CMA Exam Questions.
A No, operating income will decrease by $50,000.
B No, operating income will decrease by $350,000.
C Yes, operating income will increase by $25,000.
D Yes, operating income will increase by $62,500.

The JYD Company separates its business into three regions. Information on the regions is below:
Region A Region B Region C Total
Sales $10,000 $30,000 $60,000 $100,000
COGS $7,000 $21,000 $24,000 $52,000
Gross Margin $3,000 $9,000 $36,000 $48,000
Operating Expenses $9,000 $18,000 $18,000 $45,000
Operating Income / (Loss) ($6,000) ($9,000) $18,000 $3,000
JYD determines that COGS is 100% variable costs and operating expenses are 40% variable and 60% fixed costs. Which, if any,
of these regions should be eliminated if fixed costs cannot be reduced in the short run?
A Region B only
B Regions A and B
C Region A only
D None, as the gross margin is positive for all regions

Melody Manufacturing is currently producing 1,000 units of a necessary component part by incurring $68,000 in direct materials,
$30,000 in direct labor, $18,000 in variable overhead, and $20,000 in fixed overhead. Melody could avoid $12,000 of fixed
overhead if the component is purchased externally. Melody wishes to minimize costs and would prefer to purchase the component.
What is the maximum external price Melody should pay to acquire 1,000 units of the component?
A $124,000
B $116,000
C $118,000
D $128,000

Curry Industries produces three versions of a popular spice: Mild, Medium, and Hot. A condensed segmented income statement
for a recent period follows:
Mild Medium Hot Total
Sales $800,000 $320,000 $104,000 $1,224,000
Variable expenses 520,000 224,000 92,800 836,800
Contribution margin 280,000 $96,000 11,200 387,200
Fixed expenses 120,000 56,000 35,200 211,200
Net income (loss) $160,000 40,000 ($24,000) $176,000
Assume that 20% of the fixed expenses for the Hot product are avoidable. Should Papago eliminate the Hot product, and why or
why not?
A No, because the company’s net income will decrease by $4,160.
B Yes, because the company’s net income will increase by $24,000.
C Yes, because the company’s net income will increase by $16,960.
D No, because the company’s net income will decrease by $11,200.

Oakleaf Manufacturing incurs costs of $75 per unit ($67 variable and $8 fixed) to make a product that normally sells for $120. A
customer offers to buy 4,200 units at $70 each. Assuming Oakleaf has adequate manufacturing capacity to handle this order, it
should:
A reject the offer because it will result in a net loss of $12,600.
B accept the offer because it will produce net income of $21,000.
C reject the offer because it will result in a net loss of $21,000.
D accept the offer because it will produce net income of $12,600.

Maize Company incurs a cost of $35 per unit, of which $20 is variable, to make a product that normally sells for $58. A foreign
wholesaler offers to buy 6,000 units at $30 each. Maize has the capacity to take on this order, but will incur additional costs of $4
per unit to imprint a logo and to pay for shipping. Compute the increase or decrease in net income that Maize will realize by
accepting the special order.
A $60,000
B ($54,000)
C ($30,000)
D $36,000

Manson Industries incurs unit costs of $8 ($5 variable and $3 fixed) in making an assembly part for its finished product. A supplier
offers to make 10,000 of the assembly part at $6 per unit. If the offer is accepted, Manson will save all variable costs but no fixed
costs. Which costs are irrelevant in this analysis?
A $80,000
B $50,000
C $30,000
D $60,000

You are planning to open a local restaurant, and you are considering whether to buy or rent your facility. If you rent the facility, you
will pay $4,500 per month in rent plus approximately $1,300 in utilities per month. You will also be required to purchase renters’
insurance, which will cost you $550 per month. All maintenance fees on the building and landscaping, however, will be provided by
the property owner.
If you buy the facility, your mortgage will be $2,800 per month, and utilities will be $1,800 per month. Your property insurance will
be $800 per month, and your expected maintenance costs are $1,800 per month. What is the relevant cost of purchasing the
building?
A $6,350 per month
B $7,200 per month
C $5,900 per month
D $5,050 per month

A company produces 13,500 components per year that are used in the manufacturing of another product. The component unit
costs are $19 direct material, $28 direct labor, $14 variable manufacturing overhead, and $18 fixed manufacturing overhead. The
company can purchase the component from an external supplier for $41 each. If the component is purchased, $6 of the applied
fixed overhead per unit would not be avoided. Buying the component would free up factory space so that the company could
produce another product which would generate an additional contribution margin of $36,000 annually. What would be the effect on
operating income if the company chooses to buy the component versus making it in-house?
*Source: Retired ICMA CMA questions.
A $387,000.
B $549,000.
C $468,000.
D $432,000.

A company currently spends $5 per unit and has fixed costs of $100,000 to produce 10,000 units of a product it sells for $30 per
unit. It is considering investing an additional $2 per unit in more advanced materials that will enable the company to sell a total of
12,000 units at $35 per unit. What is the marginal cost of the decision to make the investment?
A $34,000.
B $24,000.
C $84,000.
D $184,000.

The AWR Company currently produces and sells 50,000 units of a product with the following information:
Variable manufacturing costs per unit $65
Fixed manufacturing costs $2,500,000
Variable selling costs per unit $17
Fixed selling costs $1,000,000
Selling price per unit $140
A vendor offers to sell AWR the product for $100 per unit. AWR estimates that $500,000 of the fixed manufacturing costs are for
machines that will still be needed even if the product is outsourced. What is the impact on AWR’s operating income if it accepts the
offer from the vendor?
A Income will increase by $250,000.
B Income will increase by $1,100,000.
C Income will decrease by $1,750,000.
D Income will decrease by $1,250,000.

Every day, Darwin Dairy incurs total costs of $50,000 to process several thousand gallons of raw milk into skim milk. The firm can
then spend $8,000 to bottle the skim milk as is, or it can spend $16,000 to add chocolate flavoring to the milk and then bottle it.
Daily revenues for the plain milk are $105,000, while those for the chocolate milk are $115,000. In the coming days, Darwin
expects the price of bottling the milk to increase by $2,000 and the cost of purchasing chocolate flavoring to decrease by $2,000.
Given these figures, which of the following statements is accurate?
If, several days from now, Darwin wants to revisit its decision of which milk to sell, it need not consider the change in bottling
A
costs in its calculations.
If, several days from now, Darwin wants to revisit its decision of which milk to sell, it need not consider the change in flavoring
B
costs in its calculations.
Darwin does not need to revisit its decision of which milk to sell in the days to come, because the two cost changes described
C
here will offset one another.
If, several days from now, Darwin wants to revisit its decision of which milk to sell, it must consider both the change in bottling
D
costs and the change in flavoring costs.
Cardinal Company needs 20,000 units of a certain part to use in its production cycle. The following information is available:
Cost to Cardinal to make the part:
Direct materials $4
Direct labor $16
Variable overhead $8
Fixed overhead applied $10
$38
Cost to buy the part from the
Oriole Company $36
If Cardinal buys the part from Oriole instead of making it, 60% of the fixed overhead applied will continue. Cardinal cannot use the
released facilities in another manufacturing activity, regardless of what decision is made. In deciding whether to make or buy the
part, the total relevant costs to make the part are:
A $640,000.
B $720,000.
C $760,000.
D $560,000.