Financial Management Accounting Practice Exam
Course Introduction
Financial Management Accounting focuses on the essential principles and methods used to analyze, interpret, and communicate financial information for internal decision-making in organizations. The course explores topics such as budgeting, cost analysis, performance measurement, and financial planning, equipping students with the skills needed to support strategic business objectives and operational efficiency. Emphasis is placed on the use of accounting information to make informed managerial decisions, manage resources effectively, and enhance organizational value. Through case studies and practical applications, students learn how financial management accounting plays a critical role in planning, controlling, and evaluating business activities.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis16th Global Edition by
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Srikant M. Datar
Chapter 1: The Manager and Management Accounting
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Q1) Cost management not only helps reduce costs but also improve customer satisfaction and the quality of a firm's products.
A)True
B)False
Answer: True
Q2) Which of the following issues is addressed by the Sarbanes-Oxley legislation?
A)safety aspects of products
B)environmental damages caused by industries
C)disclosure practices of public corporations
D)disclosure practices of private companies
Answer: C
Q3) A budget helps to control activities by adhering to the prescribed plan.
A)True
B)False
Answer: True
Q4) The last step in the decision-making process is to make decisions by choosing among alternatives.
A)True
B)False
Answer: False
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Chapter 2: An Introduction to Cost Terms and Purposes
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Q1) ________ are all manufacturing costs that are related to the cost object but cannot be traced to that cost object in an economically feasible way.
A)Indirect manufacturing costs
B)Marketing costs incurred
C)Variable manufacturing costs
D)Custom duties paid for the materials
Answer: A
Q2) Improvements in information-gathering technologies are making it possible to trace more costs as direct.
A)True
B)False
Answer: True
Q3) Rework labor time is considered an overhead cost and not a direct labor cost. A)True
B)False
Answer: True
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Chapter 3: Cost-Volume-Profit Analysis
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Q1) Assume only the specified parameters change in a CVP analysis.The contribution margin percentage increases when ________.
A)total fixed costs increase
B)total fixed costs decrease
C)variable costs per unit increase
D)variable costs per unit decrease
Answer: D
Q2) Contribution Margin = Total revenues - Total variable costs
A)True
B)False
Answer: True
Q3) Fixed costs equal $16,000,unit contribution margin equals $35,and the number of units sold equal 1,300.Operating income is ________.
A)$45,500
B)$29,500
C)$16,000
D)$61,500
Answer: B
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Chapter 4: Job Costing
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Q1) When using a normal costing system,manufacturing overhead is allocated using the ________ manufacturing overhead rate and the ________ quantity of the allocation base.
A)budgeted;actual
B)budgeted;budgeted
C)actual;budgeted
D)actual;actual
Q2) For externally reported inventory costs,the Work-in-Process Control account is increased (debited)by ________.
A)marketing costs
B)allocated plant utility costs
C)the purchase costs of direct and indirect materials
D)customer-service costs
Q3) Job-costing is likely to be used by________.
A)oil refining companies
B)advertising agencies
C)Mortgage payment processors
D)breakfast cereal producers
Q4) Differentiate between a cost pool and a cost-allocation base.
Q5) What is the difference between an actual cost system and a normal cost system?
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Q1) Which of the following statements about ABC is not true?
A)A byproduct of ABC implementation can improve the efficiency of operations
B)ABC should be implemented solely by the accountants as they are the guardians of the accounting information system
C)ABC may empower employees to also implement cost saving projects
D)Although implementation of ABC can be a refinement of a cost system,it has its limitations
Q2) Which of the following is a sign that an ABC system will provide benefits?
A)There are relatively few indirect cost pools associated with the product and the indirect costs are a small percentage of total product cost
B)All the products produced are similar and sell in equal proportions (sales mix)
C)Operations staff has no substantial disagreements with the reported costs of manufacturing and marketing products and services.
D)All or most indirect costs are treated as output-unit level costs.
Q3) Only indirect costs are included in the cost pools of ABC.
A)True
B)False
Q4) How does ABC costing system help service companies?
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Chapter 6: Master Budget and Responsibility Accounting
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Q1) Data from the revenues budget is utilized in the production budget.
A)True
B)False
Q2) A limitation of using past performance as a basis for judging actual results is that ________.
A)future conditions can be different from the past
B)any undervaluation of profits in the past period is likely to continue
C)any subsequent change in accounting treatment will distort performance evaluation D)they tend to distort results when current and past conditions are similar
Q3) Budgets are sometimes called targets or commitments by some companies and as such are "set in stone" to provide effective benchmarks for management.
A)True
B)False
Q4) When the operating budget is used as a control device,managers are less likely to be motivated to budget higher sales than actually anticipated.
A)True
B)False
Q5) Describe the concept of kaizen budgeting.
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Chapter 7: Flexible Budgets,direct-Cost Variances,and Management Control
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Q1) Which of the following is the correct formula for the materials price variance?
A)(Actual price of input - Budgeted price of input)x Budgeted quantity of input
B)(Actual quantity of input used - Budgeted quantity of input allowed for actual output)x Budgeted price of input
C)(Actual price of input - Budgeted price of input)x Actual quantity of input
D)(Actual quantity of input used - Budgeted quantity of input allowed for actual output)x Actual price of input
Q2) Bennett Street Table Company manufactures tables for schools.The 2018 operating budget is based on sales of 45,000 units at $55 per table.Operating income is anticipated to be $240,000.Budgeted variable costs are $35 per unit,while fixed costs total $660,000.
Actual income for 2018 was a surprising $569,000 on actual sales of 46,000 units at $60 each.Actual variable costs were $34 per unit and fixed costs totaled $627,000.
Required:
Prepare a variance analysis report with both flexible-budget and sales-volume variances.
Q3) Describe the purpose of variance analysis.
Q4) What is benchmarking,and how is it useful to a company?
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Chapter 8: Flexible Budgets, overhead Cost Variances, and Management Control
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Q1) While calculating the costs of products and services,a standard costing system
A)allocates overhead costs on the basis of the actual overhead-cost rates
B)uses standard costs to determine the cost of products
C)does not keep track of overhead cost
D)traces direct costs to output by multiplying the standard prices or rates by the actual quantities
Q2) Zitrik Corporation manufactured 130,000 buckets during February.The variable overhead cost-allocation base is $5.30 per machine-hour.The following variable overhead data pertain to February:
\(\begin{array}{lll}&\text { Actual }&\text { Budgeted } \\
\text { Production } & 130,000 \text { units } & 130,000 \text { units } \\
\text { Machine-hours } & 9,500 \text { hours } & 9,000 \text { hours } \\
\text { Variable overhead cost per machine-hour } & \$ 5.35 & \$ 5.30
\end{array}\)
What is the variable overhead efficiency variance?
A)$2,650 unfavorable
B)$2,675 favorable
C)$2,650 favorable
D)$2,675 unfavorable.
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Chapter 9: Inventory Costing and Capacity Analysis
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Q1) Which of the following is not one of the reasons why absorption costing might also be used for internal reporting?
A)It is more useful for managerial decision making than variable costing
B)It is cost effective and less confusing for managers to use one common method for both internal and external reporting
C)It can help prevent managers from making decisions that make their performance look good to the detriment of income reported to shareholders
D)For long-term decision making both variable and fixed costs must be considered for inventory related decisions
Q2) U.S.tax reporting requires end-of-period reconciliation between actual and applied indirect costs using the adjusted allocation-rate method or the proration method.
A)True
B)False
Q3) The contribution-margin format of the income statement is used with absorption costing.
A)True
B)False
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Chapter 10: Determining How Costs Behave
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Q1) Managers should use past data to create a cost function and then use the exact information provided by that cost function to create the budgetary forecast for the next year.
A)True
B)False
Q2) The quantitative analysis method uses a formal mathematical method to identify cause-and-effect relationships among past data observations.
A)True
B)False
Q3) Multiple regression analysis uses only independent variables and not dependent variables.
A)True
B)False
Q4) The conference method estimates cost functions ________.
A)using quantitative methods that can be very time consuming and costly
B)based on analysis and opinions gathered from various departments
C)using time-and-motion studies
D)by mathematically analyzing the relationship between inputs and outputs in physical terms
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Chapter 11: Decision Making and Relevant Information
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Q1) A sunk cost is a relevant cost in a decision making.
A)True
B)False
Q2) Discontinuing unprofitable products will ________.
A)increase profitability if the resources no longer required by the discontinued product can be eliminated
B)increase profitability if capacity constraints are adjusted
C)decrease profitability if the fixed costs does not change after discontinuing the particular business segment
D)increase profitability when a large portion of the fixed costs are unavoidable
Q3) Are relevant revenues and relevant costs the only information needed by managers to select among alternatives? Explain using examples.
Q4) When using the five-step decision process,which one of the following steps should be done first?
A)obtain information
B)choose an alternative
C)evaluation and feedback
D)implementing the decision
Q5) Explain the five-step decision process that managers can use to make decisions.
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Chapter 12: Strategy,balanced Scorecard,and Strategic
Profitability Analysis
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Q1) When analyzing the change in operating income,the strategy component of price-recovery will increase when ________.
A)capacity is reduced
B)market share is increased
C)selling prices are increased
D)more units are sold
Q2) Higher selling prices,rather than unique products or services,provide a competitive advantage for the cost leader companies.
A)True
B)False
Q3) Which of the following statements is true of productivity measures?
A)Partial productivity and total factor productivity measures never work best together.
B)Partial productivity explicitly considers gains from using fewer physical inputs as well as substitution among inputs.
C)All productivity measures are physical measures lacking financial content.
D)Total factor productivity considers the trade-offs across various inputs based on current input prices.
Q4) What are the four key perspectives in the balanced scorecard?
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Chapter 13: Pricing Decisions and Cost Management
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Q1) Predatory pricing occurs when companies in an industry conspire in their pricing and production decisions to achieve a price above the competitive price and so restrain trade.
A)True
B)False
Q2) Predatory pricing is a type of price discrimination that ________.
A)allows prices to be cut to the level of variable costs
B)is required when a company declares bankruptcy so that it can sell its remaining goods quickly
C)is used in the food industry for perishable goods
D)deliberately sets prices very low,sometimes even below costs,to minimize competition
Q3) Life-cycle budgeting and life-cycle costing can help highlight which of the following measures?
A)an increase in customer-service costs due to using inferior materials
B)high production costs caused by a complex design
C)large ordering costs due to the great number of component parts used
D)an increase in annual operating income resulting from the new product
Q4) What are the five steps that are followed while implementing target pricing and target costing?
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Chapter 14: Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis
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Q1) A shift towards a higher proportion of sales of products with a lower contribution margin per unit will most likely result in a(n)________.
A)unfavorable sales-mix variance
B)unfavorable sales-quantity variance
C)favorable sales-mix variance
D)favorable sales-quantity variance
Q2) The Conity Corporation has an Electric Mixer Division and an Electric Lamp Division.Of a $15,000,000 bond issuance,the Electric Mixer Division used $9,400,000 and the Electric Lamp Division used $5,600,000 for expansion.Interest costs on the bond totaled $980,000 for the year.
The above interest costs would be considered a(n)________.
A)output unit-level cost
B)facility-sustaining cost
C)product-sustaining cost
D)batch-level cost
Q3) Should a company allocate its corporate costs to divisions?
Q4) Explain the importance of customer-profitability analysis.
Q5) What are the two components of the sales-volume variance?
Q6) What actions might be taken with an unprofitable customer?
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Chapter 15: Allocation of Support-Department Costs, common
Costs, and Revenues
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Q1) Under the step-down method,once a support department's costs have been allocated,all subsequent support-department costs are allocated back to it.
A)True
B)False
Q2) The stand-alone method uses the product in the bundle with the most sale and then uses this ranking to allocate bundled revenues to individual products.
A)True
B)False
Q3) Two or more support departments whose costs are being allocated can also provide support to each other and as well as to operating departments.
A)True
B)False
Q4) Because the variable costs are directly and causally linked to usage,charging them as a function of the actual usage is appropriate.
A)True
B)False
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Q1) Which of the following statements is true of the sales method of accounting for byproducts?
A)It makes journal entries when the byproducts are produced.
B)It is the preferred method because of the matching principle.
C)It allows a firm to manage its reported earnings by timing the sale of byproducts.
D)This method recognizes the byproduct inventory in the accounting period in which it is produced.
Q2) All separable costs in joint-cost allocations are always incremental costs.
A)True
B)False
Q3) When the selling prices at the split-off are unavailable,the NRV method is the best alternative.
A)True
B)False
Q4) Separable costs that do not differ between alternatives are irrelevant for decision making.
A)True
B)False
Q5) What are joint costs,separable costs,and a split-off point?
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Chapter 17: Process Costing
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Q1) Standard costing is NOT possible in a firm that uses process costing.
A)True
B)False
Q2) The purpose of the equivalent-unit computation is to ________.
A)convert completed units into the amount of partially completed output units that could be made with that quantity of input
B)use a common metric to estimate the amount of work done on units in a period
C)predict the future production capabilities of the organization
D)satisfy the GAAP requirements which requires all partially completed goods to be reported as equivalent-units
Q3) Which of the following statements best describes conversion costs?
A)Conversion costs are all manufacturing and nonmanufacturing costs.
B)Conversion costs are all manufacturing costs other than direct materials costs.
C)Conversion costs are all nonmanufacturing costs including marketing costs.
D)Conversion costs are all nonmanufacturing costs other than fixed selling and distribution 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) Which of the following is an example of spoilage?
A)short lengths from woodworking operations that cannot be used to make another product
B)edges from plastic molding operations that result from the main product's manufacturing process but have little or no value
C)defective units of laptops detected after the production process but reworked before the units are sold as good products to customers
D)defective men's button down cotton collar dress shirts that have small pulls in the material and must be sold as discounted "seconds" in the factory store
Q2) In accounting for scrap,which of the following statements is true?
A)Normal scrap is accounted for separately from abnormal scrap.
B)In accounting for scrap,there is no distinction between the scrap attributable to a specific job and scrap common to all jobs.
C)Initial entries to scrap accounting records are most often made in dollar terms.
D)Scrap records not only help measure efficiency,but also help keep track of scrap,and so reduce the chances of theft.
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Chapter 19: Balanced Scorecard: Quality and Time
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Q1) Which of the following is a learning-and-growth measure to study the output during bottleneck situations?
A)manufacturing cycle efficiency for key processes
B)carrying cost of inventories
C)number of employees trained to manage bottlenecks
D)improve customer-response time during bottlenecks
Q2) Without financial quality measures,________.
A)customer satisfaction and employee satisfaction cannot be measured
B)the short-run effectiveness of nonfinancial quality measures is questionable
C)cost-benefit analysis is not possible
D)quality problems might not be identified until it is too late
Q3) Longer manufacturing cycle times increase the inventory carrying costs and decrease revenues.
A)True
B)False
Q4) Spoilage,rework,scrap,and machine repairs are all examples of ________.
A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs
21
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Chapter 20: Inventory Management, just-In-Time, and Simplified Costing Methods
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Q1) Lean accounting is much simpler than traditional product costing because
A)it compares value stream costs against costs that include costs of all purchased materials
B)it computes the cost of individual products
C)calculating actual product costs by value streams requires less overhead allocation D)adding a larger markup on value stream costs to compensate for some of the excluded costs is easier than tracing all non value added costs
Q2) Companies use safety stock as a buffer against unexpected decreases in demand. A)True
B)False
Q3) What is a supply chain,and what are the benefits of a supply chain analysis? Provide an example of these benefits.
Q4) A successful implementation of a JIT production system should result in a lowering of the inventory turnover ratio.
A)True
B)False
Q5) What are the principles of lean accounting? Are there any limitations? Discuss.
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Chapter 21: Capital Budgeting and Cost Analysis
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Q1) Midize Flower Company provides flowers and other nursery products for decorative purposes in medium to large sized restaurants and businesses.The company has been investigating the purchase of a new specially equipped van for deliveries.The van will cost $61,392 with a eight-year life.The expected additional cash inflows are $16,000 per year.What is the internal rate of return?
A)17%
B)20%
C)22%
D)27%
Q2) The Ambitz Corporation has an annual cash inflow from operations from its investment in a capital asset of $44,000 (excluding the deprecation)each year for seven years.The corporation's income tax rate is 35%.Calculate the total after-tax cash inflow from operations for seven years.
A)$308,000
B)$308,002
C)$200,200
D)$44,000
Q3) What are the strengths and weaknesses of the accrual accounting rate-of-return (AARR)method for evaluating long-term projects?
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Chapter 22: Management Control Systems, transfer Pricing, and
Multinational Considerations
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Q1) In analyzing transfer prices,the ________.
A)buyer will not willingly purchase a product for less than the incremental costs incurred to manufacture the product internally
B)seller will not willingly sell a product for less than the incremental costs incurred to make the product
C)buyer will willingly pay more than the ceiling transfer price
D)buyer will not pay less than the ceiling transfer price
Q2) Division A sells ground veal internally to Division B,which in turn,produces veal burgers that sell for $19 per pound.Division A incurs costs of $1.25 per pound while Division B incurs additional costs of $6.50 per pound. Which of the following formulas correctly reflects the company's operating income per pound?
A)$19 - ($1.25 + $6.50)= $11.25
B)$19 - ($3.25 + $6.50)= $9.25
C)$19 - ($1.25 + $9.75)= $8.00
D)$19 - ($0.75 + $3.25 + $3.25)= $5.50
Q3) Hybrid transfer prices take into account both cost and market information.
A)True
B)False
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Chapter 23: Performance Measurement, compensation, and Multinational Considerations
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Q1) Which of the following is true of benchmarking two managers against each other if they carry out similar operations?
A)It would lead to better cooperation among the managers.
B)It would reduce the managers' incentives to help one another.
C)It would enhance the accomplishment of organization goals.
D)It would help reduce costs common to both the departments.
Q2) Companies that adopt the EVA concept define investment as total assets employed minus current liabilities.
A)True
B)False
Q3) Intrinsic motivation comes from being given greater responsibility,doing interesting and creative work,and having pride in doing that work.
A)True
B)False
Q4) What are the factors involved in choosing the timing of the feedback in designing accounting-based performance measures?
Q5) Make a list of steps of designing an accounting based performance measure.Give an example of decisions taken under each step.
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