Financial and Managerial Accounting
Exam Answer Key
Course Introduction
Financial and Managerial Accounting introduces the fundamental principles and concepts of accounting used in business decision-making. The course covers the preparation, interpretation, and analysis of financial statements, helping students understand the economic events that shape organizations. Key topics include the accounting cycle, measurement of business transactions, internal controls, budgeting, cost behavior, and performance evaluation. Emphasis is placed on the role of accounting information in both external reporting for investors and regulators (financial accounting) and internal planning and control (managerial accounting), equipping students with essential tools to assess organizational performance and make informed business decisions.
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) In the value chain, Research and Development is the detailed planning and engineering of products, services, or processes.
A)True
B)False
Answer: False
Q2) The person(s) responsible for providing advice and assistance to line managers is/are
A) the controller.
B) the chief financial officer.
C) staff management.
D) the treasurer.
E) the president.
Answer: C
Q3) Control includes deciding what feedback to provide that will help with future decision making.
A)True
B)False
Answer: True
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) What is the amount of Payton's ending finished goods inventory?
A) $99,500
B) $8,000
C) $5,000
D) $500
E) $0
Answer: C
Q2) Manufacturing-sector companies purchase materials and other resources for conversion into various finished goods.
A)True
B)False
Answer: True
Q3) A unit cost is computed by dividing a total cost by some number of units.
A)True
B)False
Answer: True
Q4) The plant supervisor's salary is a direct labour cost.
A)True
B)False
Answer: False
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Chapter 3: Cost-Volume-Profit Analysis
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Q1) Target net income is computed by multiplying operating income by one minus the entity's tax rate, or by multiplying operating income by the tax rate, and subtracting that amount from operating income.
A)True
B)False Answer: True
Q2) To perform cost-volume-profit analysis, a company must be able to separate costs into fixed and variable components.
A)True
B)False Answer: True
Q3) When making net income evaluations, CVP calculations for target income must be stated in terms of target operating income instead of target net income.
A)True
B)False Answer: False
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Chapter 4: Job Costing
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Sample Questions
Q1) In each period, job costing divides the total cost of producing an identical or similar product by the total number of units produced to obtain a per-unit cost.
A)True
B)False
Q2) The balance in the manufacturing overhead allocated account, is carried over to the balance sheet for the subsequent year, to properly track all costs for job costing.
A)True
B)False
Q3) Direct costs are traced the same way for actual costing and normal costing.
A)True
B)False
Q4) A materials requisition record and a labour time record are examples of which of the following?
A) normal cost schedule
B) job cost sheets
C) job cost records
D) cost object statements
E) source documents
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Chapter 5: Activity-Based Costing and Management
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Q1) Activity-based costing is a technique to improve the reliability of cost assignment
A) to work-in-process inventory.
B) from direct cost pools to distinct types of outputs.
C) from both direct and indirect cost pools to distinct types of outputs.
D) to all types of inventory.
E) from indirect cost pools to distinct types of outputs.
Q2) When using activity-based costing in a manufacturing setting, its distinctive feature is the focus on
A) activities as the fundamental cost objects.
B) minimizing the number of journal entries related to the manufacturing process.
C) minimizing manufacturing costs.
D) materials handling.
E) materials sorting.
Q3) Product-sustaining (service-sustaining) costs are the costs of resources sacrificed on activities undertaken to support specific services.
A)True
B)False
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Chapter 6: Master Budget and Responsibility Accounting
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Q1) Kaizen budgeting is a budgetary approach that explicitly incorporates continuous improvement during the budget period into the resultant budget numbers.
A)True
B)False
Q2) Budgeted financial statements are also referred to as pro forma statements.
A)True
B)False
Q3) The financial budget is that part of the master budget that comprises the capital budget, cash budget, operating budget, and budgeted balance sheet.
A)True
B)False
Q4) What will be Country Heather's total costs incurred for direct materials, direct manufacturing labour, and manufacturing overhead, respectively, for 2007?
A) $0; $40,000; $16,000
B) $0; $41,000; $16,000
C) $80,000; $40,000; $16,000
D) $82,000; $41,000; $16,400
E) $84,000; $40,000; $16,400
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Chapter 7: Flexible Budgets, Variances, and Management
Control: I
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Sample Questions
Q1) June's direct material efficiency variance is
A) $320 unfavourable.
B) $300 favourable.
C) $680 favourable.
D) $300 unfavourable.
E) $320 favourable.
Q2) A flexible budget enables managers to compute a richer set of variances than a static budget does.
A)True
B)False
Q3) When benchmarking, the best levels of performance are typically found in companies that are totally different.
A)True
B)False
Q4) What is the All Good Things Ltd. flexible-budget variance?
A) $8,400 F
B) $8,400 U
C) $8,200 U
D) $8,200 F
E) $200 U
Page 9
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Chapter 8: Flexible Budgets, Variances, and Management
Control: II
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Sample Questions
Q1) Both financial and nonfinancial performance measures are key inputs when evaluating the performance of managers.
A)True
B)False
Q2) Capacity decisions are considered operating decisions because they involve the long-term acquisition of assets by purchase or lease.
A)True
B)False
Q3) What are the fixed manufacturing overhead efficiency and production-volume variances, respectively?
A) 0; $200,000 favourable
B) 0; $200,000 unfavourable
C) $50,500 favourable; $199,998 unfavourable
D) $50,500 unfavourable; $199,998 favourable
E) There is no efficiency variance; $200,000 favourable.
Q4) The variable overhead efficiency variance is computed in a different way than the efficiency variance for direct-cost items.
A)True
B)False
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Chapter 9: Income Effects of Denominator Level on Inventory Valuation
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Sample Questions
Q1) The denominator-level concept based on capacity utilization that satisfies average customer demand that includes seasonal and cyclical factors is called
A) theoretical capacity.
B) practical capacity.
C) normal capacity.
D) master-budget capacity.
E) supply capacity.
Q2) Which denominator-level concept results in the highest amount of fixed manufacturing overhead costs per unit of ending inventory?
A) theoretical capacity
B) practical capacity
C) normal capacity
D) master-budget capacity
E) supply capacity
Q3) Throughput costing is also referred to as super-variable costing.
A)True
B)False
Q4) 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) A mixed cost has a fixed element.
A)True
B)False
Q3) What is the predicted indirect manufacturing labour cost if 160 machine-hours are budgeted and 170 are actually worked, assuming the estimated cost function is y = $81.04 + 5.32x?
A) $985.44
B) $932.24
C) $904.40
D) $851.20
E) $81.04
Q4) What are the estimated total costs if Miller's expects to sell 6,500 units next year?
Q5) What was the variable cost per unit sold for 2012?
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Chapter 11: Decision Making and Relevant Information
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Q1) Relevant information analysis is a key aspect of making decisions.
A)True
B)False
Q2) When replacing an old machine with a new machine, the purchase price of the old machine is a relevant cost.
A)True
B)False
Q3) A student is considering whether to finish their university program in four consecutive years, or take a year off and work for some extra cash.
Required:
a. Identify at least two revenues or costs that are relevant to making this decision. Explain why each is relevant.
b. Identify at least two costs that would be considered sunk costs for this decision.
c. Comment on at least one qualitative consideration for this decision.
Q4) For short-term pricing decisions, what costs are relevant when there is available surplus capacity? When there is no available surplus capacity?
Q5) Explain what revenues and costs are relevant when choosing among alternatives.
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Chapter 12: Pricing Decisions, Product Profitability Decisions, and Cost Management
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Sample Questions
Q1) Collusive pricing occurs when
A) a company wants two products to sell for the same, or almost the same, amount.
B) a company wants a product to sell for the same as a competitor's product.
C) two or more companies agree to sell a product at a price higher than should be expected.
D) competitors are part of the same large parent organization.
E) one large company dominates an industry.
Q2) Price discrimination is the practice of charging some customers a higher price than is charged to other customers.
A)True
B)False
Q3) What is the target operating income?
A) $2,931,120
B) $2,160,000
C) $2,036,880
D) $2,484,000
E) $248,400
Q4) What is the primary reason a firm would adopt target costing?
14
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Chapter 13: Strategy, Balanced Scorecard, and Profitability Analysis
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Q1) ________ measures the reduction in costs attributable to a reduction in the quantity of inputs used in year two relative to the quantity of inputs that would have been used in year one to produce the year two output.
A) The growth component
B) The price-recovery component
C) The productivity component
D) The cost leadership component
E) The strategy component
Q2) Required:
a. What is the operating income for Year 1?
b. What is the operating income in Year 2?
c. What is the change in operating income from Year 1 to Year 2?
Q3) What is the change in operating income from year 1 to year 2?
A) $147,600 favourable
B) $143,520 favourable
C) $156,120 favourable
D) $156,120 unfavourable
E) $242,000 favourable
Q4) Can a company identify unused capacity and, if so, how can unused capacity be managed?
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Chapter 14: Period Cost Allocation
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Q1) Hunt Company and Indio Company are noncompeting lines of business and use a common database for marketing purposes. The variable costs associated with accessing the database are readily identifiable and kept in separate cost pools that are charged to each user. The fixed costs of maintaining the database, however, cannot be identified by user on a cause-and-effect basis. These fixed costs for the next year are budgeted at $55,000. If Hunt does not use the database, the fixed costs to Indio are $48,000. An outside vendor offers to provide Hunt access to a comparable database for a fixed fee fo $60,000 per year plus variable costs of accessing the database. The same vendor offers to provide Indio access to that database for a fixed fee of $20,000 per year plus variable costs of accessing the database.
Required:
Compute how much of the $55,000 fixed costs of maintaining the database are charged to by each user:
a. Under the stand-alone allocation method.
b. Under the incremental allocation method, assuming Hunt Company is regarded as the primary user.
Q2) Should a company allocate its corporate costs to divisions?
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Chapter 15: Cost Allocation: Joint Products and Byproducts
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Q1) Advantages of the sales value at split off method include all of the following EXCEPT
A) it does not presuppose an exact number of subsequent steps for further processing.
B) it uses a meaningful denominator.
C) there is no anticipation of subsequent management decisions.
D) it is simple.
E) the allocation of joint costs could lead managers to make poor decisions.
Q2) How much (if any) extra income would Morton earn if it produced and sold skim milk ice cream from goats rather than goat skim milk? Allocate joint processing costs based upon the relative sales value at the splitoff point.
A) $47,047
B) $117,297
C) $101,650
D) $70,250
E) $171,900
Q3) Separable costs are assignable after the splitoff point.
A)True
B)False
Q4) What are a joint cost and a splitoff point?
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Chapter 16: Revenue and Customer Profitability Analysis
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Q1) A customer cost hierarchy may include distribution-channel costs.
A)True
B)False
Q2) Using the incremental method, what amount of revenue will be allocated to Math Fun in the package that contains all three products?
A) $48.25
B) $60.00
C) $45.60
D) $50.67
E) $90.00
Q3) Revenue allocation is required to determine the profitability of individual items within a bundled product.
A)True
B)False
Q4) Companies that only record the invoice price can usually track the magnitude of price discounting.
A)True
B)False
Q5) What actions might be taken with an unprofitable customer?
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Chapter 17: Process Costing
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Q1) What is the equivalent units for conversion costs for May using the weighted average method?
A) 180,000 cushions
B) 160,000 cushions
C) 140,000 cushions
D) 118,000 cushions
E) 123,000 cushions
Q2) Standard costing is not possible in a firm that uses process costing.
A)True
B)False
Q3) Which of the following is an assumption implicit in process-costing?
A) All completed units receive more direct material inputs than units in process.
B) All completed units receive less direct material inputs than units in process.
C) Opening inventory is always nil, for the cost calculations.
D) Ending inventory is always nil, for the cost calculations.
E) All completed units receive the same amount of direct material inputs and the same amount of conversion costs.
Q4) List and describe the five steps in process costing.
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) Assuming Hawk uses the weighted average method for process costing, the total cost of goods completed and transferred to finished goods is:
A) $854,400
B) $921,600
C) $877,440
D) $928,704
E) $905,664
Q2) Costs of normal spoilage are usually accounted for as
A) part of the cost of goods sold.
B) part of the cost of goods manufactured.
C) a separate line item in the income statement.
D) an asset in the balance sheet.
E) a liability in the balance sheet
Q3) What are the normal and abnormal spoilage units, respectively, for March?
A) 2,580 units; 1,420 units
B) 1,950 units; 1,390 units
C) 1,690 units; 1,050 units
D) 1,420 units; 2,580 units
E) 1,140 units; 1,140 units
Q4) Distinguish among spoilage, reworked units, and scrap. Give an example of each.
Page 20
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Chapter 19: Cost Management: Quality, Time, and the Theory of Constraints
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Q1) What is the net change in the budget of prevention costs if the procedures are automated in the current year?
A) $40,000 decrease
B) $52,000 increase
C) $52,000 decrease
D) $92,000 increase
E) $92,000 decrease
Q2) The cumulative average-time learning model with a 90% learning curve indicates that if it takes 100 minutes to manufacture the first unit of a new model, then the second unit will take only 90 minutes to manufacture.
A)True
B)False
Q3) Manufacturing lead time is the sum of waiting time and manufacturing time for an order.
A)True
B)False
Q4) A learning curve measures the effect of learning on efficiency.
A)True
B)False
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Chapter 20: Inventory Cost Management Strategies
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Q1) Costs associated with holding inventories and the resulting opportunity cost of the investment tied up in inventory fall into which of the following categories?
A) carrying costs
B) ordering costs
C) quality costs
D) stockout costs
E) stockin costs
Q2) An inventory item of XYZ Manufacturing has an average daily demand of 10 units with a maximum daily demand of 12 units. The economic order quantity is 200 units. The reorder point is 50 units. Safety stocks are set at 94 units.
Required:
a. Determine the inventory level at the time of reordering.
b. Determine the purchase order lead time.
d. Determine the maximum purchase order lead time that the company can experience before it has a stockout.
Q3) A trigger point refers to the inventory level at which a reorder is generated.
A)True
B)False
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Chapter 21: Capital Budgeting: Methods of Investment Analysis
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Q1) Which of the following is not a major category of cash flows in capital budgeting?
A) initial investment in machines
B) recurring operating cash flows
C) cash flows from dispositions of assets
D) management and labour allocation deductions
E) initial working capital investment
Q2) Jefferson Ltd. is considering the acquisition of new production equipment. If purchased, the new equipment would cost $1,850,000. Installation and testing costs would be $35,000 and $25,000 respectively. Once operational, the equipment will cause and increase in working capital of $120,000. The new equipment is expected to generate increased annual sales of $720,000. Variable costs to operate the machine are estimated at 42% of sales and annual fixed costs would be lowered by $75,000. The equipment has an estimate 6 year life and a salvage value of $90,000. The company requires an 11% return on its investments. Ignore income taxes.
Required:
a. Compute the net present value.
b. Compute the internal rate of return.
c. Determine the payback period of the investment.
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Chapter 22: Capital Budgeting: a Closer Look
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Q1) For project Gemini of Space Company the net investment was be $400,000. The net present value of all future net cash inflows was $800,000. The company's tax rate is 40 percent. The profitability index was
Q2) The half-year rule assumes that all net additions are purchased in the middle of the year, and thus only one-half of the stated CCA rate is allowed in the first year.
A)True
B)False
Q3) The disposal of a machine (or any depreciable asset) results in a lost tax shield. A)True B)False
Q4) The tax effects are significant in capital budgeting decisions. A)True
B)False
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Chapter 23: Transfer Pricing and Multinational Management Control Systems
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Q1) What is the transfer price per litre from the Production Division to the Refining Division assuming the method is 120% of full costs?
A) $16.80
B) $12.00
C) $9.50
D) $7.20
E) $12.50
Q2) What is the monthly operating advantage (disadvantage) of purchasing the goods internally assuming the Production Division is able to utilize the facilities for other operations resulting in monthly cash-operating savings of $40,000?
A) $400,000
B) $40,000
C) $(240,000)
D) $(280,000)
E) $(400,000)
Q3) Management control systems reflect only financial data.
A)True
B)False
Q4) What is the purpose of the internal control system within an organization?
25
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Chapter 24: Multinational Performance Measurement and Compensation
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Q1) Investment turnover is calculated by dividing investments by revenues.
A)True
B)False
Q2) The only criticism of team-based compensation is that the incentives for individual employees to excel are diminished, harming overall performance.
A)True
B)False
Q3) What is the NBV of the long-term assets at current cost at the end of year 4?
A) $660,000
B) $800,000
C) $960,000
D) $1,180,000
E) $1,760,000
Q4) Benchmarks represent 'best practices', and can be derived from either inside or outside the organization.
A)True
B)False
Q5) Outline and discuss the steps involved in making decisions on performance measures.
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