Financial Decision Making
Mock Exam
Course Introduction
Financial Decision Making is a comprehensive course that introduces students to the principles and tools necessary for effective financial planning and analysis within organizations. The course covers key topics such as time value of money, risk and return, capital budgeting, financial statement analysis, and the evaluation of financing options. Students will learn to assess investment opportunities, allocate resources efficiently, and make informed decisions that align with organizational goals. Through real-world case studies and practical applications, the course equips learners with the analytical and strategic skills needed to solve complex financial problems and contribute to sound decision-making in business environments.
Recommended Textbook Management Accounting 6th Canadian Edition by Charles T. Horngren
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Chapter 1: Management Accounting and Management Decisions
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Sample Questions
Q1) Broad concepts or guidelines and detailed practices, including all conventions, rules, and procedures that together make up accepted accounting practice at a given time.
Answer: Generally accepted accounting principles
Q2) Cooking dinner and tasting the food are examples of A) planning.
B) controlling.
C) budgeting.
D) analyzing.
Answer: B
Q3) Management by exception involves a detailed analysis of all deviations from planned performance regardless of the amount.
A)True
B)False
Answer: False
Q4) The cost-benefit balance is the primary consideration in choosing among accounting systems and methods.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Cost Behaviour and Cost-Volume Relationships
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Sample Questions
Q1) If management has a targeted net income of $21,000 (ignore income taxes), then the number of units which must be sold is
A) 2,036.
B) 2,336.
C) 6,540.
D) 5,700.
Answer: C
Q2) A firm's ratio of fixed and variable costs. Answer: Operating leverage
Q3) When changes occur in the sales mix, there is no effect on the cost-volume-profit relationships.
A)True
B)False Answer: False
Q4) A variable cost varies per unit.
A)True
B)False
Answer: False
Q5) The manner in which the activities of an organization affect its costs. Answer: Cost behaviour
4
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Chapter 3: Measurement of Cost Behaviour
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Sample Questions
Q1) Which of the following is NOT a method of approximating cost functions?
A) Engineering analysis
B) Account analysis
C) Product analysis
D) High-low analysis
Answer: C
Q2) An example of a volume-driven cost in a book publishing enterprise is
A) wages of editorial staff.
B) paper and ink.
C) rent on the factory.
D) accounts payable clerk's wages.
Answer: B
Q3) The application of cost measures to expected future activity levels to forecast future costs.
Answer: Cost prediction
Q4) The process of identifying appropriate cost drivers and their effects on the costs of making a product or providing a service.
Answer: Activity analysis
Q5) Costs that contain elements of both fixed and variable cost behaviour.
Answer: Mixed costs
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Chapter 4: Cost Management Systems
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Sample Questions
Q1) The cost of goods sold under absorption costing would be
A) $112,000.
B) $126,000.
C) $ 89,600.
D) $ 72,800.
Q2) All manufacturing costs are assigned to the product under which method of product costing?
A) Direct costing
B) Variable costing
C) Absorption costing
D) Fixed costing
Q3) The cost of goods sold under variable costing would be
A) $84,000.
B) $192,000.
C) $96,000.
D) $168,000.
Q4) All costs other than direct material or direct labour that are associated with the manufacturing process.
Q5) A product-costing method that assigns only variable manufacturing costs to a product.
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Chapter 5: Cost Allocation and Activity-Based Costing Systems
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Sample Questions
Q1) To allocate central costs, a company could use all of the following cost drivers EXCEPT the
A) revenue of each division.
B) cost of goods sold by each division.
C) total assets of each division.
D) total period costs of each division.
Q2) If the step-down method is used to allocate costs, and the Maintenance Department renders the greatest service, then the total amount of overhead that would be allocated from Personnel to Finishing is
A) $24,429.
B) $18,000.
C) $32,571.
D) $27,000.
Q3) Assuming the relative-sales-value method of allocating joint costs, the amount of joint costs allocated to product E would be
A) $40,600.00.
B) $64,444.40.
C) $58,000.00.
D) $35,280.00.
Page 7
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Chapter 6: Job-Costing Systems
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Sample Questions
Q1) Reed Company incurred actual overhead costs of $640,000 for the year. A budgeted factory-overhead rate of 210 percent of direct-labour cost was determined at the beginning of the year. Budgeted factory overhead was $630,000, and budgeted direct-labour cost was $300,000. Actual direct-labour cost was $320,000 for the year. The disposition of the variance, assuming a material amount, would include a A) debit to Factory Department Overhead Control for $32,000.
B) credit to Factory Department Overhead Control for $10,000.
C) debit to Cost of Goods Sold for $32,000.
D) credit to Cost of Goods Sold for $10,000.
Q2) Assume that direct-labour hours is the cost driver. What is the budgeted factory-overhead rate?
A) $4.75
B) $4.63
C) $4.54
D) $4.84
Q3) A system that accumulates manufacturing costs by jobs.
Q4) A variance that results when applied overhead is greater than the actual overhead cost incurred.
Q5) A difference between actual overhead and applied overhead.
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Chapter 7: Process-Costing Systems
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Sample Questions
Q1) Conversion costs include all manufacturing costs other than direct materials.
A)True
B)False
Q2) The FIFO process-costing method sharply distinguishes the current work done from the previous work done on the beginning inventory of work-in-process.
A)True
B)False
Q3) Backflush costing provides reasonably accurate product costs if
A) materials inventories are high and production cycle times are short.
B) materials inventories are low and production cycle times are short.
C) materials inventories are low and production cycle times are long.
D) materials inventories are high and production cycle times are long.
Q4) The equivalent units for materials are
A) 336,000.
B) 400,000.
C) 384,000.
D) 64,000.
Q5) The first step in preparing a production-cost report is to calculate unit cost.
A)True
B)False
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Chapter 8: Relevant Information and Decision Making: Marketing Decisions
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Sample Questions
Q1) Assuming product line B is discontinued and the space formerly used to produce product B is rented for $5,000 per year, operating income will
A) increase $5,000.
B) increase $7,000.
C) increase $1,000.
D) decrease $1,000.
Q2) Under the absorption approach to pricing, the decision-maker has no direct knowledge of cost-volume-profit relationships.
A)True
B)False
Q3) Charging different prices to different customers for the same product or service is known as
A) predatory pricing.
B) target costing.
C) full costing.
D) discriminatory pricing.
Q4) The predicted future costs and revenues that will differ among alternative courses of action.
Q5) The amount by which price exceeds cost.
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Chapter 9: Relevant Information and Decision Making: Production
Decisions
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Sample Questions
Q1) Conflicts in the decision-making process can arise when superiors evaluate a manager's performance using a model consistent with the decision model.
A)True
B)False
Q2) In practice, sunk costs often influence important decisions, especially when a decision maker doesn't want to admit that a previous decision was a bad decision.
A)True
B)False
Q3) The juncture in manufacturing where the joint products become individually identifiable is known as the
A) joint processing juncture.
B) split-off point.
C) common point.
D) significant juncture.
Q4) Opportunity cost is the maximum available contribution to profit foregone by using limited resources for a particular purpose.
A)True
B)False
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Chapter 10: Capital Budgeting Decisions
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Sample Questions
Q1) The value that will accumulate by the end of an investment's life if the investment earns a specified compounded return.
Q2) The net present value model expresses all amounts in today's monetary units at time zero.
A)True
B)False
Q3) The cash inflow effect of a disposal at a loss is equal to the
A) amount of the loss plus the tax savings.
B) amount of the loss minus the tax savings.
C) selling price plus the tax savings.
D) selling price minus the tax savings.
Q4) What is (d)?
A) Less than 6 percent
B) Between 6 and 8 percent
C) Between 8 and 10 percent
D) Between 10 and 12 percent
Q5) One purpose of a postaudit is to evaluate the continuation of the project.
A)True
B)False
Q6) The time required for a project to return its investment.
Page 12
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Chapter 11: The Master Budget
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Sample Questions
Q1) Which of the following is NOT an operating budget?
A) Sales budget
B) Operating expenses budget
C) Budgeted income statement
D) Cash budget
Q2) The desired ending inventory for July is
A) $39,000.
B) $42,250.
C) $21,000.
D) $31,000.
Q3) The cash disbursements in December for October purchases will be
A) $108,750.
B) $ 43,500.
C) $ 65,250.
D) $ 46,000.
Q4) The total expenses for the month of April will be
A) $45,300.
B) $38,400.
C) $31,200.
D) $38,100.
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Chapter 12: Flexible Budgets and Variance Analysis
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Q1) As the terms are used in the budgeting process, it is possible for a company to be effective at the same time it is inefficient.
A)True
B)False
Q2) A favourable sales-activity variance means that
A) managers have been efficient in the implementation of a sales budget.
B) managers have been effective in accomplishing a planned sales level.
C) demand for the company product is strong.
D) the sales force has done an excellent job.
Q3) For product X, the actual quantity used per unit was
A) 1.0 pound.
B) 2.0 pounds.
C) 3.0 pounds.
D) 3.5 pounds.
Q4) A carefully determined cost per unit that should be attained.
Q5) The direct-labour usage variance for the month of October is
A) $560 favourable.
B) $560 unfavourable.
C) $630 favourable.
D) $630 unfavourable.
Page 14
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Chapter 13: Management Control Systems, the Balanced
Scorecard, and Responsibility Accounting
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Sample Questions
Q1) What is Conway's 20X1 revenues per employee in term of 20X3 dollars?
A) $1,015.00.
B) $700.00.
C) $714.29.
D) $870.00.
Q2) A logical integration of management accounting tools to gather and report data and to evaluate performance is a(n)
A) internal control system.
B) quality control system.
C) financial reporting system.
D) management control system.
Q3) All of the following are categories of quality costs EXCEPT
A) development.
B) prevention.
C) appraisal.
D) internal failure.
Q4) Any cost that is influenced by a manager's decisions and actions.
Q5) Compare financial and nonfinancial performance, and explain why planning and control systems should consider both.
Q6) A measure of outputs divided by inputs. Page 15
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Page 16
Chapter 14: Management Control in Decentralized Organizations
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Sample Questions
Q1) The income percentage of revenue is determined by multiplying return on investment by the capital turnover.
A)True
B)False
Q2) If invested capital is defined as total assets minus current liabilities, the residual income at an imputed interest rate of 9 percent is
A) $65,600.
B) $80,000.
C) $18,000.
D) $14,400.
Q3) What is the net income?
A) $375,000
B) $625,000
C) $62,500
D) $200,000
Q4) According to agency theory, employment contracts will trade off the following three factors: risk, incentive and the cost of measuring performance.
A)True
B)False
17
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