Corporate Finance
Chapter Exam Questions
Course Introduction
Corporate Finance explores the core principles and practices that guide financial decision-making within corporations. Topics include capital budgeting, risk analysis, valuation of assets and firms, cost of capital, financial planning, capital structure, dividend policy, and working capital management. Students learn how financial managers optimize the firms value, balance risk and return, and navigate both shortand long-term financial strategies. The course equips students with analytical tools and frameworks to evaluate investment opportunities, assess financing options, and make strategic financial decisions, drawing on real-world examples and case studies to illustrate contemporary challenges in corporate finance.
Recommended Textbook Management Accounting for Business 6th Edition by Colin Drury
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Page 2
Chapter 1: Introduction to Management Accounting
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Q1) Management accounting:
A) provides a framework to evaluate information in light of an organization's goals.
B) provides relevant information to managers.
C) provides relevant information to meet specific needs of persons inside the organization.
D) all of the above
Answer: D
Q2) Which of the following activities is NOT associated with the financial accounting information system?
A) reporting on the cost of quality
B) reporting to the shareholders
C) preparing reports for the tax authorities
D) preparing a statement of cash flows
Answer: A
Q3) Discuss the change in composition of total manufacturing costs during the last century, using the three major cost categories: direct materials, direct labour, and manufacturing overhead.
Answer: 11ea86f5_e8e7_3fab_a652_09644ef21c24_TB3532_00
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Chapter 2: An Introduction to Cost Terms and Concepts
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Q1) Which of the following statements is TRUE about fixed and variable costs?
A) Both costs are constant when considered on a per-unit basis.
B) Both costs are constant when considered on a total basis.
C) Fixed costs are constant in total and variable costs are constant per unit.
D) Variable costs are constant in total and fixed costs are constant per unit.
Answer: C
Q2) Which of the following products would NOT use job-order production?
A) houses
B) chemicals
C) ships
D) custom-built furniture
Answer: B
Q3) Fixed cost per unit is £9 when 20,000 units are produced and £6 when 30,000 units are produced. What is the total fixed cost when nothing is produced?
A) £120,000
B) £270,000
C) £15
D) £180,000
Answer: D
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Page 4
Chapter 3: Cost-Volume-Profit Analysis
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Q1) Fixed costs,
A) in total, remain constant within a relevant range
B) in total, increase as activity increases
C) in total, decrease as activity decreases
D) on a per unit basis, are constant as activity increases or decreases
Answer: A
Q2) The relevant range is a relatively
A) wide span of production where total fixed costs are expected to remain the same
B) wide range of sales where total variable costs remain the same
C) wide range of sales where all costs remain the same
D) narrow range of production where total variable costs remain the same
Answer: A
Q3) As the volume of activity increases within the relevant range, the variable cost per unit
A) decreases.
B) decreases at first, then increases.
C) remains the same.
D) increases.
Answer: C
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Page 5
Chapter 4: Measuring Relevant Costs and Revenues for Decision-Making
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Q1) Which of the following statements is true when making a decision between two alternatives?
A) Variable costs may not be relevant when the decision alternatives have the same activity levels.
B) Variable costs are not relevant when the decision alternatives have different activity levels.
C) Sunk costs are always relevant.
D) Fixed costs are never relevant.
Q2) Which of the following costs is relevant to a make-or-buy decision?
A) original cost of the production equipment
B) annual depreciation of the equipment
C) the amount that would be received if the production equipment were sold
D) the cost of direct materials purchased last month and used to manufacture the component
Q3) Sunk costs are
A) future costs that have no benefit.
B) relevant costs that have only short-run benefits.
C) target costs.
D) cannot be avoided.
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Chapter 5: Pricing Decisions and Profitability Analysis
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Q1) Which of the following could be considered a segment?
A) division
B) product-line
C) sales territory
D) all of the above
Q2) Which of the following is a FALSE statement about target costing?
A) Target costing is a method of determining the cost of a product or service based on the price that customers are willing to pay.
B) The cost is calculated by subtracting the desired profit from the target price.
C) Target costing is an interactive process.
D) Target costing is cost driven.
Q3) Refer to Figure 1 above, what amount of sales-force costs would be allocated to the five smaller customers if these costs are allocated based on sales volume?
A) £144,000
B) £216,000
C) £150,000
D) £225,000
Q4) List some of the pros and cons of target costing.
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Chapter 6: Capital Investment Decisions
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Q1) Which of the following is a capital investment criterion, but NOT captured in any of the basic capital budgeting models examined in the text?
A) the period of time required to recoup an initial investment
B) various non-quantitative factors
C) the time value of money
D) the company's discount rate
Q2) Projects that, if accepted or rejected, will not affect the cash flows of another project are
A) priority projects
B) mutually exclusive projects
C) independent projects
D) equity projects
Q3) Refer to Figure 1. If the annual cash inflows occur throughout the year, payback for the project would be
A) 4.5 years
B) 4.8 years
C) 5 years
D) 6 years
Q4) Describe capital investment in the advanced manufacturing environment.
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Chapter 7: Cost Assignment
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Q1) In choosing a cost accounting system, the accountant must balance the total costs of implementing such systems. What costs must be balanced to determine total cost? How do traditional functional-based and activity-based cost systems balance the trade-offs?
Q2) Explain the advantage of using multiple overhead rates instead of a single plantwide overhead rate to apply overhead.
Q3) The support departments typically found in manufacturing and nonmanufacturing organizations are as follows:
Cafeteria
Personnel
Maintenance
Purchasing
Accounting
Required:
For each of the preceding support departments, indicate potential bases that could be used to allocate costs to the producing departments.
Q4) Explain the key considerations in establishing cost pools and in selecting an allocation base.
Q5) Define the terms cost objectives, cost pools, and allocation bases.
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Chapter 8: Activity-Based Costing
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Sample Questions
Q1) Batch-related costs are added to which of the following costs in break-even analysis?
A) variable
B) fixed
C) mixed
D) none of the above
Q2) Which of the following quantities is an example of an activity cost driver in activity-based costing?
A) number of direct labour hours
B) number of labour transactions
C) number of machine hours
D) all of the above
Q3) Committed resources are
A) hard to purchase
B) purchased precisely at the time the resource is needed and have no unused capacity
C) supplied in advance of usage and may have unused capacity
D) none of the above
Q4) The most critical step in activity-based costing is identifying cost drivers. Explain this statement.
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Chapter 9: The Budgeting Process
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Q1) _____ are the quantitative expressions of plans stated in either physical or financial terms or both.
A) Budgets
B) Financial statements
C) Cost of goods sold statements
D) Cost of goods manufactured statements
Q2) Gerald Company manufactures books. Manufacturing a book takes 10 units of A1 and 1 unit of A2. Scheduled production of books for the next two months is 1,000 and 1,200 units, respectively. Beginning inventory is 4,000 units of A1 and 30 units of A2. The ending inventory of A1 is planned to decrease 500 units in each of the next two months, and the A2 inventory is expected to increase 5 units in each of the next two months. How many units of A1 does expect to use in production during the second month?
A) 12,000 units
B) 12,500 units
C) 10,000 units
D) 10,750 units
Q3) Describe an activity-based budget.
Q4) Explain how budgets provide a basis for performance evaluation.
Q5) Describe zero-based budgeting.
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Chapter 10: Management Control Systems
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Sample Questions
Q1) The ideal budget system creates
A) extreme caution in managers.
B) drive and risk avoidance in managers.
C) drive and goal congruence in managers.
D) none of the above.
Q2) When top management assumes total control of the budgeting process and seeks only superficial participation from lower-level managers, this practice is called A) pseudoparticipation
B) false participation
C) participative budgeting
D) none of the above
Q3) The budget most appropriate for control purposes is the A) static budget.
B) flexible budget.
C) continuous budget.
D) incremental budget.
Q4) Identify and discuss the key features that a budgetary system should have to encourage managerial, goal-congruent behaviour.
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Page 12
Chapter 11: Standard Costing and Variance Analysis
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Sample Questions
Q1) The materials usage variance is calculated as
A) (Actual price - Standard price) x Actual quantity
B) (Actual price - Standard price) x Standard quantity
C) (Actual quantity - Standard quantity) x Actual price
D) (Actual quantity - Standard quantity) x Standard price
Q2) Standard cost systems can enhance operational control through the use of
A) price variances, which indicate the need for enhanced spending control
B) efficiency variances, which indicate the need for corrective action
C) standard costs, which indicate the desired cost of a unit of input
D) actual costs, which indicate the price received for units sold
Q3) A sales volume variance will be favorable when:
A) actual units sold is greater than budgeted sales volume.
B) actual units sold is less than budgeted sales volume.
C) actual selling price is greater than budgeted selling price.
D) actual contribution margin is greater than budgeted contribution margin.
Q4) Which of the following is a disadvantage of adopting a standard costing system?
A) to improve planning and control
B) to facilitate product costing and pricing
C) to help establish the quality and safety of products
D) All of the above are advantages.
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Chapter 12: Divisional Financial Performance Measurement
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Sample Questions
Q1) Compare and discuss the advantages and disadvantages of the following performance measures: ROI, EVA, and Residual Income.
Q2) Refer to Figure 6 above. If the total capital employed by the Maddox Division is £800,000, what is the economic value added (EVA)?
A) £12,000
B) £96,000
C) £108,000
D) £180,000
Q3) The evaluation of investment centres and the evaluation of the managers who run them
A) should be the same evaluation
B) should be separate evaluations
C) should be done quarterly
D) None of the above are correct.
Q4) Compare and contrast decentralization and centralization.
Q5) Explain why an organization should not use only financial measures to monitor performance.
Q6) Discuss how firms can evaluate manager performance in such a way as to discourage myopic behaviour.
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Chapter 13: Transfer Pricing in Divisionalized Companies
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Q1) Refer to Figure 2 above. Assume the Fahl Division can sell 800 units at £120 each. Any excess capacity will be unused unless the units are purchased by the Melton Division, which could use up to 100 units. The maximum transfer price that the Melton Division would be willing to pay would be
A) £120
B) £110
C) £100
D) £60
Q2) Refer to Figure 5 above. The maximum transfer price that the Rommel Division would be willing to pay is
A) £50
B) £80
C) £130
D) £180
Q3) The output of one division that can be used as input in another division is called a
A) work-in-process product
B) transferred (good) product
C) final product
D) finished goods product
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Page 15
Chapter 14: Cost Management
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Q1) Provide an example as to how traditional performance measures of a production manager can produce dysfunctional effects counter to the goals of just-in-time inventory management.
Q2) Which of the following is NOT a detection activity?
A) inspecting products and processes
B) developing environmental performance measures
C) testing for contamination
D) operating pollution control equipment
Q3) JIT reduces lead times to meet delivery dates by
A) reducing setup times
B) expediting delivery to customers
C) having more inventory available
D) working overtime to fill orders
Q4) _____ are costs of activities performed because contaminants and waste have been produced but not discharged into the environment.
A) Environmental prevention costs
B) Environmental detection costs
C) Environmental internal failure costs
D) Environmental external costs
Q5) Discuss cycle time (and its components) and its importance in JIT.
Page 16
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Chapter 15: Strategic Performance Management
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Q1) From the customer perspective, which of the following might be considered a core objective rather than a performance value?
A) decrease price
B) increase customer retention
C) improve image
D) improve product quality
Q2) How does the Balanced Scorecard communicate strategy to the organization? How is strategy translated into performance measures?
Q3) When a computer company targets customers in the South, it is following a
A) focusing strategy.
B) low-cost strategy.
C) differentiation strategy.
D) strategic positioning strategy.
Q4) _____ describe the relationships of a firm's value chain activities that are performed with its suppliers and customers.
A) External linkages
B) Internal linkages
C) Industrial value chain
D) Both a and b
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