Business Analysis and Valuation
Final Exam Questions
Course Introduction
Business Analysis and Valuation provides students with the analytical tools and frameworks necessary to evaluate company performance, strategic positioning, and financial health. The course emphasizes the interpretation of financial statements, assessment of business strategies, and application of valuation methodologies such as discounted cash flow and market multiples. Students will learn how to use financial information to make decisions regarding investment, credit, and corporate strategy, and will engage in case studies to apply concepts to real-world business scenarios. The course prepares students for roles in investment banking, equity research, consulting, and corporate finance by developing critical skills in both qualitative and quantitative analysis.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis16th Global Edition by
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Page 2
Srikant M. Datar
Chapter 1: The Manager and Management Accounting
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Sample Questions
Q1) Increased global competition is placing pressure on companies to reduce costs.
A)True
B)False
Answer: True
Q2) Classify each cost item into one of the business functions of the value chain,either (1)R&D, (2)design, (3)production, (4)marketing, (5)distribution,or (6)customer service.
Item:
a.cost of samples mailed to promote sales of a new product
b.labor cost of workers in the manufacturing plant
c.bonus paid to a person with a 90% satisfaction rating in handling customers with complaints
d.transportation costs for shipping products to retail outlets
Answer: a.(4)marketing
b.(3)production
c.(6)customer service
d.(5)distribution
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3
Chapter 2: An Introduction to Cost Terms and Purposes
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Q1) Conversion costs include all direct manufacturing costs and some of the period costs including research and development costs and customer service.
A)True
B)False
Answer: False
Q2) Wages paid to machine operators on an assembly line are classified as a ________.
A)direct material cost
B)direct manufacturing labor cost
C)manufacturing overhead cost
D)period cost
Answer: B
Q3) Prime costs include ________.
A)direct materials and direct manufacturing labor costs
B)direct manufacturing labor and manufacturing overhead costs
C)direct materials and manufacturing overhead costs
D)only direct materials
Answer: A
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Chapter 3: Cost-Volume-Profit Analysis
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Q1) If selling price per unit is $55,variable costs per unit are $25,total fixed costs are $24,000,the tax rate is 35%,and the company sells 7,000 units,net income is ________.
A)$186,000
B)$75,250
C)$136,500
D)$120,900
Answer: D
Q2) The breakeven point is the activity level where ________.
A)revenues equal fixed costs
B)revenues equal variable costs
C)contribution margin equals total costs
D)revenues equal the sum of variable and fixed costs
Answer: D
Q3) If a company has a degree of operating leverage of 4.0,that means a 10% increase in sales will result in a 40% increase in operating income.
A)True
B)False
Answer: True
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Chapter 4: Job Costing
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Sample Questions
Q1) An example of a numerator reason for calculating annual indirect-cost rates includes ________.
A)fewer production workdays in a month
B)cost of raw materials purchased
C)higher snow-removal costs during the winter
D)the number of units produced
Q2) The actual indirect-cost rate is calculated by dividing actual total indirect costs by the budgeted total quantity of the cost-allocation base.
A)True
B)False
Q3) In the service sector,to achieve timely reporting on the profitability of an engagement,a company will use ________.
A)budgeted rates for all direct costs
B)budgeted rates for indirect costs
C)actual costing
D)budgeted rates for some direct costs and indirect costs
Q4) What are three possible ways to dispose of underallocated or overallocated overhead costs at the end of a fiscal year? Briefly comment on the theoretical correctness or incorrectness of each method.
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Q1) How are cost drivers selected in activity-based costing systems?
Q2) If companies increase market share in a given product line because their reported costs are less than their actual costs,they will become more profitable in the long run.
A)True
B)False
Q3) It is important that the product costs reflect as much of the diversity and complexity of the manufacturing process so that ________.
A)total costs reflect market price
B)value-added costs can be eliminated
C)there is high likelihood of cross-subsidizing of product costs
D)product-pricing errors are minimal
Q4) Which of the following statements is true of ABC systems?
A)ABC systems are time-driven cost systems.
B)ABC systems classify some direct costs as indirect costs and some indirect costs as direct costs.
C)ABC systems provide valuable information to managers beyond accurate product costs.
D)ABC systems assume all costs are variable costs.
Page 7
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) A company's actual performance should be compared against budgeted amounts for the same accounting period so that ________.
A)adjustments for future conditions can be included
B)to avoid any feedback from the budgets due to past miscues
C)inefficiencies of the past year can be included
D)a rolling budget can be implemented
Q2) The order to follow when preparing the operating budget is ________.
A)revenues budget,production budget,direct manufacturing labor costs budget ,and cost of goods sold
B)revenues costs of goods sold budget,production budget,and cash budget
C)revenues budget,manufacturing overhead costs budget,and production budget
D)cash expenditures budget,revenues budget,and production budget
Q3) Activity-based-costing analysis makes no distinction between ________.
A)direct-materials inventory and work-in-process inventory
B)short-run variable costs and short-run fixed costs
C)parts of the supply chain
D)components of the value chain
Q4) How is budgeting for a multinational corporation different than budgeting for a corporation that is strictly domestic?
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Chapter 7: Flexible Budgets,direct-Cost Variances,and Management Control
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Sample Questions
Q1) Which of the following statements is true of benchmarking?
A)It is a systematic approach of optimizing business processes.
B)It fails to help to improve organizational performance as benchmarking data does not provide insight into why costs or revenues differ across companies.
C)It is difficult to ensure that the benchmark numbers are comparable due to the existence of differences across companies.
D)It considers four major business aspects such as financial,customer,internal business processes,and learning and growth.
Q2) Jalbert Incorporated planned to use materials of $11 per unit but actually used materials of $15 per unit,and planned to make 1,560 units but actually made 1,730 units. The flexible-budget amount for materials is ________.
A)$17,160
B)$23,400
C)$19,030
D)$25,950
Q3) Describe the purpose of variance analysis.
Q4) What is benchmarking,and how is it useful to a company?
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Chapter 8: Flexible Budgets, overhead Cost Variances, and Management Control
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Q1) The variable overhead spending variance measures the difference between ________,multiplied by the actual quantity of variable overhead cost-allocation base used.
A)the actual variable overhead cost per unit and the budgeted variable overhead cost per unit
B)the standard variable overhead cost rate and the budgeted variable overhead cost rate
C)the actual variable overhead cost per unit and the budgeted fixed overhead cost per unit
D)the actual quantity per unit and the budgeted quantity per unit
Q2) 'Managers should be wary of using the same unitized fixed overhead costs for planning and control purposes'.Do you agree with this argument? Give reasons for your answer.
Q3) An unfavorable production-volume variance always infers that management made a bad planning decision regarding the plant capacity.
A)True
B)False
Q4) What is a standard costing system?
Page 10
Q5) Explain how service-sector companies can benefit from variance analysis.
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Chapter 9: Inventory Costing and Capacity Analysis
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Q1) Francis Corporation is having trouble selling its inventory because of its ongoing dispute with its logistical partner.The company was not able to sell any inventory in the month of January because of the dispute.It manufactured 8,000 units in January.Francis had no other fixed costs commitment other than fixed manufacturing costs of $100,000.It follows absorption costing.If actual production in January was equal to the denominator level,what is the amount of sales required to attain breakeven point?
A)1250 units
B)125 units
C)10 units
D)0 units
Q2) If the unit level of inventory increases during an accounting period,then ________.
A)less operating income will be reported under absorption costing than variable costing
B)more operating income will be reported under absorption costing than variable costing
C)operating income will be the same under absorption costing and variable costing
D)the exact effect on operating income cannot be determined
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Chapter 10: Determining How Costs Behave
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Q1) List and briefly describe the six steps in estimating a cost function under quantitative analysis.
Q2) Managers should use past data to create a cost function and then use the exact information provided by that cost function to create the budgetary forecast for the next year.
A)True
B)False
Q3) Write a linear cost function equation for each of the following conditions.Use y for estimated costs and X for activity of the cost driver.
a.Direct manufacturing labor is $15 per hour.
b.Direct materials cost $25.60 per cubic yard.
c.Utilities have a minimum charge of $500,plus a charge of $0.25 per kilowatt-hour.
d.Machine operating costs include $250,000 of machine depreciation per year,plus $100 of utility costs for each day the machinery is in operation.
Q4) Explain the difference between the cumulative average-time learning model and the incremental unit-time learning model.
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) Business function costs are the sum of all variable and fixed costs in all business functions of the value chain.
A)True
B)False
Q2) Past costs are also called sunk costs because they are unavoidable and cannot be changed no matter what action is taken.
A)True
B)False
Q3) When replacing an old machine with a new machine,the book value of the old machine is a relevant cost.
A)True
B)False
Q4) Which of the following is not true with regards to relevant costs and relevant revenues?
A)They are sunk costs and historical revenues
B)They are expected costs and expected revenues
C)They occur in the future
D)The differ among alternative courses of action
Q5) Explain what revenues and costs are relevant when choosing among alternatives.
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Chapter 12: Strategy,balanced Scorecard,and Strategic
Profitability Analysis
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Sample Questions
Q1) Conversion costs are an example of ________.
A)direct engineered costs
B)indirect engineered costs
C)discretionary costs
D)unused capacity costs
Q2) The price-recovery component of the change in operating income measures solely the effect of price changes on revenues but not costs.
A)True
B)False
Q3) Which of the following efforts would most likely yield the greatest re-engineering benefits?
A)focusing on a single activity to determine if it is necessary
B)decreasing quantity of output produced to increase total factor productivity
C)increasing costs of all inputs used to increase total factor productivity
D)focusing on entire processes and elimination of unnecessary activities and task
Q4) Explain the term cost leadership.What are the possible ways through which a company would try to become a cost leader? How far is it desirable to implement cost reduction measures?
14
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Chapter 13: Pricing Decisions and Cost Management
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Q1) Which of the following is true of price bidding with the federal government?
A)the price can only cover direct costs
B)the price can only cover direct costs and marketing costs
C)the price is based on costs that include fully allocated manufacturing and design costs but not include marketing costs
D)the price can include only fixed manufacturing costs and design costs but not include marketing costs
Q2) Which of the following can be used to determine markup percentage in the case of cost-plus pricing?
A)Target annual operating income / Invested capital
B)Estimated annual dividend / Invested capital
C)Target sales revenue / Target annual operating income
D)Estimated annual dividend / Target annual operating income
Q3) Developing a product that satisfies the need of the potential customers is the first step in implementing target pricing and target costing.
A)True
B)False
Q4) What advice would you give a company to avoid the appearance of predatory pricing?
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Chapter 14: Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis
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Q1) Which of the following is the formula for the sales-quantity variance?
A)deducting budgeted contribution margin based on actual units at actual mix from budgeted contribution margin based on actual units sold at the actual mix
B)deducting budgeted contribution margin based on actual units at actual mix from budgeted contribution margin based on actual units sold at the budgeted mix
C)deducting budgeted contribution margin based on budgeted units at actual mix from budgeted contribution margin based on actual units sold at the budgeted mix
D)deducting budgeted contribution margin based on budgeted units at budgeted mix from budgeted contribution margin based on actual units sold at the budgeted mix
Q2) A customer cost hierarchy may include distribution-channel costs.
A)True B)False
Q3) A customer cost hierarchy may include customer-sustaining costs.
A)True B)False
Q4) What actions might be taken with an unprofitable customer?
Q5) Why would a manager perform customer-profitability analysis?
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Chapter 15: Allocation of Support-Department Costs, common
Costs, and Revenues
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Q1) The direct allocation method provides key information for outsourcing decisions regarding support services.
A)True
B)False
Q2) Consider the following information attributed to the material management department
Budgeted usage of materials-handling labor-hours 3500
Budgeted cost pools:
Fixed costs $154,000
Variable costs $126,000 (3500 hours x $36 per hour)
The company uses the single-rate method to allocate support costs to the Machining and Assembly Departments.Assuming that the actual hours tracked in the Machining and Assembly department are 500 for the month,what would be the allocation rate and how much cost would be allocated to the Machining and Assembly Department for the operations of the month? (Round final answers to the nearest dollar. )
A)$80 an hour for a total of $40,000
B)$36 an hour for a total of $40,000
C)$36 an hour for a total of $18,000
D)$560 an hour for a total of $80
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Q1) The constant gross-margin percentage NRV method allocates joint costs to joint products in such a way that the gross margin on each joint product is the same as it was in the previous year.
A)True
B)False
Q2) In each of the following industries,identify possible joint (or severable)products at the split-off point.
a.Coal
b.Petroleum
c.Dairy
d.Lamb
e.Lumber
f.Cocoa Beans
g.Christmas Trees
h.Salt
i.Cowhide
Q3) The only allowable method of joint cost allocation is net realizable value which is specified by FASB.
A)True
B)False
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Chapter 17: Process Costing
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Q1) Job-costing systems separate costs into cost categories according to when costs are introduced into the process of manufacture.
A)True B)False
Q2) Activity -based costing plays a more significant role in job costing as compared to process costing as companies using process costing have homogeneous products.
A)True B)False
Q3) From an accounting standpoint,favorable cost variances are debit entries,while unfavorable ones are credits.
A)True B)False
Q4) In a period of rising prices,the weighted-average method will result in higher tax payments.
A)True B)False
Q5) List and describe the five steps in process costing.
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Chapter 18: Spoilage, rework, and Scrap
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Q1) To simplify calculations under FIFO,spoiled units are accounted for as if they were started in the current period.
A)True
B)False
Q2) Distinguish among spoilage,reworked units,and scrap.Give an example of each.
Q3) In accounting for scrap,which of the following statements is true?
A)Normal scrap is accounted for separately from abnormal scrap.
B)In accounting for scrap,there is no distinction between the scrap attributable to a specific job and scrap common to all jobs.
C)Initial entries to scrap accounting records are most often made in dollar terms.
D)Scrap records not only help measure efficiency,but also help keep track of scrap,and so reduce the chances of theft.
Q4) Cost of spoiled units equals ________.
A)all costs incurred in producing them up to the point of delivery
B)all costs incurred in producing them up to the point of inspection
C)all costs incurred in producing them up to the point of selling
D)all costs incurred in producing them up to the point of packaging
Q5) What are the advantages of costing rework?
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Chapter 19: Balanced Scorecard: Quality and Time
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Q1) The two basic aspects of quality are quality of design and conformance quality.Define and give an example of each.
Q2) An on-time delivery rate is considered a nonfinancial measure of customer satisfaction.
A)True
B)False
Q3) Examples of nonfinancial measures of quality include the ________.
A)inspection costs incurred
B)number of customer complaints
C)design engineering costs
D)quality training costs
Q4) Which of the following is a storage cost?
A)labor cost
B)materials handling
C)direct material
D)overhead cost
Q5) A corporation can measure its quality performance by using financial or nonfinancial measures of quality.Discuss the merits of each method and whether the use of one precludes the use of the other.
Q6) Discuss the methods used to identify quality problems.
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Chapter 20: Inventory Management, just-In-Time, and Simplified Costing Methods
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Q1) Which of the following statements is true of the economic-order-quantity decision model?
A)It assumes purchasing costs are relevant because the cost per unit changes due to the quantity ordered.
B)Demand,ordering costs,and carrying costs are all known with certainty.
C)It assumes that stockout costs are relevant even if no stockouts occur.
D)It assumes that ordering costs and carrying costs are irrelevant.
Q2) A company's inventory levels are dependent on a number of variables including the demand for the product,supplier relationships,and supplier relationships with their manufacturers.
A)True
B)False
Q3) Just-in-Time (JIT)production systems are also referred to as lean production.
A)True
B)False
Q4) What are five features of a just-in-time manufacturing system?
Q5) The EOQ model factors in the probability of stockouts.
A)True
B)False
Q6) Lean accounting is much simpler than traditional product costing.Why? Page 22
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Chapter 21: Capital Budgeting and Cost Analysis
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Q1) The net initial investment for a piece of construction equipment is $2,900,000.Annual cash inflows are expected to increase by $500,000 per year.The equipment has an 10-year useful life.What is the payback period?
A)10.00 years
B)7)40 years
C)5)80 years
D)4)80 years
Q2) Explain capital budgeting and then briefly discuss each of the five stages of a capital budgeting project?
Q3) Which of the following statements is true of a post-investment audit?
A)It encourages managers to overstate the expected cash inflows from projects and accept projects they should reject.
B)It helps managers avoid optimistic estimate errors.
C)It does not help senior management to recognize problems in the implementation of the project.
D)It provides managers with feedback about the performance of a project to determine if any variance from expectations were the result of the overly optimistic estimates of because of implementation issues.
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Chapter 22: Management Control Systems, transfer Pricing, and Multinational Considerations
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Q1) Which of the following is a disadvantage of dual pricing?
A)It strongly preserves the autonomy of divisions,and the division managers are motivated to put forth effort to increase the operating income of their respective divisions,causing inefficiencies.
B)The price arrived by using dual pricing has no specific relationship to either costs or the market price.
C)It insulates managers from the realities of the marketplace because costs,not market prices,affect the revenues of the supplying division.
D)It assumes that the minimum transfer price equals the incremental cost per unit incurred up to the point of transfer minus the opportunity cost per unit to the selling division.
Q2) Effective management control systems should also motivate managers and other employees.
A)True
B)False
Q3) What is decentralization and what are its benefits?
Q4) "Management control systems consist of formal and informal control systems." Briefly explain the formal and informal management systems and enlist their components.
Page 25
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Chapter 23: Performance Measurement, compensation, and Multinational Considerations
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Q1) Stock options give executives the right to buy company stock at a specified price,called the exercise price,within a specified period.
A)True
B)False
Q2) What are the factors involved in choosing the timing of the feedback in designing accounting-based performance measures?
Q3) Which of the following best describes a belief control system?
A)it describes standards of behavior and codes of conduct expected of all executives and board of directors
B)it articulates the mission,purpose,and core values of a company
C)they are formal information systems managers use to focus the company's attention and learning on key strategic issues
D)it describes standards of behavior and codes of conduct expected of all employees
Q4) To calculate the value of fixed assets for an overseas branch,the historical rate of exchange is used for its conversion.
A)True
B)False
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