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.

AOption A

BOption B

COption C

DOption D

Show Suggested Answer

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

1 months 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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Eleonora

4 days ago

Yes, that's correct. Company 1 has a better profit potential compared to Company 2.

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Richelle

8 days ago

So, Company 1 will have higher dollar profit potential once the indifference point in dollar sales volume is exceeded, right?

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Tawanna

10 days ago

I agree, Company 1 has a lower fixed cost and a higher contribution margin ratio.

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Lynelle

16 days ago

I think Company 1 will have a lower breakeven point in terms of dollar sales volume.

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Thomasena

1 months 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

1 months 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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Sabine

2 days ago

User 3: Company 2 has a higher contribution margin ratio, so it might have higher profit potential.

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Bonita

5 days ago

User 2: Company 1 has lower fixed costs, so its breakeven point should be lower.

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Rhea

6 days ago

User 1: I think we need to calculate the breakeven point for both companies to compare.

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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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