Financial Management Exam
Practice Tests
Course Introduction
Financial Management is a comprehensive course that introduces students to the fundamental principles and practices used in managing the financial resources of organizations. Covering key topics such as financial planning, capital budgeting, risk analysis, working capital management, and financial statement analysis, the course equips students with the tools needed to make informed financial decisions. Emphasis is placed on understanding the time value of money, the management of long-term and short-term assets, and the methods for raising capital. Through real-world examples and case studies, students develop analytical and problem-solving skills critical for sound financial management in both corporate and entrepreneurial settings.
Recommended Textbook
Cost Accounting A Managerial Emphasis 14th Edition by Charles T. Horngren
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Page 2
Chapter 1: The Accountants Role in the Organization
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Sample Questions
Q1) Control measures should:
A)be set and not changed until the next budget cycle
B)be flexible to allow for employees who are slackers
C)be kept confidential from employees so that competitors don't have an opportunity to gain a competitive advantage
D)be linked by feedback to planning
Answer: D
Q2) Management accounting:
A)focuses on estimating future revenues, costs, and other measures to forecast activities and their results
B)provides information about the company as a whole
C)reports information that has occurred in the past that is verifiable and reliable
D)provides information that is generally available only on a quarterly or annual basis
Answer: A
Q3) Value chain refers to its value to the employee.
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 inventoriable costs per unit associated with Product ICT101?
A)$120
B)$140
C)$50
D)$88
Answer: A
Q2) Explain the difference between an inventoriable cost and a period cost. What potential problems does an inaccurate classification of product and period costs cause?
Answer: Inventoriable costs are all costs of a product that are considered as assets in the balance sheet when they are incurred and which become cost of goods sold only when the product is sold. Period costs are treated as expenses of the accounting period in which they are incurred. An inaccurate classification of inventoriable and period costs could lead to violations of the matching principle, which states that costs used in producing revenue should be matched on the income statement when the revenue is recognized. In extreme cases, net income for a given period might be significantly misstated if proper matching does not occur.
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Ken's Beer Emporium sells beer and ale in both pint and quart sizes. If Ken's sells twice as many pints as it sells quarts, and sells 2,400 items total, it will sell 800 quarts of ale.
A)True
B)False
Answer: True
Q2) Contribution margin and gross margin are terms that can be used interchangeably.
A)True
B)False
Answer: False
Q3) The Marietta Company has fixed costs of $40,000 and variable costs are 75% of the selling price. To realize profits of $10,000 from sales of 50,000 units, the selling price per unit:
A)must be $1.00
B)must be $1.33
C)must be $4.00
D)is indeterminable
Answer: C
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Chapter 4: Job Costing
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Sample Questions
Q1) ________ costing is used by a business to price homogeneous products.
A)Actual
B)Job
C)Process
D)Traditional
Q2) A company may use job costing to assign costs to different product lines and then use process costing to calculate unit costs within each product line.
A)True
B)False
Q3) The actual costs of all individual overhead categories are recorded in the Manufacturing Overhead Control account.
A)True
B)False
Q4) Overallocated indirect costs occur when the allocated amount of indirect costs is greater than the amount incurred for that period.
A)True
B)False
Q5) What is the difference between an actual cost system and a normal cost system?
Q6) Explain how a budgeted indirect-cost rate is determined.
Page 6
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Sample Questions
Q1) Smaller cost distortions occur when the traditional systems' single indirect-cost rate and the activity-cost-driver rates:
A)use the same total costs for computations
B)are similar in proportion to each other
C)are more different than alike
D)use the same cost driver units
Q2) ABC systems identify ________ costs used by products.
A)all
B)short-term fixed
C)short-term variable
D)long-term fixed
Q3) For activity-based cost systems, activity costs are assigned to products in the proportion of the demand they place on activity resources.
A)True
B)False
Q4) Indirect labor and distribution costs would most likely be in the same activity-cost pool.
A)True
B)False
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) The revenues budget should be based on the production budget.
A)True
B)False
Q2) Picture Pretty manufactures picture frames. Sales for August are expected to be 10,000 units of various sizes. Historically, the average frame requires four feet of framing, one square foot of glass, and two square feet of backing. Beginning inventory includes 1,500 feet of framing, 500 square feet of glass, and 500 square feet of backing. Current prices are $0.30 per foot of framing, $6.00 per square foot of glass, and $2.25 per square foot of backing. Ending inventory should be 150% of beginning inventory. Purchases are paid for in the month acquired.
Required:
a. Determine the quantity of framing, glass, and backing that is to be purchased during August.
b. Determine the total costs of direct materials for August purchases.
Q3) Responsibility accounting:
A)emphasizes controllability
B)focuses on whom should be asked about the information
C)attempts to assign blame for problems to a specific manager
D)All of these answers are correct.
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Page 8
Chapter 7: Flexible Budgets, Direct-Cost Variances, and Management Control
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Sample Questions
Q1) The use of high-quality raw materials is likely to result in a favorable efficiency variance and an unfavorable price variance.
A)True
B)False
Q2) The flexible budget will report ________ for the fixed costs.
A)$229,000
B)$225,000
C)$180,000
D)$286,250
Q3) Effectiveness is the relative amount of inputs used to achieve a given output level.
A)True
B)False
Q4) An unfavorable variance is conclusive evidence of poor performance.
A)True
B)False
Q5) A company would NOT need to use a flexible budget if it had perfect foresight about actual output units.
A)True B)False
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Chapter 8: Flexible Budgets, Overhead Cost Variances, and Management Control
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Sample Questions
Q1) What is the flexible-budget variance for variable manufacturing overhead?
A)$2,250 favorable
B)$2,250 unfavorable
C)zero
D)None of these answers are correct.
Q2) For variable manufacturing overhead, there is no:
A)spending variance
B)efficiency variance
C)flexible-budget variance
D)production-volume variance
Q3) An unfavorable variable overhead efficiency variance indicates that the company used more than planned of the cost-allocation base.
A)True
B)False
Q4) If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be an unfavorable fixed overhead efficiency variance.
A)True
B)False
Page 10
Q5) Explain why sales-volume variance could be helpful to managers.
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) What is the inventoriable cost per unit using absorption costing?
A)$30.00
B)$36.00
C)$37.50
D)$43.50
Q2) It is most difficult to estimate ________ because of the need to predict demand for the next few years.
A)practical capacity
B)theoretical capacity
C)master-budget capacity utilization
D)normal capacity utilization
Q3) Variable costing includes all variable costsboth manufacturing and nonmanufacturingin inventory.
A)True
B)False
Q4) What is the inventoriable cost per unit using variable costing?
A)$28.50
B)$30.00
C)$36.00
D)$43.50
11
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) If the number of employees is considered the cost driver, what amount of library and information center costs will be allocated to Department A?
A)$100,000
B)$25,000
C)$0
D)$112,500
Q2) If machine maintenance is scheduled at a time when production is at a low level, then:
A)low production is the cost driver of high repair costs
B)an understanding of operations is needed to determine an appropriate cost driver
C)low production should be avoided since it is the cause of machine maintenance
D)machine maintenance cannot be accurately predicted
Q3) If the number of new hires is considered the cost driver, what amount of personnel costs will be allocated to Department A?
A)$24,000
B)$10,667
C)$102,400
D)$40,000
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) If Donald's Engine Company purchases 1,000 TE456 parts from the outside supplier per month, then its monthly operating income will:
A)increase by $1,000
B)increase by $40,000
C)decrease by $1,500
D)decrease by $42,500
Q2) Full cost of the product is:
A)the sum of fixed costs in all the business functions of the value chain
B)the sum of variable costs in all the business functions of the value chain
C)the sum of all variable and fixed costs in all the business functions of the value chain
D)the sum of all costs in the value chain minus marketing costs
Q3) A decision model involves:
A)only quantitative analyses
B)both quantitative and qualitative analyses
C)only qualitative analyses
D)a manager's instinct
Q4) Why is the book value of old equipment irrelevant to the equipment replacement decision?
Q5) Explain what revenues and costs are relevant when choosing among alternatives.
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Chapter 12: Pricing Decisions and Cost Management
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Sample Questions
Q1) Price discrimination is the practice of charging different customers different prices for the same product or service.
A)True
B)False
Q2) The cost of producing a product:
A)in highly competitive markets controls pricing
B)affects the willingness of a company to supply a product
C)for pricing decisions includes manufacturing costs, but not product design costs
D)None of these answers are correct.
Q3) Life-cycle budgeting estimates the costs and revenues attributed to a product from its initial R&D through production of a prototype product.
A)True
B)False
Q4) Product cost analysis is important even if market forces set prices.
A)True
B)False
Q5) Explain the differences between short-run pricing decisions and long-run pricing decisions.
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Page 14
Chapter 13: Strategy, Balanced Scorecard, and Strategic
Profitability Analysis
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Sample Questions
Q1) Reengineering benefits are most significant when they focus on one business function rather than crossing functional lines of the business process.
A)True
B)False
Q2) Identify the best description of the balanced scorecard's financial perspective. To achieve our firm's vision and strategy:
A)how can we obtain greater profits for the current year?
B)how can we increase shareholder value?
C)how will we obtain continuous improvements?
D)how can we secure greater customer satisfaction?
Q3) Overall, was Meale's strategy successful in 2012?
A)No, because the selling price per unit decreased.
B)Yes, because operating income increased.
C)Yes, because less direct materials were used.
D)No, because more units were produced and sold.
Q4) Downsizing discretionary costs is easier than downsizing engineered costs.
A)True
B)False
Q5) Explain the product differentiation and the cost leadership strategies.
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Chapter 14: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
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Sample Questions
Q1) R&D costs are used for which purpose of cost allocation?
A)to provide information for economic decisions
B)to report to external parties when using generally accepted accounting principles
C)to calculate costs of a government contract
D)All of these answers are correct.
Q2) An advantage of using a bar chart to visualize customer profitability is that:
A)differences in commissions paid to sales persons stand out
B)loss customers stand out
C)trends in the volume of purchases become apparent
D)All of these answers are correct.
Q3) What is the budgeted contribution margin per composite unit for the budgeted mix?
A)$8.00
B)$8.60
C)$9.00
D)$9.60
Q4) Why would a manager perform customer-profitability analysis?
Q5) A company might choose to allocate corporate costs to various divisions within the company for what four purposes? Give an example of each.
Page 16
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Chapter 15: Allocation of Support-Department Costs,
Common Costs, and Revenues
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Sample Questions
Q1) ________ occurs where revenues, related but NOT traceable to individual products, are assigned to those individual products.
A)Revenue tracing
B)Revenue allocation
C)Stand-alone pricing
D)Reciprocal pricing
Q2) The reciprocal allocation method:
A)is the most widely used because of its simplicity
B)requires the ranking of support departments in the order that the allocation is to proceed
C)is conceptually the most precise
D)results in allocating more support costs to operating departments than actually incurred
Q3) To discourage unnecessary use of a support department, management might:
A)not allocate any support department costs to user departments
B)allocate support department costs based upon user department usage
C)allocate a fixed amount of support department costs to each department regardless of use
D)issue memos on useful services provided by the support department
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) The focus of joint costing is on allocating costs to individual products:
A)before the splitoff point
B)after the splitoff point
C)at the splitoff point
D)at the end of production
Q2) The constant gross-margin percentage NRV method allocates joint costs to joint products in such a way that the gross margin on each joint product is the same as it was in the previous year.
A)True
B)False
Q3) The juncture in a joint production process when two products become separable is the byproduct point.
A)True
B)False
Q4) If the value of a joint product drops significantly, it could also be viewed as a byproduct
A)True
B)False
Q5) List the reasons that the sales value at splitoff method of joint cost allocation should be used.
18
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Chapter 17: Process Costing
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Sample Questions
Q1) In a process-costing system when goods move from department to department, the accounting for such transfers is relatively simple under:
A)standard costing
B)FIFO costing
C)weighted-average costing
D)operations costing
Q2) What amount of conversion costs are assigned to the ending Work-in-Process account for June?
A)$509,78.32
B)$70,555.50
C)$63,225.25
D)$90,074
Q3) What amount of direct materials costs are assigned to the ending Work-in-Process account for April?
A)$248,387.10
B)$250,000.00
C)$143,750.00
D)$145,312.50
Q4) List and describe the five steps in process costing.
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Chapter 18: Spoilage, Rework, and Scrap
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Sample Questions
Q1) Managers often cite reductions in the costs of spoilage as a(n):
A)major justification for implementing a just-in-time production system
B)measurement of improved output quality
C)immaterial item that is not to be tracked
D)indication of improvement in the accounting system
Q2) Shazam Machines produces numerous types of money change machines. All machines are made in the same production department and many use exactly the same processes. Because customers have such different demands for the machine characteristics, the company uses a job-costing system. Unfortunately, some of the production managers have been upset for the last few months when their jobs were charged with the spoilage that occurred over an entire processing run of several types of machines. Some of the best managers have even threatened to quit unless the accounting system is changed.
Required:
What recommendations can you suggest to improve the accounting for spoilage?
Q3) Spoilage and rework costs are thoroughly captured in the accounting system.
A)True
B)False
Q4) How can a company account for scrap? Include in your explanation a discussion of the two aspects of accounting for scrap.
Page 20
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Chapter 19: Balanced Scorecard: Quality, Time, and the
Theory of Constraints
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Sample Questions
Q1) ________ is an operation where the work to be performed approaches or exceeds the available capacity.
A)A bottleneck
B)A time driver
C)Customer-response time
D)Manufacturing lead time
Q2) Design engineering is an example of:
A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs
Q3) Discuss the methods used to identify quality problems.
Q4) Spoilage is an example of:
A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs
Q5) A control chart identifies potential causes of failures or defects.
A)True
B)False
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Chapter 20: Inventory Management, Just-In-Time, and Simplified Costing Methods
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Sample Questions
Q1) Backflush costing does not strictly adhere to generally accepted accounting principles. Explain why. Also, describe the types of businesses that might use backflush costing.
Q2) Carrying costs arise when an organization experiences an ability to deliver its goods to its customers.
A)True
B)False
Q3) The optimal safety stock level is the quantity of safety stock that minimizes the sum of the annual relevant:
A)stockout costs and carrying costs
B)ordering costs and carrying costs
C)ordering costs and stockout costs
D)ordering costs and purchasing costs
Q4) All of the following are potential financial benefits of just-in-time EXCEPT:
A)lower investments in inventories
B)lower investments in plant space for inventories
C)reducing the risk of obsolescence
D)reducing manufacturing lead time
Page 22
Q5) What are the principles of lean accounting? Are there any limitations? Discuss.
Q6) What are five features of a just-in-time manufacturing system?
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Page 23
Chapter 21: Capital Budgeting and Cost Analysis
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Sample Questions
Q1) All of the following are major categories of cash flows in capital investment decisions
EXCEPT:
A)the initial investment in machines and working capital
B)recurring operating cash flows
C)the initial working capital investment
D)depreciation expense reported on the income statement
Q2) The final activity in the capital budgeting process is to obtain funding and make the investments identified in the make decisions by choosing among alternatives stage of the process.
A)True B)False
Q3) What are the four alternative methods for evaluating capital budgeting projects? What is an advantage and disadvantage of each method?
Q4) Unlike the net present value method and the internal rate-of-return method, the payback method does NOT distinguish between the origins of the cash flows. A)True B)False
Q5) Explain why a corporation's customer base is considered an intangible asset.
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Chapter 22: Management Control Systems, Transfer
Pricing, and Multinational Considerations
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Sample Questions
Q1) If the Assembly Division sells 100,000 pairs of shoes at a price of $120 a pair to customers, what is the operating income of both divisions together?
A)$8,800,000
B)$6,800,000
C)$6,000,000
D)$5,200,000
Q2) Effort in terms of management control systems is defined in terms of physical exertion such as a worker producing at a faster rate.
A)True
B)False
Q3) Management control systems reflect only financial data.
A)True
B)False
Q4) The essence of decentralization is the freedom for managers at lower levels of the organization to make decisions.
A)True
B)False
Q5) Briefly explain each of the three methods used to determine a transfer price.
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Chapter 23: Performance Measurement, Compensation,
and Multinational Considerations
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Sample Questions
Q1) What is the value of the operating assets belonging to the Tractor Division?
A)$ 3,500,000
B)$4,000,000
C)$4,500,000
D)$5,000,000
Q2) Another name for return on investment is the:
A)net present value
B)accounting rate of return
C)residual income
D)internal rate of return
Q3) What is the EVA® for Cedar Rapids?
A)$67,790
B)$110,000
C)$117,000
D)$152,500
Q4) Some companies present financial and nonfinancial performance measures for various organization units in a single report called the "balanced scorecard."
A)True
B)False
26
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