Financial Accounting for Managers
Practice Exam
Course Introduction
Financial Accounting for Managers is designed to introduce non-accounting majors to the fundamental principles and practices of financial accounting. The course covers the essential concepts of recording, summarizing, and interpreting financial transactions, with a strong emphasis on the preparation and analysis of key financial statements. Students will gain an understanding of how accounting information supports managerial decision-making, performance evaluation, and strategic planning. Through real-world examples and case studies, the course highlights the importance of ethical considerations and regulatory frameworks in financial reporting, equipping future managers with the skills needed to effectively use accounting data for business success.
Recommended Textbook
Cost Accounting A Managerial Emphasis 6th Canadian Edition by Charles T. Horngren
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Chapter 1: The Accountants Vital Role in Decision Making
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Sample Questions
Q1) What aspect of business analysis focuses on the sequence of business functions?
A) customer service
B) value chain
C) quality
D) research and development
E) product design
Answer: B
Q2) Management accountants are required to follow the generally accepted accounting principles that are used for external financial reporting when preparing reports for internal users.
A)True
B)False
Answer: False
Q3) If a managerial accountant were not keeping up with current developments in managerial accounting, that behaviour might violate a competence standard of professional ethical behaviour.
A)True
B)False
Answer: True
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Page 3
Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Which of the following is true concerning prime costs?
A) Prime costs are direct manufacturing costs.
B) They include indirect direct manufacturing labour.
C) They equal the sum of direct manufacturing costs plus conversion costs.
D) They equal the sum of fixed manufacturing costs plus conversion costs.
E) They are indirect manufacturing costs.
Answer: A
Q2) When producing for a government contract, all costs allowed by the producer will be paid by the government.
A)True
B)False
Answer: False
Q3) A unit cost is computed by dividing a total cost by some number of units.
A)True
B)False
Answer: True
Q4) Overtime premium is always a component of direct labour.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) The contribution income statement highlights
A) gross margin.
B) products costs and period costs.
C) different product lines.
D) variable and fixed costs.
E) gross margin and net operating income.
Answer: D
Q2) Suppose a company decided to automate a production line. Explain what effects this would have on a company's cost structure using CVP terminology. Could these changes have any possible negative effect on the firm?
Answer: An automated production line would increase fixed costs through extra amortization on the new machinery and also decrease variable costs due to the elimination of direct labour as a result of automation. This would increase the break-even point. This could possibly have a negative effect on the firm if demand for the product produced by this production line is expected to decline in the future. With high fixed costs and low demand, a decline in profits might be more severe due to the presence of unchanging fixed costs as volume.
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Chapter 4: Job Costing
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Sample Questions
Q1) A process costing system assigns costs to groups of similar units during a specified time period and then computes the average unit cost.
A)True
B)False
Q2) Direct costs are allocated to the cost object using a cost-allocation method.
A)True
B)False
Q3) Direct costs are traced the same way for actual costing and normal costing.
A)True
B)False
Q4) Managers and accountants gather the information that goes into their cost systems through source documents, which are the original records that support journal entries in an accounting system.
A)True
B)False
Q5) The Work-in-Process Control account tracks job costs from the time jobs are started until they are completed.
A)True
B)False
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Chapter 5: Activity-Based Costing and Management
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Sample Questions
Q1) Determining what activities add customer value is an example of what facet of activity-based management?
A) increase effective coordination among business function activities
B) reduce costs of non-value-added activities
C) improve selection of process activities to enhance profit
D) match the company's use of resources to customer demand
E) achieve planned growth
Q2) Product-sustaining (service-sustaining),and facility-sustaining costs are equivalent terms in ABC systems.
A)True
B)False
Q3) A refined costing system accounts for indirect cost allocation bases as non-financial variables.
A)True
B)False
Q4) Improved direct cost tracing is a benefit of activity-based costing.
A)True
B)False
Q5) Explain how a top-selling product may actually result in losses for the company.
Q6) How are cost drivers selected in activity-based costing systems?
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) The budgeted balance sheet must be prepared prior to the cash budget so that the required cash balance can be determined.
A)True
B)False
Q2) Benchmarks encourage the setting of stretch goals.
A)True
B)False
Q3) What will be Contempo Futon's cost of goods manufactured for December?
A) $3,937,500
B) $3,750,000
C) $2,812,500
D) $2,625,000
E) $3,187,500
Q4) What should be the budgeted number of chests produced in January 2012?
A) 8,800 chests
B) 11,200 chests
C) 13,000 chests
D) 14,200 chests
E) 14,700 chests
Q5) Describe the benefits to an organization of preparing an operating budget.
Page 8
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Chapter 7: Flexible Budgets, Variances, and Management
Control: I
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Sample Questions
Q1) Determining the actual quantity of the revenue driver is one step in the development of a flexible budget.
A)True
B)False
Q2) The materials yield variance will be unfavourable when
A) the flexible-budget contribution margin is greater than the actual contribution margin.
B) the actual direct materials input mix is less expensive than the budgeted direct materials input mix.
C) the input-efficiency variance is favourable.
D) the actual quantity of total inputs used is greater than the flexible budget for total inputs.
E) actual unit sales are less than budgeted unit sales.
Q3) The term efficiency variance is the direct cost portion of the flexible-budget variance.
A)True
B)False
Q4) Explain how variance analysis is used in conjunction with activity-based costing.
Page 9
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Chapter 8: Flexible Budgets, Variances, and Management
Control: II
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Sample Questions
Q1) The difference between budgeted fixed overhead and fixed overhead allocated for actual output units achieved, is the production-volume variance.
A)True
B)False
Q2) Which decisions are most likely to have been made by the start of the accounting period?
A) decisions affecting value-added costs
B) decisions affecting non-value-added costs
C) decisions affecting variable overhead costs
D) decisions affecting both fixed and variable overhead costs
E) decisions affecting fixed overhead costs
Q3) Calculate the rate variance for variable setup overhead costs.
A) $150 unfavourable
B) $150 favourable
C) $264 unfavourable
D) $264 favourable
E) $114 favourable
Q4) How can a standard costing system be useful in negotiating new sales?
Q6) How is a budgeted fixed overhead cost rate calculated? Page 10
Q5) Explain the meaning of a favourable production-volume variance.
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Chapter 9: Income Effects of Denominator Level on Inventory Valuation
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Sample Questions
Q1) Explain three methods under absorption costing that managers can use to improve operating income.
Q2) Absorption-costing income statements cannot easily differentiate between variable and fixed costs.
A)True
B)False
Q3) What would Beauty Supply Company's operating income (loss) be for January and February, respectively, using the variable costing approach?
A) $18,000 and $24,200
B) $(45,000) and $(35,500)
C) $(44,000) and $(33,809)
D) $(42,000) and $(35,800)
E) $18,000 and $(35,800)
Q4) Direct costing is not truly synonymous with variable costing since variable costing does not include all direct costs as inventorial costs.
A)True
B)False
Q5) a. Explain the difference between the variable and absorption costing methods. b. Which method(s) are required for external reporting? For internal reporting?
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Chapter 10: Quantitative Analyses of Cost Functions
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Sample Questions
Q1) Time-series data analysis includes
A) using a variety of time periods to measure the predictor variable.
B) using the highest and lowest observation.
C) observing different entities during the same time period.
D) comparing information in different cost pools.
E) analyzing cost drivers at different levels of production.
Q2) What is the constant for the estimating cost equation?
A) $2,080
B) $2,960
C) $3,970
D) $4,000
E) $8,000
Q3) Which cost estimation method is being used by Miller's Good Value Appliance Store?
Q4) Which of the following is an equation of a variable cost function?
A) Y = ax + bx
B) Y = a + bx
C) Y = b
D) Y = a
E) Y = bx
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) The cost NOT relevant for this decision is the
A) acquisition cost of the Geo Prizm.
B) acquisition cost of the Honda Civic.
C) repairs to the Geo Prizm.
D) annual operating costs of the Honda Civic.
E) annual operating costs of the Geo Prizm.
Q2) Which of the following represents a qualitative factor?
A) any nonfinancial factor
B) historical costs
C) relevant costs
D) the timing of variable costs
E) an outcome that cannot be measured in numerical terms
Q3) Unit cost data can mislead decisions by including irrelevant costs or by
A) not computing fixed overhead costs.
B) computing labour and materials costs only.
C) computing administrative costs.
D) not computing unit costs at the relevant output level.
E) including qualitative data.
Q4) Are relevant revenues and relevant costs the only information needed by managers to select among alternatives? Explain using examples.
Page 14
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Chapter 12: Pricing Decisions, Product Profitability Decisions, and Cost Management
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Sample Questions
Q1) When target costing and target pricing are used together,
A) the target cost is established first, then the target price.
B) the target cost per unit is the estimated long-run price per unit that enables a product or service to achieve the target profit per unit.
C) the target price is set to undercut the competition.
D) target costs are higher than current costs because of inflation over time.
E) target price is the estimated price for a product or service that a potential customer will be willing to pay.
Q2) Under cost-plus pricing, what is the required selling price to achieve a 15% markup?
A) $285
B) $6300
C) $310
D) $315
E) $322
Q3) Pricing decisions that are long-run based should focus on more than short-run costs.
A)True
B)False
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Chapter 13: Strategy, Balanced Scorecard, and Profitability Analysis
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Sample Questions
Q1) The price-recovery component of a change in operating income from one year to the next measures the increase in operating income from selling more units of the product.
A)True
B)False
Q2) ________ measures the relationship between actual inputs used and actual outputs achieved.
A) Total factor productivity
B) Partial productivity
C) Productivity
D) Product yield variance
E) Labour yield
Q3) Required:
a. What amount is the revenue effect of the price-recovery component?
b. What amount is the cost effect of the price-recovery component?
c. What is the net effect on operating income as a result of the price-recovery component?
d. What is the net effect on operating income as a result of the productivity component?
Q4) Identify and explain Porter's Five Forces model.
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Chapter 14: Period Cost Allocation
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Sample Questions
Q1) Which of the following could be described as a department that adds value to a product or service, which is observable by a customer?
A) a personnel department
B) an assigned department
C) a support department
D) a service department
E) an operating department
Q2) Using the single-rate method transforms the fixed costs per hour into a variable cost to users of that facility.
A)True
B)False
Q3) Using the step-down method, what amount of Data Centre Department cost will be allocated to Department Music if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up)
A) $58,671
B) $33,333
C) $46,296
D) $41,667
E) $0
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Page 17
Chapter 15: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) An advantage of the physical-measure method is that obtaining physical measures for all products is an easy task.
A)True
B)False
Q2) How much is the ending inventory reduction for the byproduct if byproducts are recognized in the general ledger at NRV during production?
A) $0
B) $1,500
C) $14,375
D) $16,000
E) $17,500
Q3) The decision of whether to process products beyond the split off process should be based on which of the following?
A) revenue analysis
B) relevant cost analysis
C) production cost analysis
D) gross margin analysis
E) incremental operating income attainable beyond the split off point
Q4) How should toxic waste be accounted for?
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Chapter 16: Revenue and Customer Profitability Analysis
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Sample Questions
Q1) What is the STP total static-budget variance for revenues?
A) $50 favourable
B) $250 favourable
C) $50 unfavourable
D) $250 unfavourable
E) $800 unfavourable
Q2) The sales-volume variance for revenue is the
A) (actual sales quantity in units divided by budgeted individual product selling price per unit) times (budgeted sales quantity in units).
B) (budgeted contribution margin per unit) times (actual unit sales plus static budget unit sales).
C) (actual sales quantity in units plus budgeted sales quantity in units) divided by (budgeted individual product selling price per unit).
D) (budgeted sales quantity in units divided by budgeted individual selling price per unit) times (actual sales quantity in units).
E) (budgeted individual product selling price per unit) times (actual sales quantity in units less budgeted sales quantity in units).
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Chapter 17: Process Costing
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Sample Questions
Q1) Operating personnel must be able to estimate the percentage of work-in-process completed in process costing.
A)True
B)False
Q2) What amount of conversion costs are assigned to the ending Work-in-Process account for April?
A) $143,750.00
B) $145,312.50
C) $180,000.00
D) $250,000.00
E) $116,250.00
Q3) The cost of units completed can differ materially between the weighted average and the FIFO methods of process costing.
A)True
B)False
Q4) Process-costing systems using standard costs usually accumulate actual costs separately from the inventory accounts.
A)True
B)False
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) Which of the following is NOT a consideration when accounting for scrap?
A) possibility of theft
B) inventory costing
C) planning and control includes physical tracking
D) decisions as to whether to group scrap with reworked units
E) to assist in measuring efficiency
Q2) Assuming Hawk uses the FIFO method of process costing, the cost per equivalent unit for direct materials and conversion costs respectively are:
A) $3.20; $6.40
B) $3.64; $6.40
C) $2.81; $6.09
D) $3.22; $6.42
E) $3.44; $6.89
Q3) Normal spoilage rates for a manufacturing process should be computed on the basis of
A) total good units.
B) total actual units.
C) total reworked units.
D) total production units.
E) total actual units minus total reworked units.
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Chapter 19: Cost Management: Quality, Time, and the Theory of Constraints
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Sample Questions
Q1) Quality of design measures how closely the characteristics of products or services meet the needs and wants of customers.
A)True
B)False
Q2) Which of the following is not included in customer response time?
A) order delivery time
B) order manufacturing time
C) order waiting time
D) order receipt time
E) order opening time
Q3) Discuss the methods used to identify quality problems.
Q4) The theory of constraints describes methods of reducing bottlenecks by identifying and reducing fixed costs previously viewed as variable.
A)True
B)False
Q5) Manufacturing lead time is a combination of order receipt time and order manufacturing time.
A)True B)False
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Chapter 20: Inventory Cost Management Strategies
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Sample Questions
Q1) What are the total relevant costs assuming the quantity ordered equals 80 reams?
A) $3,913.65
B) $3,948.50
C) $4,075.25
D) $4,165.00
E) $5,326.49
Q2) Costs incurred when preparing and issuing purchase orders are included in which of the following categories?
A) carrying costs
B) ordering costs
C) purchasing costs
D) stockout costs
E) stockin costs
Q3) Which of the following would NOT be typical when a JIT production system is used?
A) manufacturing cells
B) emphasis on reducing setup time
C) workers who specialize in one function or operation
D) TQM
E) JIT purchasing
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Page 23
Chapter 21: Capital Budgeting: Methods of Investment Analysis
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Sample Questions
Q1) Defensive strategies can be difficult to quantify because opportunity costs are difficult to predict.
A)True
B)False
Q2) A company is considering two different purchases from a vendor, for a high-speed photocopier. The regular model costs $4,500 and the deluxe model costs $6,100. The company has projected cash savings of $800 for the first year, and then $850 annually thereafter for the regular model, but the vendor is claiming that the deluxe model is $400 cheaper per year to operate than the regular model. What are the payback periods for the Regular and Deluxe models, respectively?
A) 4.88 years; 5.63 years
B) 5.08 years; 5.29 years
C) 5.29 years; 4.88 years
D) 5.29 years; 5.63 years
E) 5.35 years; 4.92 years
Q3) Computer integrated technology may increase workers' knowledge of automation and facilitate future installations.
A)True
B)False
Page 24
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Chapter 22: Capital Budgeting: a Closer Look
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Q1) The excess present value index is the total present value of future net cash outflows of a project divided by the total present value of cash inflows.
A)True
B)False
Q2) Some companies adjust the estimated future cash inflows for risks by reducing the estimated future cash inflows of riskier projects.
A)True
B)False
Q3) Which of the following are not considered in capital-budgeting?
A) initial machine investment
B) depreciation
C) cash flow from current disposal of old machine
D) cash flow from terminal disposal of new machine
E) recurring after-tax operating flows
Q4) The differential approach is based on the concept of relevance.
A)True
B)False
Q5) Discuss the ways a company can account for risk in its capital budgeting projects.
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Chapter 23: Transfer Pricing and Multinational Management Control Systems
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Q1) When the vendor division receives full cost plus a mark-up, and the buying division pays the market price, this is referred to as
A) dual pricing.
B) market pricing.
C) single pricing.
D) prorated transfer pricing.
E) competition pricing.
Q2) Opportunity costs represent the cash flows directly associated with the production and transfer of the products and services.
A)True
B)False
Q3) Management control systems collect which type of data?
A) financial
B) non-financial
C) data from outside of the company
D) financial and non-financial
E) financial and non-financial, including data from both within the company and outside of the company
Q4) What is the purpose of the internal control system within an organization?
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Chapter 24: Multinational Performance Measurement and Compensation
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Q1) The first step in designing accounting based performance measures is to choose performance measures that align with top management's financial goals.
A)True
B)False
Q2) ROI, residual income, and economic value-added, can be used as performance measures.
A)True
B)False
Q3) What is EVA for St. Johns?
A) $142,200
B) $190,600
C) $163,200
D) $200,000
E) $145,000
Q4) An important consideration in designing compensation arrangements is the tradeoff between creating incentives, and reducing risk.
A)True
B)False
Page 27
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