Financial Decision Making Practice Exam
Course Introduction
Financial Decision Making explores the fundamental concepts, tools, and frameworks used to guide individuals and organizations in making informed financial choices. This course covers topics such as time value of money, risk and return analysis, capital budgeting, financial statement interpretation, and cost of capital. Students learn how to analyze financial information, assess investment opportunities, structure optimal financing, and evaluate the impact of financial decisions on organizational goals. Emphasis is placed on real-world applications and case studies to develop critical thinking and analytical skills necessary for effective financial management in a dynamic business environment.
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) Which of the following would likely constitute a breach of ethics for a management accountant?
A) to omit pertinent information from a report because it is personally unfavourable
B) to consider disclosing confidential information in order to further your own career
C) to consider disclosing confidential information (ie gained from a third party) in order to assist your employer / client
D) to report the unethical actions of another party, with the expectation that this will further your own career
E) to be disruptive in a meeting
Answer: A
Q2) Management should evaluate the difference between planned and budgeted amounts.
A)True
B)False Answer: False
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) What are the fixed costs per unit associated with Product ICT101?
A) $102
B) $48
C) $52
D) $32
E) $36
Answer: B
Q2) Overtime premium consists of wages paid to all workers in excess of their straight-time wage rates.
A)True
B)False
Answer: True
Q3) What is the unit cost for the direct materials for 20X4 assuming direct materials are for the production of 507,000 units?
A) $0.80
B) $0.95
C) $2.00
D) $1.08
E) $1.10
Answer: C
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) What is the break-even point in tickets sold of option one?
A) 85 tickets
B) 80 tickets
C) 76 tickets
D) 60 tickets
E) 24 tickets
Answer: C
Q2) Expected monetary value may be defined as
A) the weighted average of all possible outcomes.
B) the probability that each outcome will not occur.
C) the weighted average of the financial outcomes with the probability of each outcome serving as the weight.
D) the average of all possible outcomes.
E) the weighted average of all mutually exclusive outcomes.
Answer: C
Q3) CVP analysis requires the time value of money to be factored into formula when comparing revenues and costs.
A)True
B)False
Answer: False
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Chapter 4: Job Costing
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Sample Questions
Q1) Transferring costs from pools to jobs is called
A) cost allocation.
B) cost control.
C) cost pool.
D) cost factoring.
E) cost processing.
Q2) Using normal costing the amount of supervisory salaries to allocate is determined by calculating
A) actual direct-cost rates times actual quantities of direct-cost inputs.
B) actual indirect-cost rates times actual quantities of cost-allocation bases.
C) actual direct-cost rates times budgeted quantities of input.
D) budgeted indirect-cost rates times actual quantities of cost-allocation bases.
E) none of the above.
Q3) A grouping of individual cost items is called a
A) cost objective.
B) costing group.
C) cost department.
D) cost pool.
E) cost base.
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Chapter 5: Activity-Based Costing and Management
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Sample Questions
Q1) Resources sacrificed on activities that cannot be traced to individual products or services, but which support the organization as a whole are which of the following?
A) output unit-level costs
B) service-sustaining costs
C) batch-level costs
D) product-sustaining costs
E) facility-sustaining costs
Q2) The term used to describe a situation when at least one miscosted product causes other products to be miscosted in the organization is known as
A) cross-subsidization.
B) product marketing.
C) product overcosting.
D) product undercosting.
E) product sub-optimization.
Q3) Understanding the hierarchy of costs is critical when allocating costs to products.
A)True
B)False
Q4) 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) How many kilograms of material will need to be purchased for 2012 production and inventory requirements?
A) 11,500 kg
B) 10,700 kg
C) 10,300 kg
D) 10,500 kg
E) 10,000 kg
Q2) Which of the following statements is true concerning controllability of costs?
A) Fixed costs are controllable costs.
B) Controllable costs are easy to identify with much accuracy.
C) Senior managers rarely differ in their reliance on controllable costs for performance measurement.
D) All costs are controllable, given a sufficiently long time period.
E) Most costs are under the sole influence of any one manager.
Q3) Describe some of the drawbacks of using the operating budget as a control device.
Q4) Distinguish between controllable and uncontrollable aspects of revenue and costs. Can a manager totally control all revenue and costs? Why or why not?
Q5) Describe the benefits to an organization of preparing an operating budget.
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Chapter 7: Flexible Budgets, Variances, and Management
Control: I
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Sample Questions
Q1) What is the All Good Things Ltd. direct labour input-price variance?
A) $4,200 U
B) $4,200 F
C) $200 F
D) $4,000 F
E) $4,000 U
Q2) Whistler Table Company manufactures tables for schools. The current year operating budget is based on sales of 20,000 units at $100 per table. Operating income is anticipated to be $120,000. Budgeted variable costs are $64 per unit while fixed costs total $600,000.
Actual income for the year was $354,000 on actual sales of 21,000 units. Actual variable costs were $60 per unit and fixed costs totaled $570,000.
Required:
Prepare a variance analysis report with both flexible-budget and sales-volume variances.
Q3) Performance variance analysis can be used in activity-based costing systems. A)True B)False
Q4) Describe the purpose of variance analysis.
Page 9
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Chapter 8: Flexible Budgets, Variances, and Management
Control: II
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Sample Questions
Q1) Heather's Pillow Company manufactures pillows. The 2012 operating budget is based on production of 20,000 pillows with 0.5 machine-hour allowed per pillow. Variable manufacturing overhead is anticipated to be $220,000. Actual production for 2012 was 18,000 pillows using 9,500 machine-hours. Actual variable costs were $20 per machine-hour.
Required:
Calculate the variable overhead rate and efficiency variances.
Q2) Briefly explain why a favourable variable overhead rate variance may not always be desireable.
Q3) For planning and control purposes, actual energy usage per machine hour compared with budgeted energy usage per machine hour, is a valid financial performance measure.
A)True
B)False
Q4) What is the variable manufacturing overhead rate variance?
A) $30,000 unfavourable
B) $28,500 favourable
C) $20,000 unfavourable
D) $16,000 favourable
E) $16,000 unfavourable
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Chapter 9: Income Effects of Denominator Level on Inventory Valuation
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Sample Questions
Q1) What is the absorption costing break-even point in units?
A) 917 units
B) 1,000 units
C) 5,838 units
D) 6,000 units
E) 4,445 units
Q2) What is the inventoriable cost per unit using variable costing?
A) $32
B) $35
C) $40
D) $60
E) $75
Q3) Absorption-costing income statements cannot easily differentiate between variable and fixed costs.
A)True
B)False
Q4) Explain the difference between the gross margin format and the contribution margin format for the income statement. What information is highlighted with each?
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Chapter 10: Quantitative Analyses of Cost Functions
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Sample Questions
Q1) Discuss the potential use of nonlinear curves in cost functions and cost analysis. Give some examples.
Q2) Data collection problems arise when
A) data are recorded electronically rather than manually.
B) accrual-basis costs are used rather than cash-basis costs.
C) outliers are removed.
D) purely inflationary price effects are removed.
E) fixed and variable costs are not separately identified and both are allocated to products on a per unit basis.
Q3) Using the high-low method determine the constant at Bradco Restoration?
A) $17,500
B) $13,750
C) $2,500
D) $1,250
E) $750
Q4) Correctly identifying the cost driver and separating fixed from variable costs are important inputs for many management decisions.
A)True
B)False
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) If Konrade's Engine Company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total
A) $80,000.
B) $98,000.
C) $50,000.
D) $100,000.
E) $82,000.
Q2) The sum of all costs incurred in all business functions in the value chain (marketing, customer service, product design, and manufacturing, for example) is known as
A) business cost.
B) full product cost.
C) gross product cost.
D) multiproduct cost.
E) incremental cost.
Q3) Anticipated future costs that differ with alternative courses of action are known as relevant costs.
A)True
B)False
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Chapter 12: Pricing Decisions, Product Profitability Decisions, and Cost Management
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Sample Questions
Q1) Profit margins are often set to earn a reasonable return on investment for short-term pricing decisions, but not long-term pricing decisions.
A)True
B)False
Q2) What is the target profit percentage as a percentage of total manufacturing costs?
A) 61%
B) 21%
C) 47%
D) 27%
E) 35%
Q3) Collusive pricing occurs when companies in an industry conspire in their pricing and output decisions to achieve a price above the competitive price.
A)True
B)False
Q4) 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) What is the net increase in operating income as a result of the growth component?
A) $72,500 unfavourable
B) $72,500 favourable
C) $51,500 favourable
D) $99,500 unfavourable
E) $99,500 favourable
Q2) Although total factor productivity (TFP) measures are comprehensive, operations personnel find financial TFP measures more difficult to understand and less useful than physical partial productivity measures in performing their tasks.
A)True
B)False
Q3) Reengineering is the fundamental rethinking and redesign of business processes to achieve improvements in critical measures of performance such as cost, quality, service, speed, and customer satisfaction.
A)True
B)False
Q4) Required:
What is the amount of the productivity component?
Page 15
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Chapter 14: Period Cost Allocation
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Sample Questions
Q1) An organization determines its allocation base depending upon which of the following factors?
A) the purpose served by the cost allocation base
B) the size of the base
C) the number of different items in the base
D) the performance of the denominator activity
E) benchmarking competitor processes
Q2) Which of the following linear equations would represent the complete reciprocated cost of the Data Processing department?
A) DP = $75,000 + (600/4,700)PM
B) DP = $75,000 + (3,500/16,700)PM
C) DP = $75,000 × (600/4,800) + $350,000 × (3,340/16,700)
D) PM = $350,000 + (600/16,700)DP
E) PM =$75,000 × (600/4,700) + $350,000 × (3,340/16,700)
Q3) The vector of constants is the list of cost pools of each support and operating department.
A)True
B)False
Q4) 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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Sample Questions
Q1) What is product Y's approximate joint production cost if the sales value at split off point method is used?
A) $365,625
B) $419,250
C) $458,250
D) $600,000
E) $609,375
Q2) BC Lumber Company prepares lumber for companies who manufacture furniture. The main product is finished lumber with a byproduct of wood shavings. The byproduct is sold to plywood manufacturers. For July, the manufacturing process incurred $332,000 in total costs. Eighty thousand board feet of lumber were produced and sold along with 6,800 pounds of shavings. The finished lumber sold for $6.00 per board foot and the shavings sold for $0.60 a pound. There were no beginning or ending inventories. Required:
Prepare an income statement showing the byproduct (1) as a cost reduction during production, and (2) as a revenue item when sold.
Q3) Explain the difference between a joint product and a byproduct. Can a byproduct ever become a joint product?
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Chapter 16: Revenue and Customer Profitability Analysis
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Sample Questions
Q1) The sales-quantity variance is favorable when budgeted unit sales exceed actual unit sales.
A)True
B)False
Q2) What is the total sales-volume variance?
A) $9,250 favourable
B) $9,250 unfavourable
C) $26,100 favourable
D) $7,850 unfavourable
E) $7,850 favourable
Q3) Under the incremental revenue-allocation method, there is an incentive to be the first-ranked user.
A)True B)False
Q4) What is the company's market-size variance?
A) $4,800 favourable
B) $3,200 favourable
C) $2,400 favourable
D) $2,400 unfavourable
E) $3,200 unfavourable
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Chapter 17: Process Costing
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Sample Questions
Q1) The Zygon Corporation was recently formed to produce a semiconductor chip that forms an essential part of the personal computer manufactured by a major corporation. The direct materials are added at the start of the production process while conversion costs are added uniformly throughout the production process. June is Zygon's first month of operations, and therefore, there was no beginning inventory. Direct materials cost for the month totaled $895,000, while conversion costs equaled $4,225,000. Accounting records indicate that 475,000 chips were started in June and 425,000 chips were completed.
Ending inventory was 50% complete as to conversion costs.
Required:
a. What is the total manufacturing cost per chip for June?
b. Allocate the total costs between the completed chips and the chips in ending inventory.
Q2) 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
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Chapter 18: Spoilage, Rework, and Scrap
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Sample Questions
Q1) Assuming Hawk uses the FIFO method of process costing, the cost of the ending work in process inventory is:
A) $23,040
B) $23,142
C) $28,800
D) $28,920
E) $19,200
Q2) Assuming Hawk uses the FIFO method of process costing, the equivalent units for direct materials and conversion costs respectively for October are:
A) 87,000 units; 93,300 units
B) 87,000 units; 94,200 units
C) 80,000 units; 86,300 units
D) 87,000 units; 90,900 units
E) 99,000 units; 94,200 units
Q3) Accounting for rework in process-costing only requires that abnormal rework be distinguished from normal rework.
A)True
B)False
Q4) Distinguish among spoilage, reworked units, and scrap. Give an example of each.
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Chapter 19: Cost Management: Quality, Time, and the Theory of Constraints
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Sample Questions
Q1) External failure costs include all of the following EXCEPT
A) scrap.
B) customer support.
C) liability claims.
D) transportation costs.
E) warranty costs.
Q2) An example of a nonfinancial Balanced Scorecard measure concerning internal business processes would be the percentage of products that fail soon after delivery.
A)True
B)False
Q3) Producing more non-bottleneck output
A) creates more inventory but does not increase throughput contribution.
B) creates more inventory and increases throughput contribution.
C) creates less pressure for the bottleneck workstations.
D) allows for the maximization of overall contribution.
E) allows for the maximization of overall shop effectiveness.
Q4) An "economy of scale" function is an example of a linear cost function.
A)True
B)False
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Chapter 20: Inventory Cost Management Strategies
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Sample Questions
Q1) Which of the following is NOT a component in a materials requirement planning system?
A) lead times of all items to be purchased
B) master production schedule
C) bill of materials filed
D) standard construction times for all components produced externally
E) demand forecasts for finished goods
Q2) Just-in-time purchasing is guided solely by the economic order quantity.
A)True
B)False
Q3) A financial benefit of a just-in-time system is that inventory carrying costs are reduced.
A)True
B)False
Q4) The lack of buffer inventory in a demand-pull system means production staff has extra time to solve problems.
A)True
B)False
Q5) The costs associated with storage are an example of which cost category?
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Chapter 21: Capital Budgeting: Methods of Investment Analysis
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Sample Questions
Q1) Projects with shorter paybacks always generate more cash flows.
A)True
B)False
Q2) Both financial and nonfinancial factors associated with proposed capital budgeting opportunities need to be considered as part of the capital budgeting decision process.
A)True
B)False
Q3) 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
Q4) Briefly describe the processes in the Capital Budgeting Decision Process Model.
Page 23
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Chapter 22: Capital Budgeting: a Closer Look
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Q1) Which of the following is not a relevant cash flow in capital budgeting?
A) after-tax cash flow from current disposal of old asset
B) after-tax cash flow from future disposal of asset at life's end
C) after-tax cash flow from accumulated depreciation
D) initial asset investment of the replacement machine
E) after-tax annual cash flows relating to the new asset
Q2) For the capital budgeting decision regarding the acquisition of a new piece of equipment the following is available: investment, $60,000; present value of net cash inflows, $40,000. What is the excess present value index?
A) 0.00
B) 0.67
C) 1.50
D) 3.00
E) 1.00
Q3) Adjusting the Required Rate of Return Approach involves examining the consequences of changing key assumptions underlying a capital budgeting project.
A)True
B)False
Q4) How is inflation related to capital budgeting? Discuss.
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Chapter 23: Transfer Pricing and Multinational Management Control Systems
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Q1) In a time of distress prices, which of the following is true?
A) The vendor division should set the transfer price at the distress price on a long-term basis for stability within the overall company.
B) The vendor division should cease production.
C) The purchasing division should pay normal prices.
D) In the short-term, the transfer price should be the distress price as long as this exceeds the incremental costs.
E) The distress price should be ignored as it is a function of the market, not of the internal capacities of the overall company.
Q2) When demand outstrips supply, market prices may drop below historical averages. These prices are known as distress prices.
A)True
B)False
Q3) What are some of the factors, other than income taxation, that companies should consider when setting international transfer prices?
Q4) Transfer prices among divisions within Canada are irrelevant. Do you agree with this statement? Explain.
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Chapter 24: Multinational Performance Measurement and Compensation
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Q1) Moral Hazard describes contexts in which, once risk is shared, the individual fails to make as much effort to avoid harm as when risk was not shared.
A)True
B)False
Q2) Which of the following statements is true?
A) The economic, legal, political, social, and cultural environments are always similar across countries.
B) Governments in some countries may impose controls and limit selling prices of a company's products.
C) The availability of materials and skilled labour does not normally differ across countries.
D) There are no difficulties in comparing performance of divisions across different countries.
E) Nonfinancial performance measures should not be used when comparing performance of divisions in different countries.
Q3) The economic value added concept has attracted considerable attention in recent years. Explain the attractiveness of this number as a measure of performance.
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