Financial Decision Making Practice
Questions
Course Introduction
Financial Decision Making explores the essential concepts and analytical tools necessary for making effective financial choices in both personal and organizational contexts. The course covers key topics such as time value of money, risk and return analysis, capital budgeting, cost of capital, financial statement interpretation, and portfolio management. Students will gain practical experience in evaluating investment opportunities, financing strategies, and operational decisions facing firms and individuals alike. Through real-world cases and applied exercises, the course aims to develop critical thinking and quantitative skills essential for sound financial decision-making in dynamic and uncertain environments.
Recommended Textbook Managerial Accounting 3rd Edition by
Charles E. Davis
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Page 2
Chapter 1: Accounting As a Tool for Management
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Sample Questions
Q1) Preparers of managerial accounting information are generally not active participants in the decision making process.
A)True
B)False
Answer: False
Q2) One purpose of planning activities is to monitor day-to-day operations to ensure that processes are operating as expected.
A)True
B)False
Answer: False
Q3) Which of the following is least likely to be in a company's code of ethics?
A)Access to information
B)Projected percentage of employees who act unethically
C)Development and fundraising
D)Clarity of information
Answer: B
Q4) The supply chain's goal is to reduce or eliminate defects.
A)True
B)False
Answer: False
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Chapter 2: Cost Behavior and Cost Estimation
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Sample Questions
Q1) Step costs are fixed over only a small range of activity.
A)True
B)False
Answer: False
Q2) A contribution margin format income statement
A)is based on cost function rather than on cost behavior.
B)allows managers to assess the impact of sales volume on operating income.
C)both is based on cost function rather than on cost behavior and allows managers to assess the impact of sales volume on operating income.
D)neither is based on cost function rather than on cost behavior nor allows managers to assess the impact of sales volume on operating income.
Answer: B
Q3) What is a mixed cost? What happens to a mixed cost as the level of activity changes?
Answer: A mixed cost is a cost that contains both a fixed and a variable component.Both the total cost and the unit cost will vary with changes in level of activity.Total cost will increase as the level of activity increases.Unit cost will decrease as activity increases since the fixed component is being spread among a larger number of units.
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4
Chapter 3: Cost-Volume-Profit Analysis and Pricing
Decisions
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Sample Questions
Q1) Computer Basics offers three types of on-line basic computer training: Office,Web Design,and Programming.In the past,for every 20 students who sign up for training,10 take the Office,6 take Web Design,and 4 take Programming.Compute Basics has calculated a breakeven point of 1,200 courses.How many of the 1,200 courses will be Office?
A)30
B)60
C)300
D)600
Answer: D
Q2) All other things equal,a company can increase its operating leverage by
A)Converting commission- based salespeople to salaried.
B)Increasing the amount of depreciation charges.
C)Converting direct costs to indirect costs.
D)Converting manufacturing overhead to general and administrative expenses.
Answer: A
Q3) Net income divided by 1 - tax rate = Operating income
A)True
B)False
Answer: True
Page 5
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Chapter 4: Product Costs and Job Order Costing
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Sample Questions
Q1) Which of the following is not an indirect material?
A)Supplies used in supporting the production process which may not be part of the final product
B)Direct material that is not a significant part of the product
C)Material used that is inexpensive,so it is not cost effective to trace its cost back to the product
D)Office supplies used by human resources
Q2) A zero balance in the Manufacturing Overhead Control account indicates that
A)actual overhead cost and applied overhead cost are equal.
B)all inventory is reflected at actual cost.
C)both actual overhead cost and applied overhead cost are equal and all inventory is reflected at actual cost.
D)neither actual overhead cost and applied overhead cost are equal nor all inventory is reflected at actual cost.
Q3) The production costs of completed products are recorded in the finished goods inventory account.
A)True
B)False
Q4) Predetermined overhead rates and manufacturing overhead application
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Chapter 5: Planning and Forecasting
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Sample Questions
Q1) In setting the direct labor quantity standard,allowances are made for A)rest time.
B)machine down time.
C)both rest time and machine down time.
D)neither rest time nor machine down time.
Q2) Sophia,Inc.is preparing its cash budget for the fourth quarter.The inventory manager advises that materials purchases will be $40,000 in October and will increase by 25% for each month thereafter due to the holiday season.Sophia's purchases in September were $32,000.Sophia pays for purchases 50% in the month after sale and 50% in the 2nd month after the sale.What are Sophia's budgeted cash payments for purchases in November?
A)$45,000
B)$36,000
C)$61,000
D)$40,000
Q3) The first section of the cash budget reconciles the cash available to the borrowing required to meet the minimum cash balance.
A)True
B)False
Q4) What is budgetary slack and why is it an issue in budget preparation?
Page 7
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Chapter 6: Performance Evaluation: Variance Analysis
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Sample Questions
Q1) The standard number of direct labor hours used in calculating the direct labor efficiency variance is based on
A)the static budget.
B)the actual number of finished units produced.
C)the number of units on the production budget.
D)the number of
Q2) The algebraic equation for the direct materials price variance is
A)Direct materials price variance = AQ<sub>purch</sub> x AP - SP
B)Direct materials price variance = SQ<sub>purch</sub> x AP - SP
C)Direct materials price variance = SP x AQ<sub>purch</sub> - SQ<sub>purch</sub>
D)Direct materials price variance = AP x AQ<sub>purch</sub> - SQ<sub>purch</sub>
Q3) The variable overhead efficiency variance is calculated as
A)actual cost - actual quantity x standard price.
B)actual cost - standard quantity x standard price.
C)standard price x actual quantity x standard quantity.
D)actual results minus flexible budget amount.
Q4) The following standards for variable manufacturing overhead have been established for Windsor,Inc.a manufacturer of reproduction vintage hats. Standard hours per
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Chapter 7: Activity-Based Costing and Activity Based Management
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Sample Questions
Q1) Which of the following activities would be classified as non-value added in the manufacture of wooden bird houses?
A)Moving materials
B)Nailing
C)Painting
D)Sanding
Q2) A characteristic of non-value-added activities is that they
A)can always be eliminated.
B)can never be eliminated.
C)can sometimes be eliminated.
D)are always related to fixed costs.
Q3) The last step in the preparation of activity-based costing data is to
A)determine the cost pool resources.
B)determine the activity driver.
C)allocate cost to products.
D)calculate the
Q4) First-stage allocation is the process of assigning manufacturing overhead costs to activity pools.
A)True
B)False
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Chapter 8: Using Accounting Information to Make Managerial Decisions
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Sample Questions
Q1) When choosing between alternatives,the contribution margin of the next-best alternative is called
A)incremental revenue.
B)opportunity cost.
C)sunk cost.
D)incremental analysis.
Q2) Costs such as rent and the production manager's salary are examples of which type of cost?
A)Non-differential costs
B)Allocated product costs
C)Sunk costs
D)Relevant costs
Q3) Costs such as rent and the production manager's salary are non-differential,but are relevant.
A)True
B)False
Q4) Offshoring means moving a company's business processes to a foreign country. A)True
B)False
Q5) Paris Manufacturing Company Inc.uses 400
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Chapter 9: Capital Budgeting
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Sample Questions
Q1) The payback period is used most often as a screening tool,by companies that have established a maximum acceptable payback period.
A)True
B)False
Q2) Which of the following is a reason capital budget requests should be reviewed and approved by executive management?
A)These investments are made for the long-term
B)These investments will likely have a significant impact on the company's future financial health
C)Both because these investments are made for the long-term and because these investments will likely have a significant impact on the company's future financial health
D)Neither because these investments are made for the long-term nor because these investments will likely have a significant impact on the company's future financial health
Q3) Capital assets are also referred to as long-lived assets.
A)True
B)False
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Chapter 10: Decentralizing and Performance Evaluation
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Sample Questions
Q1) The accounting department of a large corporation would be classified as a
A)Cost center.
B)Profit center.
C)Investment center.
D)Segment.
Q2) An investment center manager's performance can be based on
A)The same methods as managers of cost centers.
B)The same methods as managers of profit centers.
C)Either the same methods as managers of cost centers or the same methods as managers of profit centers.
D)Neither the same methods as managers of cost centers nor the same methods as managers of profit centers.
Q3) A cost center manager's performance is measured largely by comparing the actual costs incurred to the flexible budget.
A)True
B)False
Q4) In a decentralized organization,upper managers need a way to evaluate the performance of
Q5) What is EVA and how is it calculated?
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Chapter 11: Performance Evaluation Revisited: a Balanced Approach
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Sample Questions
Q1) Return on investment,residual income,and EVA all have qualitative components.
A)True
B)False
Q2) Barry's Ice Cream Shoppe is interested in improving his performance in the area of quality control and customer service.This interest came about after Barry put a "suggestions box" near the counter.Several suggestions related to employees not being clean in handling their orders,not filling orders properly,and rudeness from employees.Barry has discussed his problems with his neighboring store,a local dry cleaning business.
Required:
List five processes that Barry and the dry cleaning business have in common.
Q3) A performance dashboard is a management tool that integrates performance measures performance across four different perspectives dashboard to guide operations toward achieving an organization's strategy.
A)True
B)False
Q4) Lagging indicators can be used to predict future results.
A)True
B)False
13
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) In preparing a common-size balance sheet,you express all account balances as a percentage of
A)Total stockholders' equity.
B)Total liabilities.
C)Total assets plus total liabilities minus stockholders' equity.
D)Total assets.
Q2) Answer the following questions related to common-size financial statements?
a.What are common-size financial statements? How are common-size financial statements used?
b.What is the base for a common-size income statement?
c.What is the base for a common-size balance sheet? Unit 12-2,
Q3) Two measures of liquidity are the accounts receivable turnover and the inventory turnover.What do each of these measures,and how are they each calculated?
Q4) The gross margin percentage is calculated as
A)Gross margin divided by cost of goods sold.
B)Gross margin divided by net sales revenue.
C)Gross margin divided by net income.
D)Net income divided by gross margin.
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) Which of the following methods of reporting cash flows provided by operating activities does the Financial Accounting Standards Board recommend?
A)The indirect method
B)The direct method
C)Either the indirect method or the direct method
D)Neither the indirect method nor the direct method
Q2) Assume your friend has taken an accounting course in high school and is familiar with the balance sheet and income statement.However,she is not so familiar with the statement of cash flows.
Required:
Explain to your friend why the statement of cash flows is an important financial statement just like the balance sheet and income statement.In addition,explain to her how the information is presented in the statement of cash flows.
Q3) Which of the following cash flows results from an investing activity?
A)Making a payment on a loan
B)Receiving a cash dividend on an investment in another company
C)Selling an investment in another company
D)Receiving payment from a customer for last month's accounts receivable
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Chapter 14: Topic Focus: Process Costing
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Sample Questions
Q1) In a job order costing system,the costs of each job are accumulated on a job cost sheet,while in process costing,the costs are accumulated by department.
A)True
B)False
Q2) The costing systems in which all product costs for the period are accumulated and divided evenly over all
A)job order costing system.
B)accumulation costing system.
C)departmental costing system.
D)process costing system.
Q3) The accounting firm PriceWaterhouseCoopers is an example of a company that would use a process costing system.
A)True
B)False
Q4) Which of the following is not a step in calculating the
A)Calculate the physical unit flow
B)Calculate the equivalent units of production
C)Calculate the cost per equivalent unit
D)Multiply the physical
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Chapter 15: Topic Focus Variable and Absorption Costing
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Sample Questions
Q1) In absorption costing,all manufacturing costs are considered to be
A)product costs.
B)period costs.
C)variable costs.
D)mixed costs.
Q2) Mixed costs are divided into their direct and indirect components.
A)True
B)False
Q3) Which of the following is not a product cost?
A)Direct material
B)Direct labor
C)Selling expenses
D)Manufacturing overhead
Q4) Fixed manufacturing overhead is treated as a period expense in which of the following costing methods?
A)Absorption costing
B)Normal costing
C)Full costing
D)Variable costing
Q5) What managerial behavior does variable costing render ineffective?
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Chapter 16: Topic Focus Standard Costing Systems
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Sample Questions
Q1) When using a standard costing system,which of the following should be recorded when direct materials are transferred to the production floor?
A)Debit raw materials inventory for the actual amount at the standard price and credit work in process for the actual amount at the standard price.
B)Debit raw materials inventory for the standard amount at the standard price and credit work in process for the actual amount at the actual price with a debit or credit to direct material quantity variance.
C)Credit raw materials inventory for the standard amount at the standard price and debit work in process for the standard amount at the actual price with a debit or credit to direct material quantity variance.
D)Credit raw materials inventory for the actual amount at the standard price and debit work in process for the standard amount at the standard price with a debit or credit to direct material quantity variance.
Q2) When using a standard costing system,all product costs are recorded at standard cost while the products are being made.
A)True
B)False
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Chapter 17: Topic Focus Customer Profitability
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Q1) Customer net profit divides customer net profit by customer revenues.
A)True
B)False
Q2) Measuring customer profitability only by looking at whether the sales revenue a customer generates exceeds the cost of goods sold ignores
A)All the selling and administrative costs incurred to provide customer service and support.
B)Manufacturing costs incurred as overhead.
C)All fixed costs.
D)Only the depreciation cost.
Q3) One way for managers to get an estimate of customer profitability is to allocate expenses to customers through activity-based costing.
A)True
B)False
Q4) Which of the following is not a step in using activity-based costing?
A)Identify selling activities
B)Calculate activity cost pool rates
C)Calculate a predetermined overhead rate
D)Calculate customer profitability
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