Certified Management Accountant (CMA): IMANET-CMA

Correct Answer: D

Inventory carrying costs are incurred to hold inventory. Examples include the costs of storage, insurance, security, inventory taxes, depreciation or rent of warehouse facilities, obsolescence and spoilage, and the opportunity cost of inventory investment. Inspection costs are not related to the length of time inventory is held. They are costs of taking delivery and are best classified as ordering costs.

Correct Answer: D

Of the $500,000 borrowed, the debtor has the use of only $450,000. The compensating balance provision requires a minimum balance that is $50,000 greater than the balance that the company usually maintains. At 8% on a $500,000 loan, the annual interest expense is $40,000. However, this amount is reduced by the interest earned on the extra $50,000 in the checking account. At 3%, the extra $50,000 earns $1,500 per year. Thus, the net expense is $38,500. The effective interest rate is 8.56% ($38500 ?$450,000)

Correct Answer: B

A variable (direct) costing system is best for providing the information needed for CVP analysis because both techniques separate the fixed costs from variable costs. CVP analysis calculates a variable cost per unit and deducts it from unit sales price to determine the unit contribution margin. The total contribution margin from a given level of unit sales measures the extent of recovery of fixed costs and the profit earned. Direct costing is likewise oriented toward determination of the contribution margin because it treats fixed manufacturing overhead as a period, not a product, cost. Thus, it facilitates CVP analysis by isolating variable manufacturing costs.