Financial Management Exam
Bank
Course Introduction
Financial Management is a foundational course that introduces students to the principles and practices of managing an organizations financial resources. The course covers key topics such as financial analysis, budgeting, working capital management, time value of money, investment decision-making, risk assessment, and capital structure. Students will gain an understanding of both short-term and long-term financial planning, efficient allocation of resources, and the impact of financial decisions on organizational objectives. By the end of the course, students will be equipped with the analytical tools and concepts necessary to make sound financial decisions in various business environments.
Recommended Textbook
Cost Management Measuring Monitoring and Motivating Performance 2nd Canadian Edition by
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Chapter 1: The Role of Ethical Accounting Information in Management Decision Making
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Sample Questions
Q1) Incremental cash flows are relevant for decision-making.
A)True
B)False Answer: True
Q2) Biases:
A)Inhibit anticipating all future conditions
B)Assist in the identification of relevant information
C)Do not affect the ability to identify irrelevant information
D)Are not a problem in ethical decision-making
Answer: A
Q3) Cost accounting information is used for:
A)Financial reporting only
B)Management reporting only
C)Both financial and management reporting
D)Neither financial nor management reporting
Answer: C
Q4) Uncertainty and bias reduce decision quality.
A)True
B)False Answer: True
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Chapter 2: Cost Concepts, Behaviour, and Estimation
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Sample Questions
Q1) Minh is a cost analyst for TRN Corporation. As part of his job, he must estimate the cost to manufacture wooden and metal computer desks. A recent cost analysis showed the cost of a wooden desk to be $130, while the cost of a metal desk was $107. Can Minh be confident that the cost to produce a wooden desk next period will be $130? Why or why not?
Answer: Minh cannot know for certain whether the costs of direct materials and labour have changed since the cost estimates were developed. In addition, overhead costs may have changed. It is possible, although unlikely, that the method of estimating costs could have changed. In addition, the volume of production affects the average cost, and if this cost is an average, it is based on an estimate of production for the period, and the exact amount of production will not be known until the end of the period. Students may think of other reasons.
Q2) Past costs are irrelevant for both decision-making and predicting future costs. A)True B)False
Answer: True
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Log Homes on Spec (LHOS)in British Columbia makes log home kits. Currently, the company does not advertise and has a low selling price for its kits compared to competitors. Next year, the company plans to increase the selling price and begin a wide advertising campaign. Which of the following statements is true?
A)LHOS's breakeven point will be lower next year
B)LHOS's operating leverage will be higher next year if the same number of units is sold
C)LHOS's profits will be higher next year
D)LHOS's margin of safety will be lower next year
Answer: B
Q2) The breakeven point for a service organization will decrease if:
A)Volume increases
B)The variable cost ratio decreases
C)Fixed costs increase
D)The contribution margin ratio decreases
Answer: B
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5
Chapter 4: Relevant Information for Decision Making
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Sample Questions
Q1) A constraint is:
A)A limited resource that is not binding in that it does not slow down the manufacturing or service delivery process
B)A limited resource that restricts an organization's ability to provide enough products or services to satisfy demand
C)A service that an organization has decided to discontinue
D)A product that an organization has decided to discontinue
Q2) Which of the following is an opportunity cost that should be considered in an outsourcing decision?
A)Avoidable fixed costs
B)Benefits from alternate uses of released capacity
C)Unavoidable fixed costs
D)Employee morale
Q3) A bottleneck:
A)Is not a capacity constraint
B)Has an opportunity cost of lost revenue from unmet demand
C)Is unrelated to capacity
D)Cannot be used efficiently
Q4) Describe the costs that are usually relevant to a make or buy decision.
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Chapter 5: Job Costing
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Sample Questions
Q1) Direct materials are 30% of the year's manufacturing costs incurred. The beginning work-in-process is 125% of the ending work-in-process. Labour and overhead costs total $56,000 and the cost of goods manufactured is $90,000. Assume the total manufacturing costs incurred were $80,000. The cost of the beginning work in process is:
A)$10,000
B)$40,000
C)$50,000
D)None of the above
Q2) Which of the following statements regarding the uses and limitations of job costing is true?
A)Overhead is allocated to match revenues and costs
B)Most overhead costs are relevant for short-term decisions
C)Managers frequently assume variable overhead costs are fixed
D)Overhead costs are not relevant for most short-term decisions
Q3) Spoilage, rework, and scrap are irrelevant in job costing systems.
A)True
B)False
Q4) Provide one reason why normal spoilage is considered part of overhead costs and, therefore, as part of the cost of good units completed.
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Chapter 6: Process Costing
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Sample Questions
Q1) Under mass production, at the end of the period:
A)The production line is stopped so that all units are completed to reduce accounting problems
B)Some units will be partially complete, and conversion costs and direct material costs need to be assigned to them
C)The books cannot be closed because the production never stops
D)All of the units that are not complete are counted as 100% complete to reduce bookkeeping problems
Q2) Miramar, Inc. uses a weighted-average process costing system which recognizes normal spoilage as 5% of good output. During the current period, 14,000 units were started and 10,000 units completed. Materials are added at the beginning of the process, conversion costs occur uniformly, and the inspection point is at the 70% point. Beginning work in process was 6,000 units, 40% complete, and ending work in process 9,000 units, 80% complete. The cost per equivalent unit for material was $1.00 and for conversion costs $3.00. The cost of ending work in process was:
A)$31,995
B)$30,600
C)$31,334
D)$31,547
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Page 8
Chapter 7: Activity-Based Costing and Management
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Sample Questions
Q1) Each cost pool in an ABC system has its own cost allocation rate.
A)True
B)False
Q2) Activity-based management relies on:
A)Accurate ABC information
B)Objective financial reporting
C)Outside consultants
D)Participative management techniques
Q3) List two benefits and two costs companies incur when they implement an ABC costing system.
Q4) Ideally, activity costs in an ABC system are allocated to cost objects using a driver that explains changes in activity costs.
A)True
B)False
Q5) Which of the following is not part of the process used to assign costs in an ABC system?
A)Identify activities
B)Differentiate value-adding and non-value-adding activities
C)Identify the relevant cost object
D)Assign costs to activity-based pools
9
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Chapter 8: Measuring and Assigning Support Department
Costs
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Sample Questions
Q1) When managers use dual-rate allocation, they frequently identify cost drivers for fixed cost pools to identify resource flows more accurately.
A)True
B)False
Q2) Assume the cost of a limousine ride from Toronto's Pearson International Airport to downtown Toronto is $88, plus $10 per person in the taxi, plus $1 for each luggage item in the trunk. Susan is on a trip with George, a business associate from another department. Susan has one luggage item and her associate has three.
a)Compute the portion of the limousine fare allocated to Susan using the stand-alone method.
b)Compute the portion of the limousine fare allocated to Susan using the incremental cost allocation method if Susan is considered the primary user.
c)Compute the portion of the limousine fare allocated to Susan using the incremental cost allocation method if George is considered the primary user.
d)Which method is the most fair? Explain your reasoning.
Q3) Explain the difference between operating departments and support departments.
Q4) List two factors that should be considered when choosing allocation bases.
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Chapter 9: Joint Product and By-Product Costing
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Sample Questions
Q1) Major Foods, Inc. produces a cereal from oat grain. The company buys unprocessed oats for $400 per ton. It costs $60 per ton to send the oats through a processor, which produces 1,900 kilograms of pure oats and 100 kilograms of oat shells. The oat shells are ground and packaged at a cost of $100 per hundred kilograms. They are sold to a poultry feed company for $3 per kilogram. The pure oats are cooked and packaged into 4-kilogram containers at a cost of $350. The packaged oats are sold for $2 per 4-kilogram container. If Major uses the net realizable value method, the joint costs allocated to the oats is:
A)$345
B)$110
C)$350
D)$115
Q2) Costs incurred beyond the split-off point that are traceable to individual products are:
A)Joint costs
B)Common costs
C)Net realizable costs
D)Separable costs
Q3) For what types of products is the physical output method appropriate? Explain.
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Page 11
Chapter 10: Static and Flexible Budgets
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Sample
Questions
Q1) At the end of 20x1, SWP Corporation prepared its master budget for 20x2. Selected amounts from that budget, along with actual results for 20x2, are presented below:
Budgeted Actual
Sales $180,000 $210,000
Research and development cost 25,000 20,000
Interest revenue 7,600 7,000
Cost of goods sold 60,000 65,000
Marketing costs 45,000 45,000
SWP's total budget variance for the data provided is:
A)$29,400 favourable
B)$29,400 unfavourable
C)$40,600 favourable
D)$40,600 unfavourable
Q2) Participative budgeting involves customers and managers at all levels in the organization.
A)True
B)False
Q3) Discuss the similarities and differences between annual budgets and rolling budgets.
Q4) How can budgeting assist an organization to efficiently use its human resources?
Page 12
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Chapter 11: Standard Costs and Variance Analysis
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Sample Questions
Q1) The fixed overhead budget variance can be broken down into two parts: the spending variance and the production volume variance.
A)True
B)False
Q2) Variances can be caused by:
I. Out-of-control operations
II. Better-than-expected operations
III. Inappropriate benchmarks
A)I and III only
B)II and III only
C)I and II only
D)I, II, and III
Q3) If a variance is unfavourable, it should be closed directly to cost of goods sold.
A)True
B)False
Q4) Variance analysis can be used for both costs and revenues.
A)True
B)False
Q5) Provide one pro and one con for building waste into cost standards.
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Chapter 12: Strategic Investment Decisions
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Sample Questions
Q1) Green Inc. has invested in a project with a cost of $36,504, annual net cash flows of $12,000, a terminal value of $4,000, and a 5-year useful life. The firm uses a 16% discount rate. Compute the internal rate of return to the nearest tenth of a percent. Ignore income taxes.
A)19.2%
B)20.8%
C)19.8%
D)18.8%
Q2) Roger is considering opening a restaurant located near the local university. He has considerable management experience in the restaurant business, but has never before been an owner. He found that the net present value for this investment is positive. List one uncertainty and one qualitative factor that might influence this decision, and explain your reasoning.
Q3) A negative net present value means that the:
A)Internal rate of return is less than the required rate of return
B)Project is acceptable
C)Present value of the inflows exceeds the present value of the outflows
D)Company chose the wrong discount rate
Q4) List one pro and one con for using the payback method.
Q5) Distinguish between NPV and IRR. Give one pro and one con for each method.
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Chapter 13: Pricing Decisions
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Sample Questions
Q1) The practice of charging higher prices for products or services when they are first introduced is known as:
A)Transfer pricing
B)Price skimming
C)Peak load pricing
D)Price gouging
Q2) Which of the following is an advantage of cost-based transfer prices?
I. Managers do not have much incentive to reduce fixed costs
II. Managers may be motivated to purchase goods and services from outside the company
III. Contribution margins may be split between buying and selling divisions
A)I only
B)II only
C)III only
D)None of the above (I, II, and III are all disadvantages)
Q3) Which of the following formulas calculates the profit-maximizing price?
A)Total variable cost + total fixed cost
B)(Total variable cost + total fixed cost)/ price elasticity of demand
C)Variable cost × [elasticity / (elasticity + 1)]
D)Total cost × [elasticity / (elasticity + 1)]
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Chapter 14: Strategic Management of Costs
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Q1) Kaizen costing relies on:
A)Sales forecasts of prices and volumes
B)Commodity markets
C)Zero-based budgeting processes
D)Classification based on cost behaviour
Q2) List one advantage and one disadvantage of just-in-time inventory management.
Q3) Kaizen costing is a technique aimed at improvement of short-term profitability.
A)True
B)False
Q4) FRM Corporation's managers have recently introduced new, more efficient equipment for feeding chickens. Under which of the following assumptions would life cycle costing be best applied?
A)The product is being sold at a loss
B)The product is being sold at a small profit
C)The product is being sold at a loss, but expected to add to profits over time
D)The product is being sold at a small profit, which is expected to decline over time
Q5) List one advantage and one disadvantage for using target and kaizen costing.
Q6) Compare and contrast target costing with kaizen costing.
Q7) Give a complete but concise explanation of the target costing cycle.
Page 16
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Chapter 15: Measuring and Assigning Costs for Income Statements
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Sample Questions
Q1) Which inventory costing method treats direct materials as a product cost?
A)Absorption costing
B)Variable costing
C)Throughput costing
D)All of the above
Q2) Absorption costing statements conform to generally accepted accounting principles.
A)True
B)False
Q3) Throughput costing assumes that product costs other than materials tend to be fixed in the short run.
A)True
B)False
Q4) "Cost" and "expense" are two terms for describing the same concept.
A)True
B)False
Q5) Theoretical capacity and practical capacity are demand-based capacity measurements.
A)True
B)False
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Chapter 16: Performance Evaluation and Compensation
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Sample Questions
Q1) (CMA)Responsibility accounting defines an operating centre that is responsible for revenue and costs as a(n):
A)Profit centre
B)Revenue centre
C)Division
D)Investment centre
Q2) The Eastern Division of WDY Corporation reported net income of $2,500, operating income of $4,000, average equity of $24,000, and average operating assets of $30,000 in a recent accounting period. If Eastern's required rate of return is 12%, its residual income was
A)380
B)$(380)
C)$400
D)$1,100
Q3) Executive compensation is typically set by the shareholders at the annual meeting.
A)True
B)False
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18
Chapter 17: Strategic Performance Measurement
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Sample Questions
Q1) Adoptions Inc.Org. (AIO)is a not-for-profit organization that facilitates adoptions of both domestic and international children. Since it opened, it has facilitated many adoptions of both Canadian born and International born children. Upon completion of an adoption process, AIO's clients complete a questionnaire regarding their experience. The results of that questionnaire would most likely be summarized and reported as a part of which of the following perspectives?
A)Customer
B)Internal business process
C)Learning and growth
D)Nonfinancial
Q2) Describe nonfinancial performance measures and explain how they are similar to and different from financial performance measures.
Q3) The primary aim of the balanced scorecard is to:
A)Put less emphasis on financial measures because they are too narrowly focused
B)Use performance indicators that are highly objective
C)Translate elements of a company's strategic plan into measurable performance indicators
D)Provide a truthful basis for evaluating managers' performance
Q4) What are operating plans, and how are they linked to organizational strategies?
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Chapter 18: Sustainability Management
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Sample Questions
Q1) In "Material flow cost accounting", final product that is produced and transferred out is often referred to as:
A)Completed units
B)Positive product
C)Negative product
D)Outputs
Q2) Why were the GRI core indicators designed?
I. To provide information to stakeholders
II. To improve profitability
III. To encourage improved sustainability
A)I and II only
B)II and III only
C)I and III only
D)I, II, and III
Q3) Costs and benefits arising from prior years operations are irrelevant for current period decisions.
A)True
B)False
Q4) Describe greenwashing.
Q5) How do firms generally evaluate organizational sustainability performance?
Page 20
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