Financial Analysis and Control
Test Bank
Course Introduction
Financial Analysis and Control focuses on the tools and techniques used to evaluate the financial health and performance of businesses. The course covers fundamental concepts such as financial statement analysis, ratio analysis, cash flow analysis, budgeting, and forecasting. Students learn how to interpret financial data, assess risks, and make informed decisions regarding investment, financing, and operational activities. Additionally, the course explores internal control systems and their role in safeguarding assets, ensuring reliable financial reporting, and achieving organizational objectives. By the end of the course, students will be equipped with analytical skills essential for strategic planning and effective financial management.
Recommended Textbook
Cost Management Measuring Monitoring and Motivating Performance 2nd Canadian Edition by
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Chapter 1: The Role of Ethical Accounting Information in Management Decision Making
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Sample Questions
Q1) Which of the following influences organizational strategies?
A)Organizational vision
B)Financial statement results
C)Computer software
D)Number of employees
Answer: A
Q2) Open-ended problems are not often seen in business.
A)True
B)False
Answer: False
Q3) Higher quality decisions result from higher quality information, reports, and decision-making processes.
A)True
B)False Answer: True
Q4) Cost accounting information, such as the valuation of ending inventory, is shown on external financial statements.
A)True
B)False Answer: True
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Chapter 2: Cost Concepts, Behaviour, and Estimation
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Sample Questions
Q1) Direct costs are:
A)Costs that need to be assigned but cannot be traced easily to cost objects
B)Only variable costs
C)Costs that can easily be traced to cost objects
D)Only fixed costs
Answer: C
Q2) Write out the algebraic formula that represents a cost function and explain each item in the equation.
Answer: TC = F + V*Q. TC is total cost, that is, the total amount of cost that is being explained. F is fixed costs, which do not change with small changes in volumes of the cost driver. V is variable cost per unit of the cost driver, and that cost remains constant within the relevant range, but its total cost increases proportionately with increases in cost driver volumes. Q is the quantity of cost driver.
Q3) A scatter plot is especially useful when managers wish to:
A)Compute a cost function
B)Update a past cost function for future changes
C)Study the relationship between a cost and a potential cost driver
D)Analyze cost behaviour when only one period of data is available
Answer: C
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Page 4
Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) If a company can produce and sell 500 units at $10 each and its variable costs are $6 per unit, expected profit using the profit equation will be $2,000.
A)True
B)False
Answer: False
Q2) The Jean Company expects sales of $500,000 and total variable costs of $200,000 in 2005. Total budgeted fixed costs are $180,000. What is the breakeven volume in sales dollars?
A)$450,000
B)$300,000
C)$360,000
D)None of the above
Answer: B
Q3) If the sales mix changes:
A)The fixed costs will change
B)The change in mix affects the contribution margin ratio
C)Nothing else changes
D)Each product's variable cost will change
Answer: B
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Page 5
Chapter 4: Relevant Information for Decision Making
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Sample Questions
Q1) A factor in special order decisions is the effect that the decision will have on regular customers.
A)True
B)False
Q2) Managers should always emphasize products with the highest total contribution margin.
A)True
B)False
Q3) Amortization is irrelevant in decision making:
A)Under any circumstances
B)If it relates to equipment not yet purchased
C)If it relates to equipment already on hand
D)If it is not different for each alternative
Q4) Uncertainties about future revenues affect all nonroutine operating decisions.
A)True B)False
Q5) Describe the costs that are usually relevant to a make or buy decision.
Q6) Make or buy decisions are sometimes known as outsourcing decisions.
A)True
B)False
Page 6
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Chapter 5: Job Costing
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Sample Questions
Q1) Several statements that may apply to actual costing, normal costing, both, or neither appear below. Choose the best answer from the four that follow. Each numbered item has only one correct answer. Each lettered item may be used once, more than once, or not at all.
A. Actual costing only
B. Normal costing only
C. Both actual and normal costing
D. Neither actual nor normal costing
____ 1. Actual activity and an estimated rate are used to allocate overhead
____ 2. Actual direct materials are traced to each job
____ 3. Direct labour estimates are debited to work in process
____ 4. Estimated direct materials are traced to each job
____ 5. Jobs absorb the actual cost of direct labour
____ 6. Managers allocate overhead using estimated activity and an estimated rate
____ 7. May result in underapplied overhead
____ 8. Overhead is allocated using the actual activity and an actual rate
____ 9. Overhead is not allocated
____ 10. Used to prepare interim income statements
Q2) Explain, in general terms, the steps taken to implement a job costing system.
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Page 7
Chapter 6: Process Costing
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Sample Questions
Q1) Xeno, Inc. operates a process costing system and uses the FIFO method. Beginning work in process consists of 1,000 units, 30% complete. Ending work in process is 15% complete, and direct materials are added at the 20% point. The equivalent units of production for materials are 14,000 and for conversion costs are 18,000. The number of units in ending work in process was:
A)37,000
B)14,000
C)18,000
D)22,000
Q2) Salmon Manufacturing Company uses a process costing system. Direct materials are added at the beginning of the process. During January, Department Q had a beginning inventory of 2,000 units, 25% complete for conversion costs. During the month 14,000 units were started and there were 1,000 units in ending inventory, 60% complete for conversion costs. Using weighted average process costing, the equivalent units for conversion costs for the month were:
A)14,100
B)14,000
C)16,000
D)15,600
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Page 8
Chapter 7: Activity-Based Costing and Management
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Sample
Questions
Q1) MNK Corporation is a large public company that employs numerous accounts receivable clerks. Their jobs involve processing invoices and keeping the accounting records updated. Which of the following is the most likely cost driver for the accounts receivable activity cost pool?
A)Number of journal entries
B)Number of product lines produced by MNK
C)Number of invoices
D)Average dollar amount for each credit sale
Q2) Activity-based management can be used to manage both quality and constrained resources.
A)True
B)False
Q3) Which is an advantage of an ABC system?
A)ABC results in true product costs
B)ABC has little measurement error
C)ABC systems allow accountants to identify non-value adding activities
D)ABC is inexpensive to implement
Q4) List the four types of quality-related activities and give one example of each.
Q5) Explain why measurement error could increase as the number of cost pools increase in an ABC system.
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Chapter 8: Measuring and Assigning Support Department
Costs
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Sample Questions
Q1) A firm allocates the cost of electricity to its operating departments based upon the number of electrical outlets in each department. The actual cost for electricity is $20,000 per period plus $0.02 per kilowatt-hour (KWH). The $20,000 is related to the amount of capacity needed, and capacity is reasonably estimated by the number of outlets. The firm has a total of 1,000 outlets and typically uses 700,000 KWH per period. Department W has 25 outlets and typically uses 15,000 KWH per period. If the firm switches from a single allocation rate based upon capacity to dual rates based upon capacity and actual use, Department W's cost will:
A)Increase by $121.43
B)Increase by $3421.50
C)Decrease by $50.00
D)Decrease by $121.43
Q2) Which pair below best matches a support department with an appropriate allocation base?
A)Administration, square metres occupied
B)Housekeeping, number of requisitions for supplies
C)Employee training, number of employees
D)Accounting, number of general ledger accounts
Q3) Distinguish between support department costs and manufacturing overhead costs.
Page 10
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Chapter 9: Joint Product and By-Product Costing
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Sample Questions
Q1) Jagger, Inc. production begins in Department A with 1,000 kilograms of material, of which 40% goes to Department B, 50% to Department C, and the rest evaporates. From Department C, 72% goes to Department D, 24% to Department E, and the remainder is scrapped. There are no intermediate markets. By-product sales are treated as miscellaneous income. The following occurred during the month: Department Costs Sales Product Type
A $20,000 ---
B 5,000 $10,000 By-product
C 30,000 ---
D 20,000 60,000 Main-1
E 10,000 30,000 Main-2
If Jagger uses the net realizable value method, the total cost of Main-2 is:
A)$26,667
B)$22,500
C)$16,667
D)$33,333
Q2) The allocation of a joint cost among joint products is essentially an arbitrary process. If this statement is true, then why are joint costs allocated?
Q3) For what types of products is the physical output method appropriate? Explain.
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Page 11
Chapter 10: Static and Flexible Budgets
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Sample Questions
Q1) In zero-based budgeting, managers justify budget amounts as if no information about prior budgets exists.
A)True
B)False
Q2) Participative budgeting:
I. Occurs from the bottom up
II. Motivates employees to buy into the budgeting process
III. Provides managers with incentives to build in budgetary slack
A)I only
B)I and II only
C)I, II, and III
D)II only
Q3) Budgeting provides a means for defining managers' decision rights.
A)True
B)False
Q4) If actual activities do not follow plans, a variance is likely to result.
A)True
B)False
Q5) List two methods that organizations could use to minimize budgetary slack.
Page 12
Q6) How can budgeting assist an organization to efficiently use its human resources?
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Chapter 11: Standard Costs and Variance Analysis
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Sample Questions
Q1) Paris Perfumery sells two perfumes, L'Amour and Plaisir. The expected sales mix is one bottle of L'Amour to five bottles of Plaisir. Planned sales and variable costs for last period were as follows: L'Amour Plaisir Total
Sales (10,000 units)$600,000 (50,000 units)$400,000 $1,000,000
Variable costs 200,000 230,000 430,000
Contribution Margin $400,000 $170,000 $ 570,000
During the period there was an economic downturn. Sales of L'Amour dropped off, so Paris reduced its price. Actual sales were as follows:
L'Amour Plaisir Total
Sales (7,500 @ $45)$337,500 (36,000 @ $8)$288,000 $625,500
Variable costs 165,000 153,000 318,000
Contribution Margin $172,500 $135,000 $307,500
(Appendix 11A)The revenue sales quantity variance for L'Amour was:
A)$150,000 U
B)$150,000 F
C)$262,500 U
D)$112,000 U
Q2) Explain why the variance accounts need to be closed at the end of each accounting period.
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Chapter 12: Strategic Investment Decisions
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Sample Questions
Q1) The incremental cash tax flow for a capital budgeting project is calculated using which of the following formulas?
A)Annual amortization × marginal income tax rate
B)Annual amortization × (1 - marginal income tax rate)
C)(Operating cash flow + annual amortization)× marginal income tax rate
D)Operating cash flow × marginal income tax rate
Q2) The time value of money means:
A)A dollar received today will be worth more than a dollar received in the future
B)A dollar received today will be worth less than a dollar received in the future
C)Ignoring the profitability of a capital investment
D)The more you invest, the smaller your return is
Q3) (Appendix 12A)The real discount rate can be decomposed into two pieces. Describe each one.
Q4) Managers responsible for proposing a project are likely to be favourably biased in their estimates of future project cash flows.
A)True
B)False
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Chapter 13: Pricing Decisions
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Sample Questions
Q1) Charging different prices at different times to reduce capacity constraints is called
A)Penetration pricing
B)Transfer pricing
C)Peak load pricing
D)Price skimming
Q2) Changes in variable costs and changes in the product's demand sensitivity to price are the two factors that affect the profit-maximizing price.
A)True
B)False
Q3) Which of the following is an example of a product with elastic demand?
A)Cigarettes
B)Customized homes
C)Gasoline
D)High fashion clothing
Q4) Prices that are calculated using elasticities:
A)Always result in profit maximization
B)Are very common
C)Ignore customer demand
D)Develop a mark-up for variable cost
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Chapter 14: Strategic Management of Costs
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Sample Questions
Q1) An organization's value chain often includes suppliers and customers.
A)True
B)False
Q2) Target costing works best when production processes are simple, rather than complex.
A)True
B)False
Q3) Roland's Recycling accepts and recycles or disposes of hazardous waste for the city. It charges the city for waste disposal based on the amount of waste handled. Its contract specifies that the sites that have been set up for waste drop-off will be cleaned up completely when the contract eventually expires. The owners of Roland's have been contacted by the county to set up a similar service for people who live in the county. Roland's accountant is preparing an analysis for the owners. Recommend an appropriate costing method. Describe the method and explain the reasons for your choice.
Q4) In target costing, managers can:
A)Focus on motivating customers to pay a higher price
B)Push some cost reductions to suppliers
C)Try to establish their product as a commodity
D)Justify higher costs by making production processes more complex
Page 16
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Chapter 15: Measuring and Assigning Costs for Income Statements
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Sample Questions
Q1) The following income statements are produced according to generally accepted accounting principles:
A)Variable costing
B)Absorption costing
C)Throughput costing
D)Standard costing
Q2) Theoretical capacity is a supply-based capacity measurement.
A)True
B)False
Q3) Theoretical capacity and practical capacity are demand-based capacity measurements.
A)True
B)False
Q4) Direct materials costs are treated similarly under variable costing and throughput costing.
A)True
B)False
Q5) Budgeted capacity is always greater than normal capacity.
A)True
B)False
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Chapter 16: Performance Evaluation and Compensation
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Sample Questions
Q1) (CMA)Responsibility accounting defines an operating centre that is responsible for revenue and costs as a(n):
A)Profit centre
B)Revenue centre
C)Division
D)Investment centre
Q2) Teresa's Taco Co. 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 investment was:
A)15.4%
B)21.67%
C)15.25%
D)17.5%
Q3) A business segment that has responsibility for both revenues and expenses is called a(n)
A)Administrative centre
B)Investment centre
C)Profit centre
D)Revenue centre
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Chapter 17: Strategic Performance Measurement
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Sample Questions
Q1) The first step in implementing a balanced scorecard is developing measures for each of the perspectives.
A)True
B)False
Q2) Steps in the innovation cycle of the value chain include:
A)Delivering products and services
B)Designing products and services
C)Building products and services
D)Providing customer service
Q3) The four perspectives of a balanced scorecard are:
A)Economic, non-economic, community, and social responsibility
B)Financial, customer, internal business processes, and learning and growth
C)Cost centres, revenue centres, profit centres, and investment centres
D)Financial, nonfinancial, accounting, and non-accounting
Q4) A disadvantage with the balanced scorecard is:
A)Employees throughout the organization have a better understanding of how their efforts affect operations
B)Rewards are provided for activities that should lead to long-term success
C)Benchmarks for internal business processes can be set using industry averages
D)Managers may choose measures for their most successful current activities
Page 19
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Chapter 18: Sustainability Management
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Sample Questions
Q1) Traditional management accounting practices tend to overlook potentially significant costs and benefits within relevant cost decision making because:
A)Accounting recognition is delayed when costs are contingent on future events
B)Relevant revenues and costs are not isolated in the accounting system
C)Opportunity costs are not measured
D)All of the above.
Q2) GRI core indicators include:
I. Economic indicators
II. Environmental indicators
III. Labor practices indicators
A)I and II only
B)II and III only
C)I and III only
D)I, II, and III
Q3) How can companies reduce accusations of greenwashing?
Q4) Internal impacts are costs and benefits inside the organization that are recognized in the entity's conventional accounting system.
A)True
B)False
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