Corporate Financial Management
Textbook Exam Questions
Course Introduction
Corporate Financial Management delves into the essential principles and practices that guide financial decision-making within corporations. The course covers key topics such as capital budgeting, financial analysis, risk management, working capital management, cost of capital, and corporate financing strategies. Students learn how to assess investment opportunities, evaluate financial performance, and devise strategies for optimizing a firm's value. Ethical considerations, contemporary challenges, and the impact of global financial markets are also explored to provide a comprehensive understanding of corporate finance in today's dynamic business environment.
Recommended Textbook Management Accounting 2nd Edition by Leslie G. Eldenburg
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Page 2
Chapter 1: The Role of Accounting Information in Management Decision Making
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Sample Questions
Q1) Uncertainty may hinder a manager's ability to: I Adequately define a problem
II Identify all potential solution options
III Predict the outcome of various solution options
A) I and III only
B) II and III only
C) I, II, and III
D) II only
Answer: C
Q2) Incremental cash flows are the same as unavoidable cash flows.
A)True
B)False
Answer: False
Q3) Because we can never completely remove biases and uncertainty from decision making, higher quality decision processes are often imprecise.
A)True
B)False
Answer: True
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Chapter 2: Cost Concepts, Behaviour and Estimation
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Sample Questions
Q1) Estimates of future costs can be used in budgeting.
A)True
B)False
Answer: True
Q2) Which of the follow is not an assumption when estimating a cost function over the relevant range of activity?
A) Mixed costs will change in total
B) Mixed costs will change per unit
C) Variable costs will be constant in total
D) Fixed costs will be constant in total.
Answer: C
Q3) Cosby Company is attempting to develop the cost function for repair costs. The following past data are available:
A) $1,185
B) $850
C) $475
D) $565
Answer: A
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Chapter 3: A Costing Framework and Cost Allocation
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Sample Questions
Q1) When discussing costing the indirect cost rate is:
A) the rate used to assign indirect costs to the cost object
B) the total costs incurred for a cost object
C) the input or activity that causes changes in total costs for a cost object
D) the method used to allocate the costs of each support department to the operating departments
Answer: A
Q2) Direct costs are costs that can be directly linked to a cost object by physical tracking.
A)True
B)False
Answer: True
Q3) The allocation of indirect costs to cost objects is likely to be inaccurate if the allocation base used is not a cost driver.
A)True
B)False
Answer: True
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Chapter 4: Cost-Volume-Profit Cvp Analysis
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Sample Questions
Q1) CVP analysis is most likely to be used for which of the following decisions?
A) The amount of discretionary expenditures for the next period
B) The organisational vision
C) The exact level of operations at which the organisation will operate
D) Whether to buy a business segment operating in Germany
Q2) In CVP analysis, managers usually assume that the revenue function is linear. Which of the following equations best represents a linear revenue function if the cost is a variable cost?
A) y = $200 + $60x
B) y = $60x2
C) y = $60x
D) y = $200
Q3) Which of the following is not an assumption in CVP analysis?
A) Actual costs will be exactly the amount that we predict in the analysis
B) Operations are within the relevant range
C) The revenue function is linear
D) The cost function is linear
Q4) The margin of safety can be expressed in units, dollars, or a percentage.
A)True
B)False
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Chapter 5: Job Costing Systems
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Q1) All of the following are likely to use job costing except:
A) Chartered accountant
B) Portrait painter
C) Printing shop
D) Cheese manufacturer
Q2) In a job costing system the accounting entry to record the payment of factory wages for the month is:
A) debit cost of goods sold; credit bank
B) debit work in process; credit overhead control account
C) debit factory wages; credit work in process
D) none of the above
Q3) Which of these is not an uncertainty in measuring job costs?
A) Whether and how to trace direct costs
B) The choice of overhead cost pools
C) The choice of allocation bases
D) None of the above, i.e. all are uncertainties in measuring job costs
Q4) Fixed and variable overhead costs are combined in one cost pool.
A)True
B)False
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Chapter 6: Process Costing Systems
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Q1) Process costing is simplified when a company uses just-in-time inventory methods.
A)True
B)False
Q2) Miramar Ltd uses a weighted-average process costing system which recognises normal spoilage as 5% of good output. During the current period, 14,000 units were started and 10,000 units completed. Materials are added at the beginning of the process, conversion costs occur uniformly, and the inspection point is at the 70% point. Beginning work in process was 6,000 units, 40% complete, and ending work in process 9,000 units, 80% complete. The cost per equivalent unit for material was $1.00 and for conversion costs $3.00. The cost of goods completed was
A) $41,550
B) $40,000
C) $40,816
D) $41,053
Q3) When using the weighted average method to calculate cost per equivalent unit, the cost is calculated as current period costs / equivalent units for total work.
A)True
B)False
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8
Chapter 7: Absorption, Variable and Throughput Costing
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Q1) Theoretical capacity and practical capacity are demand-based capacity measurements.
A)True
B)False
Q2) Under which costing method(s) are administrative and selling costs considered period expenses? I Absorption costing
II Throughput costing
III Variable costing
A) I and II only
B) II and III only
C) I and III only
D) I, II, and III
Q3) Which of the following are demand-based capacity levels? I Normal capacity
II Budgeted capacity
III Practical capacity
A) I and II only
B) II and III only
C) I and III only
D) I, II, and III
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Chapter 8: Activity Analysis: Costing and Management
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Sample Questions
Q1) Activity-based costing information can be used to identify the relative cost of maintaining different customers. Managers can use that information, coupled with activity-based management techniques, to manage
A) Customer quality
B) Customer profitability
C) Inventory levels
D) Staffing levels in the marketing department.
Q2) Generally speaking, activity-based costing traces direct costs more accurately than traditional costing.
A)True
B)False
Q3) ABC systems measure resource flows in an organisation.
A)True
B)False
Q4) A cost driver is
A) A measure of activity that causes costs to fluctuate
B) Only used in ABC systems
C) Seldom related to cost changes in an ABC system
D) Usually related to cost changes in a traditional costing system
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Chapter 9: Relevant Costs for Decision Making
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Sample Questions
Q1) A product emphasis decision may involve
A) Sunk costs and opportunity costs
B) Multiple resource constraints and sunk costs
C) Multiple products and qualitative factors
D) Sunk costs and qualitative factors
Q2) Wagner Ltd can manufacture 490,000 tennis rackets a year at a variable cost of $15 per racket and fixed costs of $500,000. Wagner budgeted that it can sell 400,000 at $25 each. An additional order of 100,000 was received, but at a discount of 35% from the regular price. If Wagner accepts the special order, profit before taxes will
A) Decrease by $100,000
B) Increase by $125,000
C) Increase by $25,000
D) Some other amount
Q3) A company should always promote the product
A) With the highest per unit contribution margin
B) That results in the highest total contribution margin
C) With the lowest variable cost per unit
D) With the least waste
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Chapter 10: Standard Costs, Flexible Budgets and Variance Analysis
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Q1) Which of the following is a possible cause of an unfavorable materials efficiency variance?
A) Using materials that do not meet specifications
B) Using a higher class of labor than called for
C) Using a higher quality of material than called for
D) Using fewer hours of labor than labor specifications call for
Q2) The direct materials efficiency variance tells managers about the efficiency of the purchasing process.
A)True
B)False
Q3) A standard cost variance is the difference between a standard cost and an actual cost.
A)True
B)False
Q4) The fixed overhead budget variance can be broken down into two parts: the spending variance and the production volume variance.
A)True
B)False
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Chapter 11: Operational Budgets
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Sample Questions
Q1) Favorable variances are positive amounts; unfavorable variances are negative amounts.
A)True
B)False
Q2) The shortest period for which a cash budget can be prepared is six months.
A)True
B)False
Q3) Planning Systems, has forecast the following unit sales and production for the next year, by quarter: A finished unit requires one unit of material A and two units of material B. There should be enough material on hand at the end of each quarter to meet 20% of the next quarter's production needs. There are no work-in-process inventories.
How much material B must be purchased in quarter 1?
A) 264
B) 196
C) 204
D) 256
Q4) Master budgets are often summarised in a company's short-term operating plans.
A)True
B)False
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Chapter 12: Strategy and Control
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Sample Questions
Q1) Rather than having a backward focus strategic management accounting looks to the future.
A)True
B)False
Q2) Which of these is a key influence on the nature of control systems in the Simons's 'levers of control' framework ?
A) belief systems
B) boundary systems
C) diagnostic systems
D) a and b
Q3) 'Relevance Lost' by Johnson and Kaplan ,was published in 1995.
A)True
B)False
Q4) The person(s) most closely associated with the 'levers of control framework' that has informed study in the area of management accounting and control is:
A) Otley
B) Simons
C) Kaplan and Norton
D) Ittner and Larcker
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Chapter 13: Planning and Budgeting for Strategic Success
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Q1) The Beyond Budgeting philosophy does not require the preparation of traditional reports such as income statements and balance sheets.
A)True
B)False
Q2) Kaizen budgeting;
A) Sets targeted cost reductions over time
B) Sets targeted quality reductions over time
C) Is basically the same as activity-based budgeting
D) Is incompatible with zero-based budgeting
Q3) When an organisation implements activity-based budgeting, managers must identify activities for:
A) Production
B) Support
C) Both production and support
D) Neither production nor support, so long as cost drivers are clearly specified
Q4) Which of these is not part of the Beyond Budgeting approach?
A) top-down planning
B) the use of annual planning cycles
C) rewarding employees for meeting fixed targets
D) none of the above is part of the Beyond Budgeting approach
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Chapter 14: Capital Budgeting and Strategic Investment
Decisions
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Sample Questions
Q1) Benjamin Ltd invested in a 3-year project and expects a 15% rate of return. Annual cash inflows from the project are: year 1 $8,000; year 2 $8,500; and year 3 $9,500. The net present value is $4,000. What was the amount of the original investment? Ignore income taxes.
A) $17,637
B) $15,637
C) $19,637
D) $23,637
Q2) Bell Pty Ltd is considering a project that would provide a single cash inflow eight years from now of $80,000. What is the most that Bell would be willing to spend on this project if the discount rate is 16%?
A) $262,295
B) $24,400
C) $288,400
D) $22,191
Q3) The first step in addressing capital budgeting decisions is to identify relevant cash flows.
A)True
B)False
Page 16
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Chapter 15: The Strategic Management of Costs and Revenues
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Q1) Market-based prices are least likely to be influenced by
A) The degree of product differentiation
B) Competition
C) Whether or not the product is a commodity
D) The cost to produce the product
Q2) Which of the following is a formal method for incorporating demand into prices?
A) Cost-based pricing
B) Market-based pricing
C) Price elasticity of demand
D) Price elasticity of supply
Q3) Kaizen costing is
A) Another name for target costing
B) Focused only on cost reduction
C) Continuous improvement in cost, quality, and functionality
D) A method for budgeting
Q4) Describe cost-based pricing and give an example of a product for which this pricing method would be appropriate
Correct
Q5) Explain why market-based pricing has increased in recent years.
Correct
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Chapter 16: Strategic Management Control: a Lean Perspective
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Q1) In relation to the drum-buffer-rope concept that is used to maxamise flow through an organisational bottleneck, the statement that is correct is:
A) the 'drum' relates to the activity associated with only inserting materials into the constraint when needed
B) the 'buffer' is the activity of only maintaining a small amount of work in process
C) the 'rope' involves calculating the demand for materials according to specified lead times
D) All the statements are correct
Q2) Lean accounting may involve cutting:
A) inventory levels
B) the workload
C) paperwork
D) all of the above
Q3) A practice associated with lean accounting is:
A) Producing to forecast
B) Vertical reporting
C) Accounting information provided to managers and supervisors only
D) Producing in teams
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Chapter 17: Responsibility Accounting, Performance
Evaluation and Transfer Pricing
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Sample Questions
Q1) Teresa's Taco Ltd had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. The return on sales was
A) 7%
B) 6.1%
C) 38.5%
D) 3.25%
Q2) Residual income is calculated as
A) Operating profit - (required rate of return × average operating assets)
B) Net profit - (required rate of return × average operating assets)
C) Operating profit - (required rate of return × average equity)
D) Net profit - (required rate of return × average equity)
Q3) When decision making is decentralised
A) Upper management does not make decisions
B) Decision-making authority is delegated throughout the organisation
C) The important information in an organisation is very general
D) Organisations are less likely to experience agency costs concerning goal congruence
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Chapter 18: The Balanced Scorecard and Strategy Maps
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Q1) The balanced scorecard's perspectives
A) Are linked through careful managerial analysis
B) Are not linked in any meaningful way
C) Are a relatively unimportant part of the scorecard
D) Are exclusively focused on internal measures in not-for-profit organisations
Q2) Balanced scorecards can improve communication and consensus throughout an organisation.
A)True
B)False
Q3) One of the balanced scorecard's biggest advantages is the small amount of time and money involved in its implementation.
A)True
B)False
Q4) The balanced scorecard links short-term and long-term performance objectives to organisational vision and strategies.
A)True
B)False
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Chapter 19: Rewards, Incentives and Risk Management
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Q1) Successful companies need to carefully balance management control and risk taking.
A)True
B)False
Q2) Whether compensation is structured to focus on the long-term depends on two key factors, firstly, the time horizon relating to the target measure and secondly, the 'lasting' nature of the reward itself.
A)True
B)False
Q3) From a business owner's perspective, which of the following is an agency cost?
A) Losses from poor economic conditions
B) Costs to provide appropriate incentive contracts for top management
C) General supplier price increases
D) Insufficient executive pay
Q4) An organisation's chief executive officer can be both a principal and an agent. A)True
B)False
Q5) Managers can reduce agency costs through the use of compensation contracts. A)True
B)False
21
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Chapter 20: Sustainability Management Accounting
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Q1) Carbon accounting can be interpreted as a vehicle for internalising previously ignored externalities.
A)True
B)False
Q2) The issue that cannot be related to sustainability is:
A) customer privacy
B) packaging
C) bribery and kickbacks
D) none of the above, i.e. all can be related to sustainability
Q3) Employees will always make ethical decisions if they act in the best interests of their shareholders.
A)True
B)False
Q4) Costs that an entity imposes upon others as a result of its operations but which the entity typically ignores, are called:
A) societal costs
B) contingent costs
C) externalities
D) a and c
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