Financial Accounting
Exam Solutions
Course Introduction
Financial Accounting is an essential course that introduces students to the principles and practices underlying the preparation, analysis, and interpretation of financial statements. The course covers fundamental accounting concepts, the accounting cycle, and generally accepted accounting principles (GAAP), emphasizing how financial information is reported for external users such as investors, creditors, and regulatory agencies. Students will develop skills in recording business transactions, preparing balance sheets, income statements, and cash flow statements, and using financial data to assess the financial health and performance of organizations. Through practical examples and case studies, this course lays the groundwork for advanced topics in accounting and finance.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis 3rd Australian Edition by Charles Horngren
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Chapter 1: Management Accounting in Context
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Sample Questions
Q1) CPA Australia and the Institute of Chartered Accountants in Australia (ICAA)established the Accounting Professional and Ethical Standards Board.
A)True
B)False
Answer: True
Q2) A well-conceived plan allows managers the ability to:
A)keep lower-level managers from implementing change.
B)take advantage of unforeseen opportunities.
C)not make decisions again until the next planning session.
D)underestimate costs so that actual operating results will be favourable when comparisons are made.
Answer: B
Q3) Key success factors include cost,quality,timeliness,and innovation.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Different Costs for Different Purposes
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Sample Questions
Q1) Prime costs are all direct manufacturing costs.
A)True
B)False
Answer: True
Q2) What is the meaning of the term 'cost object?' Give an example of a cost object that would be used in a manufacturing company,a merchandising company,and a service sector company?
Answer: A cost object is anything for which a measurement of costs is desired.An example of a cost object for a manufacturing company might be the cost of manufacturing a particular product.An example of a cost object for a merchandising company might be a particular department of a retail store.An example of a cost object for a service sector company might be the cost to serve or supply a particular customer.
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4
Chapter 3: Determining How Costs Behave
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Sample Questions
Q1) Data collection problems can arise when data is recorded manually rather than electronically.
A)True
B)False
Answer: True
Q2) The cost to be predicted is referred to as the:
A)regression.
B)dependent variable.
C)cost driver.
D)independent variable.
Answer: B
Q3) When using activity-based costing all of the following are true EXCEPT that:
A)all cost drivers should be output unit-level cost drivers.
B)there are a great number and variety of cost drivers and cost pools.
C)the more cost pools,the greater the chance of estimation error.
D)industrial engineering,conference,and regression analysis can be used to estimate slope coefficients.
Answer: A
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5
Chapter 4: Costvolumeprofit Analysis
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Sample Questions
Q1) Contribution margin = revenue less cost of goods sold.
A)True
B)False
Q2) What is the current break-even point in terms of number of units?
A)934 units
B)2400 units
C)1000 units
D)None of these answers are correct.
Q3) What is the break-even point for the month assuming that Dr Hunter plans to perform the procedure 200 times?
A)40 times
B)30 times
C)20 times
D)10 times
Q4) A planned decrease in selling price would be expected to cause an increase in the quantity sold.
A)True
B)False
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Page 6
Chapter 5: Estimating the Cost of Producing Services
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Sample Questions
Q1) Management accountants form and use cost ________ so that they do not have to allocate each cost to the cost object(s)individually.
A)drivers
B)allocations
C)tracers
D)pools
Q2) A cost object is anything for which an estimation of costs is sought.
A)True
B)False
Q3) What type of reporting is costing important for?
Q4) Schmenner classifies services according to two dimensions: degree of variation and relative throughput time.
A)True
B)False
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Chapter 6: Estimating the Costs of Products and Inventory
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Sample Questions
Q1) For June 2018,manufacturing overhead was:
A)overallocated.
B)underallocated.
C)neither overallocated nor underallocated.
D)indeterminable.
Q2) If indirect-cost rates are calculated monthly,distortions might occur because of:
A)property tax payments made in July and December.
B)routine monthly preventive-maintenance costs that benefit future months.
C)rental costs paid monthly.
D)Both B and C are correct.
Q3) ________ is a method of inventory costing in which all variable and fixed manufacturing costs are included as inventoriable costs.
A)Mixed costing
B)Variable costing
C)Absorption costing
D)Standard costing
Q4) Indirect manufacturing costs should be allocated equally to each job.
A)True
B)False
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Chapter 7: Target Costing, Managing Activities and Managing Capacity
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Sample Questions
Q1) To manage activities well,management must identify how design choices lock in costs before the costs are incurred.
A)True
B)False
Q2) Value engineering may result in all of the following EXCEPT:
A)the evaluation of all business functions within the value chain. B)changes in materials specifications.
C)increases in the quantity of non-value-added cost drivers. D)improved product design.
Q3) Many companies use life-cycle budgeting to determine target prices.
A)True
B)False
Q4) Capacity cost issues are prominent in many service-sector companies,even though these companies carry no inventory and so have no inventory costing problems.
A)True
B)False
Q5) The first step in target pricing is to determine the target cost of the product.
A)True
B)False
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Chapter 8:
Activity-Based Management and Activity-Based Costing
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Sample Questions
Q1) Which of the following is NOT a sign that a 'smoothing out' costing system exists?
A)Products that a company is well suited to make and sell show large profits.
B)Operations managers don't use the data originated by the cost system.
C)New product variations have been added,but the cost system has not been upgraded.
D)The company loses bids they believe were priced competitively.
Q2) Assume a traditional costing system applies the $90 000 of overhead costs based on direct labour hours.What is the total amount of overhead costs assigned to the standard model?
A)$24 800
B)$22 500
C)$56 250
D)$35 200
Q3) Different indirect costs may be allocated if the purpose of the allocation is long run pricing than if the purpose is considering whether to make or buy a product.
A)True
B)False
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Chapter 9: Pricing and Customer Profitability
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Sample Questions
Q1) Price dumping occurs when a domestic company is trying to get rid of out-of-style products at a substantially reduced price.
A)True
B)False
Q2) For Geelong Generators,what is the minimum acceptable price of this one-time-only special order?
A)$1075
B)$1000
C)$1290
D)$900
Q3) The higher the likely growth of the customer's industry and the customer's sales,the more valuable the customer.
A)True
B)False
Q4) Would you recommend the $2 price decrease?
A)Yes,because demand increases.
B)No,because contribution margin per unit decreases.
C)No,because operating profit decreases.
D)No,because the selling price decreases.
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Chapter 10: Decision Making and Relevant Information
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Sample Questions
Q1) Managers must watch for incorrect general ________ in relevant-cost analysis.
A)costs
B)revenues
C)opportunities
D)assumptions
Q2) A supplier offers to make Part A for $70.Jansen Company has relevant costs of $80 a unit to manufacture Part A.If there is excess capacity,the opportunity cost of buying Part A from the supplier is:
A)$10 000.
B)$70 000.
C)0.
D)indeterminable.
Q3) What is the contribution margin per unit?
A)$255
B)$85
C)$145
D)$110
Q4) Managers must watch for incorrect general assumptions in relevant-cost-analysis.
A)True
B)False
Page 12
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Chapter 11: Budgeting, Management Control and Responsibility Accounting
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Sample Questions
Q1) Which of the following do challenging budgets tend to do?
A)Reduce learning
B)Motivate improved performance
C)Reduce coordination
D)Decrease line-management participation in attaining corporate goals
Q2) An organisation structure is an arrangement of lines of responsibility within the entity.
A)True
B)False
Q3) ________ includes a budgeted cash flow statement and a budgeted balance sheet.
A)The operating budget
B)The capital expenditures budget
C)An annual report
D)The financial budget
Q4) Production budget is primarily based on:
A)the revenues budget.
B)the administrative costs budget.
C)the capital expenditures budget.
D)the projected profit.
Q5) Describe operating and financial budgets and give at least two examples of each. Page 13
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Page 14
Chapter 12: Flexible Budgets, Direct Cost Variances and Management Control
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Sample Questions
Q1) To control a production process,supervisors cannot wait for an accounting report with variances reported in:
A)units.
B)kilometres.
C)foreign currencies.
D)dollars.
Q2) Employees logging into production floor terminals and other modern technologies greatly facilitate the use of a standard costing system.
A)True
B)False
Q3) Standard costs complicate product costing.
A)True
B)False
Q4) The flexible-budget amount is:
A)$60 000.
B)$1200.
C)$67 500.
D)$58 800.
Page 15
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Chapter 13: Flexible Budgets, Overhead Cost Variances and Management Control
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Sample Questions
Q1) When machine-hours are used as a cost-allocation base,the item MOST likely to contribute to a favourable variable overhead efficiency variance is:
A)excessive machine breakdowns.
B)strengthened demand for the product.
C)the production scheduler's impressive scheduling of machines.
D)a decline in the cost of energy.
Q2) The production-volume variance arises only for fixed costs.
A)True
B)False
Q3) To plan variable overhead costs effectively for a product or service,managers must eliminate the activities that do not add __________ to the product or service.
A)value
B)cost
C)profit
D)features
Q4) Fixed costs are unaffected by changes in the output level within the relevant range.
A)True
B)False
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Chapter 14: Allocation of Support-Department Costs,
Common Costs and Revenues
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Sample Questions
Q1) Which of the following methods is LEAST likely to cause disputes among product managers?
A)The direct revenue-allocation method
B)Incremental revenue-allocation method
C)Stand-alone revenue-allocation method
D)All of these answers are correct
Q2) Approaches used to rank products for revenue allocation might include:
A)surveying customers on the importance of each product.
B)having managers use their knowledge and intuition.
C)using recent data on stand-alone sales performance.
D)All of these answers are correct.
Q3) If a single-rate cost-allocation method is used,what amount of CMA costs will be allocated to the Large Plane Department?
A)$822 500
B)$763 750
C)$1 057 500
D)$1 031 250
Q4) One benefit of the dual-rate method is the low cost to implement it.
A)True
B)False
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Chapter 15: Strategy Formation, Strategic Control and the Balanced Scorecard
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Sample Questions
Q1) In general,profit potential ________ with greater competition,stronger potential entrants,products that are similar,and more-demanding customers and suppliers.
A)increases
B)increases exponentially
C)stays constant
D)decreases
Q2) The purpose of the balanced scorecard is BEST described as helping an organisation:
A)mobilise employee skills for continuous improvements in processing capabilities,quality and response times
B)introduce innovative products and services desired by target customers
C)develop customer relations
D)translate an organisation's mission and strategy into a set of performance measures that help to implement the strategy
Q3) TasiAudio's strategy is:
A)re-engineering.
B)downsizing.
C)cost leadership.
D)product differentiation.
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Chapter 16: Quality, Time and the Balanced Scorecard
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Sample Questions
Q1) In which perspective of the balanced scorecard,reported COQ numbers are affected for making improvements in internal business processes?
Variant question
A)Financial
B)Customer
C)Internal process
D)Learning
Q2) Managers must improve ________________ business processes because they affect many of the quality-related factors that influence customer satisfaction and improve financial performance.
A)external
B)strategic
C)internal
D)customer
Q3) Observations outside control limits serve as inputs for _________ diagrams.
A)fishbone
B)Six Sigma
C)control
D)Pareto
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Page 19
Chapter 17: Inventory Management, Just-In-Time and Simplified
Costing Methods
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Sample Questions
Q1) Costs of setting up a production run are analogous to ordering costs in the Economic Order Quantity (EOQ)model.
A)True
B)False
Q2) Which essential costs should be considered when developing inventory-related relevant costs for use in an economic order quantity (EOQ)model? Why?
Q3) Tamworth Country Music sells 250 DVDs per week.Purchase-order lead time is 1.5 weeks and the economic-order quantity is 550 units.What is the reorder point?
A)1125 units
B)375 units
C)750 units
D)250 units
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Page 20
Chapter 18: Capital Budgeting and Cost Analysis
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Sample Questions
Q1) Lake Torrens Minimarket desires to buy a new coding machine to help control inventories.The machine sells for $73 172 and requires working capital of $8000.Its estimated useful life is five years and will have a salvage value of $8000.Recovery of working capital will be $8000 at the end of its useful life.Annual cash savings from the purchase of the machine will be $20 000.
Required:
a.Compute the net present value at a 14% required rate of return.
b.Compute the internal rate of return.
c.Determine the discounted payback period of the investment.
Q2) Explain why a corporation's customer base is considered an intangible asset.
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Chapter 19: Management Control Systems, Transfer Pricing and
Multinational Considerations
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Sample Questions
Q1) What is the transfer price per kilo from the Production Division to the Distribution Division,assuming the method used to place a value on each kilo of fertiliser is 120% of full costs,what is the transfer price per kilo from the Production Division to the Distribution Division?
A)$0.55
B)$0.36
C)$0.30
D)$0.45
Q2) Dual pricing reduces the goal-congruence problem associated with a pure cost-based transfer-pricing method.
A)True
B)False
Q3) Surveys indicate that decisions made most frequently at the corporate level are related to sources of supplies and products to manufacture.
A)True
B)False
Q4) Management control systems reflect only financial data.
A)True
B)False
22
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Chapter 20: Performance Measurement, Compensation
and Multinational Considerations
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Sample Questions
Q1) The ROI,RI,and EVA calculations represent the results for a several periods;for example,three years.
A)True
B)False
Q2) Ghan Rail Corporation,whose tax rate is 40%,has two sources of funds: long-term debt with a market value of $8 000 000 and an interest rate of 8%,and equity capital with a market value of $12 000 000 and a cost of equity of 12%.Ghan Rail's after-tax cost of debt is:
A).0800
B).0480
C).0912
D).0320
Q3) A major weakness of comparing two companies using only operating profits as the basis of comparison is that this method ignores differences in the size of the investment required to earn the operating profit.
A)True
B)False
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Page 23
Chapter 21: Measuring and Reporting Sustainability
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Sample Questions
Q1) Explain the meaning of 'externalities'.
Q2) Sustainability requires 'systems thinking'.Which of these is a part of systems thinking?
A)Accepting uncertainty and ambiguity
B)Challenging our world view
C)Recognising the larger context
D)All of the above.
Q3) With crisis comes opportunity.
A)True
B)False
Q4) What is the best way to make businesses take into account the external costs of their activities?
A)Implement fines
B)Internalising those costs
C)Implement penalties
D)None of the above.
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