Financial Management
Chapter Exam Questions
Course Introduction
Financial Management is a foundational course that provides students with an in-depth understanding of the principles and practices used to make sound financial decisions within organizations. The course covers essential topics such as financial analysis, planning and forecasting, working capital management, capital budgeting, risk and return assessment, and the cost of capital. Students will learn how to evaluate investment opportunities, manage financial resources effectively, and develop strategies to maximize shareholder value. Through case studies and practical applications, the course equips learners with the analytical tools needed to address real-world financial challenges faced by businesses and organizations.
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Managerial Accounting An Introduction to Concepts Methods and Uses 11th Edition by Michael W.
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Chapter 1: Fundamental Concepts
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Q1) The value chain component related to the suppliers and production does not include costs for:
A)Receipt of direct materials from suppliers.
B)Production set-up.
C)Direct production labor.
D)Salaries for sales personnel.
Answer: D
Q2) What appears at the bottom of income statements prepared for managerial use to distinguish it from net income used in external reporting?
A)Other comprehensive income
B)Operating profit
C)Gross margin
D)Net profit (or loss)
Answer: B
Q3) Which of the following best describes the term "benchmarking?"
A)producing a particular product at the lowest possible cost.
B)designing the highest quality product in a given market.
C)developing the best selling product
D)improvement gained through measuring one's products against the best products.
Answer: D
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Chapter 2: Measuring Product Costs
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Q1) Operation cost is a hybrid of job and process costing,where the materials differ by type of product but
A)labor and overhead amounts are different.
B)labor amounts are the same and overhead amounts are different.
C)labor and overhead amounts are the same.
D)labor amounts are different and overhead amounts are the same.
Answer: C
Q2) Which of the following is true regarding waste and spoilage?
A)Accountants typically include the cost of normal waste in the cost of goods manufactured during the period.
B)Accountants typically treat the cost of abnormal waste as an expense during the period.
C)Companies concerned about quality production do not treat waste or spoiled goods as normal and remove all waste and spoilage costs from the product cost.
D)All of the answers are correct.
Answer: D
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Chapter 3: Activity-Based Management
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Q1) The last step in activity-based costing (ABC)is to
A)identify the activities that consume resources,and assign costs to those activities.
B)identify the cost driver(s)associated with each activity.
C)compute a cost rate per cost driver unit.
D)assign costs to products by multiplying the cost driver rate by the volume of cost drivers consumed by the product.
Answer: D
Q2) Traditional cost allocation methods include which of the following?
A)plantwide allocation,only.
B)department allocation,only.
C)activity-based costing.
D)plantwide and department allocation.
Answer: D
Q3) Which of the following is an example of non-value added activities?
A)Storage.
B)Moving items.
C)Waiting for work.
D)All of the answers are correct.
Answer: D
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Chapter 4: Strategic Management of Costs,quality,and Time
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Q1) What does a quality control chart reflect?
A)The manager who is in charge on a particular day.
B)Process variations that need to be analyzed.
C)Which product is controlling the market.
D)Which employee is to engage in strategic cost management techniques.
Q2) Which of the following was created by Congress in 1987 to recognize U.S.firms with outstanding records of quality improvement and quality management?
A)ISO 9000 certification.
B)Deming Prize.
C)Baldrige Award.
D)CQM Prize.
Q3) Which of the following statements is correct concerning break-even time?
A)Break-even time is the length of time required to recover the investment made in new-product development.
B)Break-even time begins when management approves a project,rather than when cash out-flows first occur.
C)Break-even time considers the time value of money by discounting all cash flows.
D)All of the answers are correct.
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Chapter 5: Cost Drivers and Cost Behavior
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Q1) Which statement is true concerning curvilinear variable cost functions?
A)Curvilinear variable cost functions have both fixed and variable components which vary in constant proportion.
B)Curvilinear variable cost functions increase in logical steps which vary in constant proportion.
C)Curvilinear variable cost functions always involves long-term assets which vary in constant proportion.
D)Curvilinear variable cost functions are where costs vary with the volume of activity,but not in constant proportion.
Q2) Costs that will continue regardless of production level are
A)capacity costs.
B)committed costs.
C)discretionary costs.
D)opportunity costs.
Q3) Costs that do not change with changes in activity levels are known as:
A)fixed costs.
B)variable costs.
C)sunk costs.
D)opportunity costs.
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Chapter 6: Financial Modeling for Short-Term Decision Making
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Q1) Manufacturers using computer-integrated manufacturing systems have a large investment in plant and equipment.This results in which of the following cost structures?
A)high fixed costs.
B)high total costs.
C)high variable costs.
D)None of the answers is correct.
Q2) Which of the following are underlying assumptions of cost-volume-profit analysis?
A)Fixed costs will not change over a wide range of activity and variable costs are strictly variable.
B)All costs can be classified either as a fixed or variable cost and behave linearly.
C)Sales prices do not change in the relevant range and the sales mix must remain constant.
D)All of the answers are correct.
Q3) Identify the effects of cost structure and operating leverage on the sensitivity of profit to changes in volume.Use a nuclear power plant and an ice cream store as examples.
Q4) How can financial modeling be used with multiple cost drivers?
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Chapter 7: Differential Cost Analysis for Operating Decisions
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Q1) In considering a special order that will enable a company to make use of presently idle capacity,which of the following costs would be irrelevant?
A)Materials
B)Depreciation
C)Direct Labor
D)Variable Overhead
Q2) Which of the following describes the cost of maintaining warehouse facilities?
A)carrying costs.
B)set-up costs.
C)order costs.
D)sunk costs.
Q3) Using activity-based costing to analyze customer profitability requires the analyst to determine the cost to retain customers,which includes such activities as
A)follow-up calls.
B)conducting campaign to win back customers.
C)promoting the product.
D)All of the answers are correct.
Q4) Explain how linear programming optimizes the use of scarce resources.
Q5) How is linear programming used to optimize the use of scarce resources?
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Chapter 8: Capital Expenditure Decisions
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Q1) What does the term capitalmean in the context of making capital expenditure decisions?
A)long-term assets.
B)the funds with which a firm acquires assets.
C)the source of funds typically reported as long-term liabilities and owners' equity.
D)None of the above.
Q2) What does the term capital budgetingmean in the context of making capital expenditure decisions?
A)the process of choosing assets.
B)the process of allocating the funds among assets.
C)the process of acquiring the funds to finance the business.
D)None of the above.
Q3) When is the discount rate used?
A)When determining the applicable treasury rate.
B)When computing the present value of future cash flows.
C)To reduce the price of an investment.
D)When determining the future value of the firm's cash inflows and outflows.
Q4) Explain how spreadsheets help the analyst to conduct sensitivity analyses of capital budgeting.
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Chapter 9: Profit Planning and Budgeting
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Q1) Who are responsible for (1)costs in cost centers, (2)revenues in revenue centers, (3)both costs and revenues in profit centers,and (4)revenues,costs,and assets in an investment center?
A)Shareholders.
B)Employees.
C)Managers.
D)Vendors.
Q2) Why are incentive compensation plans often criticized?
A)managers may take actions to improve short-run performance only.
B)managers may take actions to improve long-run performance only.
C)stock options affect market prices.
D)they are ineffective in motivating managers.
Q3) A manufacturing division of a company would most likely be evaluated as a(n) A)cost center.
B)investment center.
C)revenue center.
D)asset center.
Q4) Incentive compatible compensation schemes often create many opportunities as well as problems.Identify two negative outcomes of incentive compensation systems,and suggest how companies can overcome them.
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Chapter 10: Profit and Cost Center Performance Evaluation
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Q1) Which of the following terms describes the difference between the budgeted (or standard)price and the actual price paid for each unit of input?
A)Price variance.
B)Efficiency variance.
C)Usage variance.
D)Quantity variance.
Q2) How do you analyze overhead variances using the variable cost variance model?
Q3) Activity-based costing raises numerous specific questions that managers can address to improve which of the following?
A)Productivity and quality.
B)Price and efficiency.
C)Efficiency only.
D)Productivity only.
Q4) The production volume variance is the difference between which of the following two costs?
A)Budgeted and applied fixed costs.
B)Actual costs and the budgeted costs.
C)Budgeted and actual fixed costs.
D)Variable costs and the budgeted costs.
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Chapter 11: Investment Center Performance Evaluation
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Q1) When measuring a division's operating costs,thecost of the company president's salary is
A)direct,controllable.
B)indirect,controllable.
C)direct,noncontrollable.
D)indirect,noncontrollable.
Q2) When establishing transfer prices,the objective is to maximize the company's profit by
A)transferring at the differential outlay cost to the selling division (typically variable costs).
B)transferring at the opportunity cost to the company of making the internal transfers ($0 if the seller has idle capacity or selling price minus variable costs if the seller is operating at capacity).
C)transferring at the differential outlay cost to the selling division plus the opportunity cost to the company of making the internal transfers.
D)None of the answers is correct.
Q3) Compare and discuss the advantages and disadvantages of the following performance measures: ROI and EVA.
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Chapter 12: Incentive Issues
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Q1) Explain common causes of financial fraud.
Q2) Rewards that come from outside the individual,such as rewards from a teacher,a parent,an organization,or a spouse that include grades,money,praise,and prizes are called
A)traditional rewards.
B)intrinsic rewards.
C)extrinsic rewards.
D)outside rewards.
Q3) Which of the following are rewards that come from the individual,such as the satisfaction from studying hard,providing help to someone in need,or doing a good job?
A)extrinsic rewards.
B)intrinsic rewards.
C)self rewards.
D)performance-based rewards.
Q4) Describe three types of divisional incentive compensation plans.
Q5) Compare and contrast expectancy and agency approaches to motivation.
Q6) Bowers Company is considering a new accounting policy to write-off of design and development costs as current period expenses.Explain how this could affect managers' incentives to incur these costs.
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Chapter 13: Allocating Costs to Responsibility Centers
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Q1) Which of the following statements is true concerning finding a cost-allocation base for activity-based costing?
A)Finding the cost-allocation base is justified if the benefits from improved decisions exceed the costs of finding and using the base.
B)Finding the cost-allocation base is usually difficult and costly.
C)Finding the cost-allocation base may require the accumulation of extensive data in addition to the regular accounting information.
D)All of the answers are correct.
Q2) Why are service department costs allocated to producing departments?
Q3) How are marketing and administrative costs allocated to departments for purposes of performance evaluation?
Q4) Why are joint-process costs allocated?
Q5) Net realizable value and physical measures are two methods for allocating which of the following costs?
A)direct costs.
B)opportunity costs.
C)joint-process costs.
D)sunk costs.
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