Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control

Answer Explanations
(1 question)

[23] Gleim #: 5.5.86 -- Source: Publisher

Answer (A) is incorrect because The amount of $302,400 ignores the hours required for the additional units and it ignores the
increases in the direct labor rate and 5% margin.

Answer (B) is incorrect because The amount of $330,220.80 ignores the hours required for the additional units.

Answer (C) is incorrect because The amount of $390,600 ignores the increases in the direct labor rate and 5% margin.

Answer (D) is correct. The total out-of-pocket cost for outsourcing is found by adding the total labor hours required to finish
the units on the learning curve to the product of additional units and hours per additional unit. This number is then multiplied
by the direct labor cost. Since Donehart has already produced a batch of 80 units, only 920 are needed from Midland. The first
640 of this 920 are on the learning curve and will require a total of 15,120 hours to produce. This leaves 280 units at 15.75
hours apiece, for a total hours needed of 19,530 [15,120 + (280 × 15.75)]. The direct labor rate is $21.84 [$20.00 × (1 + .04
labor increase) × (1 + .05 cost margin)]. Donehart’s cost for the 920 units outsourced to Midland is therefore $426,535.20
(19,530 × $21.84).

Copyright 2008 Gleim Publications, Inc. Page 1

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