Financial Accounting for Managers
Exam Solutions
Course Introduction
Financial Accounting for Managers provides a comprehensive introduction to the principles and practices of financial accounting, with a focus on their relevance and application in managerial decision-making. The course covers fundamental topics such as the preparation and interpretation of financial statements, analysis of balance sheets and income statements, the conceptual framework of accounting, and the regulatory environment governing financial reporting. Students will learn how to use accounting information to evaluate organizational performance, make informed business decisions, and effectively communicate financial results to stakeholders. Through practical exercises and real-world case studies, the course equips future managers with the essential skills to understand and utilize financial data for strategic planning and control.
Recommended Textbook
Managerial Accounting 3rd Canadian Edition by Karen W. Braun
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Chapter 1: Introduction to Managerial Accounting
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Sample Questions
Q1) Managerial information is always based on historical transactions with external parties.
A)True
B)False
Answer: False
Q2) Under Sarbanes-Oxley, what is the maximum number of years of imprisonment for knowingly destroying or creating documents to obstruct any federal investigation?
A) 5 years
B) 10 years
C) 15 years
D) 20 years
Answer: D
Q3) Which term below best describes the quality cost category for "cost of warranty repairs on food processors"?
A) Prevention costs
B) Appraisal costs
C) Internal failure costs
D) External failure costs
Answer: D
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Page 3
Chapter 2: Building Blocks of Managerial Accounting
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Sample Questions
Q1) Differentiate between fixed and variable costs and give an example of each. Answer: Fixed costs stay constant in total over a wide range of activity levels. For instance, the rent on a factory is the same whether 10,000 products are produced each month or 1,000 products are produced. Variable costs change in total in direct proportion to changes in volume. If the variable cost of producing one item is $1, and if 10,000 units are produced, the cost will be $10,000 and if only 1,000 units are produced, the cost will be only $1,000.
Q2) Fixed costs stay constant in total over a wide range of activity levels.
A)True
B)False
Answer: True
Q3) A technical support hotline for customers would be considered which part of the value chain?
A) Customer service
B) Design
C) Distribution
D) Marketing
Answer: A
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Chapter 3: Cost Behaviour
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Sample Questions
Q1) If Toby prepares a contribution margin income statement for the month of June, what would be his contribution margin?
A) $268,000
B) $160,000
C) $52,000
D) $108,000
Answer: C
Q2) Under absorption costing, the income statement is organized by
A) period costs only.
B) fixed costs only.
C) product and period costs.
D) variable costs only.
Answer: C
Q3) Using the high-low method, what is the variable cost per unit at Snow Enterprises?
A) $0.74
B) $0.25
C) $1.08
D) $4.00
Answer: B
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Page 5
Chapter 4: Cost-Volume-Profit Analysis
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Sample Questions
Q1) If unit sales prices, unit variable costs and total fixed costs remain the same, but the sales mix changes, there is most likely no effect on the break-even point.
A)True
B)False
Q2) The lowest possible operating leverage factor for a company is A) zero.
B) +1.
C) -1.
D) somewhere between zero and +1.
Q3) The sales mix percentage of caramel corn based upon units is A) 25%.
B) 44%.
C) 75%.
D) 50%.
Q4) The margin of safety percentage for Duncan Enterprises is A) 118.37%.
B) 94.04%.
C) 18.37%.
D) 81.63%.
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Chapter 5: Job Costing
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Sample Questions
Q1) By how much was manufacturing overhead overallocated or underallocated for the year if Babcox Manufacturing Ltd. uses a predetermined manufacturing overhead rate based on direct labour hours?
A) $20,000 underallocated
B) $20,000 overallocated
C) $15,000 underallocated
D) $15,000 overallocated
Q2) An estimated manufacturing overhead rate computed before the year begins is a(n)
A) cost allocation.
B) cost driver.
C) actual manufacturing overhead rate.
D) estimated amount of the overhead costs.
Q3) If Sable Company uses direct labour cost as the allocation base, what would the allocated manufacturing overhead be for the year?
A) $642,857
B) $360,000
C) $315,000
D) $400,000
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Page 7
Chapter 6: Process Costing
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Sample Questions
Q1) A distinctive feature of the FIFO process costing method is that the work done on beginning inventory before the current period is averaged with work done in the current period.
A)True
B)False
Q2) ABC produces ping-pong balls using a three-step process that includes molding, colouring and finishing. Which of the following accounts is debited for manufacturing overhead expenses incurred?
A) Finished goods inventory
B) WIP inventory-finishing
C) Raw materials inventory
D) Manufacturing overhead
Q3) What are the total equivalent units for direct materials at Sunrise Corporation?
A) 139,700
B) 130,500
C) 135,900
D) 143,500
Q4) When the units are sold, Cost of Goods Sold is credited.
A)True
B)False
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Chapter 7: Activity Based Costing
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Sample Questions
Q1) Batch-level activities and costs are incurred again each time a unit is produced.
A)True
B)False
Q2) Cost distortion results in the
A) overcosting of all products.
B) undercosting of all products.
C) overcosting of some products and undercosting of other products.
D) accurate costing of all products.
Q3) What is the cost per driver unit for the correspondence activity?
A) $1.50
B) $10.00
C) $16.00
D) $30.00
Q4) The allocation base selected for each department should be the cost driver of the costs in the departmental overhead pool.
A)True
B)False
Q5) Describe each of the four cost hierarchies used to define levels for activities in activity-based costing.
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Chapter 8: Short-Term Business Decisions
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Sample Questions
Q1) An example of a constraint for expansion would be the size of the available labour pool.
A)True
B)False
Q2) What would be the effect on Venus Corporation's operating income of accepting a special order for 2,000 units at a sale price of $45 per product assuming additional fixed manufacturing overhead costs of $7,000 are incurred? The company has excess capacity and regular sales will not be affected by this special order.
A) Decrease by $5,000
B) Decrease by $2,000
C) Increase by $5,000
D) Increase by $2,000
Q3) Cost-plus price minus desired profit equals total cost.
A)True
B)False
Q4) Qualitative factors play an important part in make or buy decisions.
A)True
B)False
Q5) What the reasons a firm would adopt target costing?
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Chapter 9: The Master Budget and Responsibility Accounting
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Sample Questions
Q1) McCloud Company has budgeted the following credit sales during the last four months of the year: September, $16,000; October, $22,000; November $21,000; December, $24,000. Experience has shown that payment for the credit sales is received as follows: 15% in the month of sale, 60% in the first month after sale, 20% in the second month after sale, and 5% uncollectible. How much cash can McCloud Company expect to collect in November as a result of credit sales?
A) $16,400
B) $19,800
C) $16,350
D) $19,550
Q2) Which of the following budgets or financial statements is part of the operating budget?
A) Capital expenditures budget
B) Budgeted balance sheet
C) Sales budget
D) Cash budget
Q3) List and describe three reasons why a company and its managers could benefit from the use of budgeting.
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Chapter 10: Flexible Budgets and Standard Costs
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Sample Questions
Q1) McClean supplies restaurants with many sanitation supplies (such as paper towels and soaps). Assume that the manufacturing plant processing the sanitation supplies anticipated incurring a total of $800,000 of manufacturing overhead during the year. Of this amount, $500,000 is fixed. Manufacturing overhead is allocated based on machine hours. The plant anticipates running the machines 50,000 hours next year.
Required:
1. Compute the standard variable overhead rate.
2. Compute the fixed overhead rate.
3. Compute the standard total overhead rate.
Q2) Another name for a static budget is a flexible budget.
A)True
B)False
Q3) The sales volume variance arises because the number of units actually sold differs from the number of units expected to be sold according to the master budget.
A)True
B)False
Q4) Identify five benefits of standard costs.
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12
Chapter 11: Performance Evaluation and the Balanced Scorecard
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Sample Questions
Q1) What is the Light Bulb Division's asset turnover?
A) 10.0
B) 4.0
C) 2.5
D) 5.5
Q2) What is the Light Bulb Division's Return on Investment (ROI)?
A) 25%
B) 10%
C) 30.6%
D) 18.33%
Q3) Return on investment and revenue growth would be examples of A) financial perspective.
B) customer perspective.
C) internal business perspective.
D) learning and growth perspective.
Q4) The balanced scorecard considers both financial and operational performance measures.
A)True B)False
Q5) Discuss two potential problems associated with decentralization.
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Chapter 12: Capital Investment Decisions and the Time
Value of Money
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Sample Questions
Q1) Your best friend just received a gift of $10,000 from his favourite aunt. He wants to save the money to open his own business after school. He can (1) invest it risk-free at 3%, (2) take on moderate risk at 6%, or (3) take on high risk at 18%. Help your friend project the investment's worth at the end of five years under each investment strategy and explain the results to him.
Q2) Assuming an interest rate of 6%, if you invest a lump sum of $6,500 now, the balance of your investment in 7 years will be closest to
A) $45,500.
B) $11,642.
C) $36,283.
D) $9,776.
Q3) Abdul Corporation bought a new machine, which cost $90,000, has a useful life of 10 years, and will generate annual cash inflows of $25,000. The residual value of the machine is $5,500. What is the payback period?
Q4) Capital investment analysis in sustainability should consider future cost savings such as fewer lawsuits and regulatory fines.
A)True
B)False
Page 14
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