Financial Management
Exam Solutions
Course Introduction
Financial Management is a comprehensive course that introduces students to the fundamental principles and practices involved in managing an organization's financial resources. The course covers key topics such as financial planning, analysis, and control; capital budgeting; working capital management; valuation of financial assets; and the relationship between risk and return. Students will gain practical knowledge in analyzing financial statements, making investment decisions, and understanding the sources of finance. Through real-world case studies and problem-solving exercises, the course equips learners with the skills needed to make informed financial decisions that maximize value for businesses and stakeholders.
Recommended Textbook Management Accounting for Business 6th Edition by Colin Drury
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15 Chapters
1373 Verified Questions
1373 Flashcards
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Page 2
Chapter 1: Introduction to Management Accounting
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78 Verified Questions
78 Flashcards
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Sample Questions
Q1) Investigating production variances and adjusting the production process is an example of A) planning.
B) control.
C) internal auditing.
D) both a and c
Answer: B
Q2) The formulation of a scheme or program for the accomplishment of a specific purpose or goal is referred to as A) controlling.
B) motivating.
C) organizing.
D) planning.
Answer: D
Q3) Automation of the manufacturing environment is associated with increases in A) inventory.
B) capacity.
C) processing time.
D) none of these.
Answer: B
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Chapter 2: An Introduction to Cost Terms and Concepts
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79 Flashcards
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Sample Questions
Q1) A steep slope in the variable cost line indicates a A) low variable cost per unit.
B) high influence of activity on total variable costs.
C) low influence of activity on total variable costs.
D) large amount of fixed costs.
Answer: B
Q2) Selling and administrative costs are classified as
A) product costs.
B) conversion costs.
C) period costs.
D) factory overhead.
Answer: C
Q3) Which of the following costs is an indirect product cost?
A) property taxes on plant facilities
B) wages of assembly workers
C) materials used
D) president's salary
Answer: A
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Chapter 3: Cost-Volume-Profit Analysis
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121 Verified Questions
121 Flashcards
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Sample Questions
Q1) A "what if" technique that examines the impact of changes in underlying assumptions on an answer is
A) degree of sensitivity
B) sensitivity analysis
C) sensitivity training
D) none of the above
Answer: B
Q2) Camp Gordon has annual fixed operating costs of £150,000 and variable cost of £550 per camper. Total fees charged to campers amount to £500 each. The camp expects 350 campers next summer. Projected government grants are £95,000. How much must Camp Gordon raise from other sources to break even?
A) £45,000
B) £37,500
C) £97,500
D) £72,500
Answer: D
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Chapter 4: Measuring Relevant Costs and Revenues for Decision-Making
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Sample Questions
Q1) Meco Company produces a product that has a regular selling price of £360 per unit. At a typical monthly production volume of 2,000 units, the product's average unit cost of goods sold amounts to £270. Included in this average is £120,000 of fixed manufacturing costs. All selling and administrative costs are fixed and amount to £30,000 per month. Meco Company has just received a special order for 1,000 units at £240 per unit. The buyer will pay transportation, and the regular selling price will not be affected if Meco accepts the order.
Assuming Meco Company has excess capacity, the effect on profits of Accepting the order would be
A) a £60,000 increase.
B) a £60,000 decrease.
C) a £30,000 increase.
D) a £30,000 decrease.
E) no change in profits.
Q2) What is an opportunity cost? Under what circumstances are opportunity costs relevant to a decision? Construct an example of an opportunity cost. Briefly discuss why you think financial reports for investors and managerial reports for mangers may or may not differ in their treatment of opportunity costs.
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Chapter 5: Pricing Decisions and Profitability Analysis
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Sample Questions
Q1) Which of the following statements is TRUE about the equilibrium price, P, and equilibrium quantity, Q?
A) If the price is set at P, then more than Q will be sold.
B) If the price is set above P, then less than Q will be sold.
C) If the price is set below P, then more than Q will be sold.
D) Both b and c are true.
Q2) Refer to Multiple Products Co. What is the manufacturing cost markup needed to obtain a target profit of £100,000?
A) 100 percent
B) 67 percent
C) 50 percent
D) 25 percent
Q3) In a cost-based pricing system, the markup should cover
A) selling and administrative expenses, desired profit, and manufacturing cost
B) selling and administrative expenses and desired profit only
C) selling and administrative expenses and manufacturing cost only
D) desired profit and manufacturing cost only
Q4) Provide a short critique of cost-based pricing. What are the four major drawbacks to this pricing approach?
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Chapter 6: Capital Investment Decisions
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Sample Questions
Q1) How is working capital needed in the operations of investments treated in discounted cash flow analysis?
A) added to cost of the investment
B) added to cash inflows when recovery occurs
C) both a and b
D) none of the above
Q2) If an asset is sold for less than its tax written down value,
A) a gain results and additional taxes are incurred
B) a gain and tax savings result
C) a loss results and additional taxes are incurred
D) a loss and tax savings result
Q3) A _____ is a capital budgeting model that considers the time value of money when evaluating proposed projects.
A) cash flow model
B) nondiscounting model
C) discounting model
D) rate of return model
Q4) What are the steps normally undertaken in an effective capital budgeting process?
Q5) Describe capital investment in the advanced manufacturing environment.
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Chapter 7: Cost Assignment
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Sample Questions
Q1) Compare/contrast cost assignment and cost allocation. Be sure to include direct assignment (tracing) and driver tracing in your discussion.
Q2) When applied overhead exceeds actual overhead cost,
A) over-applied(absorbed) overhead is added to cost of goods sold
B) overapplied overhead is deducted from cost of goods sold
C) underapplied overhead is added to cost of goods sold
D) underapplied overhead is deducted from cost of goods sold
Q3) Refer to Figure 3 above. If Ray Manufacturing used direct labour hours as the cost driver, the total cost of the proposed job would be
A) £144,000
B) £136,400
C) £112,400
D) £106,400
Q4) A possible causal factor to use when allocating cafeteria costs would be
A) number of square feet.
B) number of direct labour hours.
C) number of employees.
D) appraised value of square footage.
Q5) Define the terms cost objectives, cost pools, and allocation bases.
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Chapter 8: Activity-Based Costing
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Sample Questions
Q1) If activity-based costing is used, setups would be classified as a A) unit-level activity.
B) batch-level activity.
C) product-level activity.
D) facility-level activity.
Q2) An example of a production or unit-level driver is
A) pounds of direct materials
B) number of setups
C) number of batches
D) number of product lines
Q3) Products might consume overhead in different proportions due to A) differences in product size.
B) differences in setup times.
C) differences in product complexity.
D) all of the above.
Q4) What is cross-subsidization and when is it most likely to occur?
Q5) Describe the unit level approach to cost behaviour analysis. Discuss the appropriateness of this approach.
Q6) Explain how the activity resource usage model is used in assessing relevancy.
Page 10
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Chapter 9: The Budgeting Process
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Sample Questions
Q1) The production budget
A) summarizes the cost of producing units for the budget period
B) is calculated based on the sales budget and the desired ending inventory
C) specifies the required overhead
D) specifies the required direct labour hours
Q2) Discuss the features of an ideal budgetary process.
Q3) Which of the following is an example of a discretionary fixed expense?
A) direct labour
B) depreciation on a factory building
C) insurance on a building
D) property taxes on a factory building
Q4) _____ are costs incurred for the acquisition of short-run activity capacity, usually as the result of yearly planning.
A) Discretionary fixed expenses
B) Committed fixed expenses
C) Mixed costs
D) Step-variable costs
Q5) Discuss the role of budgeting in planning, control, and decision making.
Q6) Describe activity-based budgeting.
Q7) In what ways does a department orientation hinder traditional budgeting?
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Chapter 10: Management Control Systems
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Sample Questions
Q1) Before implementing a responsibility accounting system, all areas of authority and responsibility within an organization must be clearly defined. Explain how this accomplished and why it is important.
Q2) Make a distinction between the manager's basic responsibilities for the following types of responsibility centres:
a. cost centre
b. revenue centre
c. profit centre
d. investment centre
Q3) Which of the following departments is likely to be evaluated as a discretionary cost centre?
A) the machining department of an automotive division
B) the food products division of a large PLc
C) the personnel department of an automotive division
D) the Men's shoe department of a department store
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Page 12
Chapter 11: Standard Costing and Variance Analysis
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Sample Questions
Q1) The materials usage variance is calculated as
A) (Actual price - Standard price) x Actual quantity
B) (Actual price - Standard price) x Standard quantity
C) (Actual quantity - Standard quantity) x Actual price
D) (Actual quantity - Standard quantity) x Standard price
Q2) Which of the following is NOT true about currently attainable standards?
A) They are based on an efficiently operating work force.
B) They are based on ideal conditions.
C) They allow for downtime and rest periods.
D) They are based on present production processes and technology.
Q3) During May, 6,000 pounds of raw materials were purchased at a cost of £2.60 per pound. If there was a favorable materials price variance of £900 for December, the standard cost per pound must be
A) £2.75
B) £2.60
C) £2.45
D) none of the above
Q4) How are standards developed? What is the difference between ideal and currently attainable standards?
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Chapter 12: Divisional Financial Performance Measurement
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Sample Questions
Q1) A firm has £2,000,000 of long-term bonds paying 8 percent interest and £8,000,000 of common stock. The firm is considered to be of average risk with the return to the stockholders estimated to be 14 percent. If the company's tax rate is 40 percent, what is the firm's weighted average cost of capital?
A) 12.80%
B) 12.16%
C) 8.32%
D) none of the above
Q2) Economic value added (EVA) is
A) a monetary figure
B) a percentage rate of return
C) negative if the company is creating capital
D) none of the above
Q3) Discuss how firms can evaluate manager performance in such a way as to discourage myopic behaviour.
Q4) What problems do owners face in encouraging goal congruence of managers? What is a stock option? How can stock options encourage goal congruence?
Q5) a. Identify advantages of a decentralized approach to management.
b. In comparison, identify advantages of a centralized approach to management.
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Chapter 13: Transfer Pricing in Divisionalized Companies
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Sample Questions
Q1) Refer to Figure 6 above. The Jones Division can sell all that it produces for £360 each. The Jones Division needs 200 units. What is the correct transfer price?
A) £400
B) £200
C) £420
D) £360
Q2) Refer to Figure 6 above. Assume the Jones Division can sell 4,000 units at £420. Any excess capacity will be unused unless the units are purchased by the Thomas Division, which could use up to 200 units. The minimum transfer price that the Jones Division would be willing to accept would be
A) £400
B) £200
C) £420
D) £360
Q3) The objective of a transfer pricing system should be
A) to maximize the transfer price
B) to minimize the transfer price
C) to maintain goal congruence between the divisions and the entire firm
D) none of the above
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Page 15
Chapter 14: Cost Management
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156 Flashcards
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Sample Questions
Q1) What is process value analysis?
Q2) The Kanban system is used to
A) ensure parts or materials are available when needed
B) signal when preventive maintenance is needed
C) signal when a defective unit has been produced
D) ensure idle time of workers is not wasted
Q3) Which of the following process dimensions of the activity-based management model deals with "what"?
A) resources
B) cost driver analysis
C) activities
D) performance measures
Q4) Which of the following is not an objective of activity-based management?
A) to improve decision making through better cost information
B) to increase the activity it takes to perform processes
C) to encourage cost reduction through continuous improvement
D) to increase profitability
Q5) Describe how the activity-based management model combines the process and costing views. What are the steps involved in each? What are the objectives of the activity-based management system?
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Chapter 15: Strategic Performance Management
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Sample Questions
Q1) A competitive advantage has been established when
A) customers see the variation as important and the value added to the customer exceeds the cost of providing differentiation.
B) a high-cost strategy increases customer value by minimizing customer sacrifices.
C) a low-profit item is dropped from the product line.
D) both a and B
Q2) Delivery performance can be improved by
A) decreasing cycle time.
B) increasing cycle time.
C) decreasing velocity.
D) increasing turnover.
Q3) Cycle time is
A) the time it takes to collect the account after the sale.
B) the time it takes to turn inventory over.
C) the time it takes to deliver the product after it is sold.
D) the time it takes to produce one unit of product.
Q4) Strategic-based performance measures are balanced measures. Give examples of four types of balanced measures.
Q5) List three benefits of a value chain perspective.
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