Financial Management
Final Exam Questions
Course Introduction
Financial Management is a foundational course that explores the principles and practices involved in effective financial decision-making within organizations. Covering essential topics such as financial analysis, planning and control, capital budgeting, risk assessment, and working capital management, the course equips students with the tools needed to analyze financial statements, evaluate investment opportunities, and develop strategies to maximize shareholder value. Emphasis is placed on real-world applications, ethical considerations, and contemporary challenges faced by financial managers in a dynamic business environment.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis16th Global Edition by Srikant M. Datar
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Page 2
Chapter 1: The Manager and Management Accounting
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Sample Questions
Q1) Which of the following is an example of an intrinsic reward?
A)bonuses paid to employees
B)recognition of job well done
C)promotions based on performance
D)salaries paid to employees
Answer: B
Q2) IMA's overarching ethical principles include: Honesty,Fairness,Objectivity,and Responsibility.
A)True
B)False Answer: True
Q3) The best-designed strategies and the best-developed capabilities are useless unless they are effectively executed.
A)True
B)False
Answer: True
Q4) The supply chain always occurs within a single organization.
A)True
B)False
Answer: False
Page 3
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) For a manufacturing company,direct material costs may be included in ________.
A)only the direct materials inventory account
B)only in the merchandise inventory account reflecting the inventory on hand
C)only in both work-in-process inventory and finished goods inventory
D)direct materials inventory,work-in-process inventory,and finished goods inventory accounts
Answer: D
Q2) A company reported revenues of $382,000,cost of goods sold of $125,000,selling expenses of $16,000,and total operating costs of $74,000.Gross margin for the year is
A)$257,000
B)$241,000
C)$167,000
D)$292,000
Answer: A
Q3) A unit cost is computed by dividing total cost by the number of units.
A)True
B)False
Answer: True
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Gross margin is ________.
A)sales revenue less variable costs
B)sales revenue less cost of goods sold
C)contribution margin less fixed costs
D)contribution margin less variable costs
Answer: B
Q2) Operating income plus total fixed costs equals the contribution margin.
A)True
B)False
Answer: True
Q3) Contribution margin percentage = Selling price - Variable cost per unit
A)True
B)False
Answer: False
Q4) In the graph method of CVP analysis,the horizontal line above the x-axis represents the total cost line.
A)True
B)False
Answer: False
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Chapter 4: Job Costing
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Sample Questions
Q1) One reason for using longer time periods to calculate indirect-cost rates is seasonal cost fluctuations.
A)True
B)False
Q2) The budgeted indirect-cost rate is calculated ________.
A)at the beginning of the year
B)during the year
C)at the end of each quarter
D)at the end of the year
Q3) A ________ is anything for which a measurement of costs is desired.
A)cost-allocation base
B)cost pool
C)cost object
D)cost-application base
Q4) Explain the procedure how overhead indirect costs become a part of work-in process inventory.
Q5) The budgeted indirect cost rate is actual indirect costs divided by budgeted quantity of the cost allocation base.
A)True
B)False
Page 6
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Chapter 5: Activity-Based Costing and Activity-Based Management
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Sample Questions
Q1) A well-designed,activity-based cost system helps managers make better decisions because information derived from an ABC analysis ________.
A)can be used to eliminate nonvalue-added activities
B)is easy to analyze and interpret
C)takes the choices and judgment challenges away from the managers
D)emphasizes how managers can achieve higher sales
Q2) When allocating the total indirect cost pool to cost pools such as setup costs including depreciation and maintenance costs of setup equipment,wages of setup employees,and allocation of supervisors is called a second-stage allocation.
A)True
B)False
Q3) Overcosting a particular product may result in:
A)pricing the product too high
B)pricing the product too low
C)operating efficiencies
D)understating total product costs
Q4) Distribution can be a cost-driver for a manufacturing company under ABC system.
A)True
B)False
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Chapter 6: Master Budget and Responsibility Accounting
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Sample
Questions
Q1) How is budgeting for a multinational corporation different than budgeting for a corporation that is strictly domestic?
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) Omitting basic maintenance expenditures out of a budget could be considered unethical if the risks of a breakdown and loss are substantial.
A)True
B)False
Q4) The Japanese use the term kaizen when referring to________.
A)scarce resources
B)pro forma financial statements
C)continuous improvement
D)the sales forecast
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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Sample Questions
Q1) A flexible-budget variance can be subdivided into the static-budget variance and the sales-volume variance.
A)True
B)False
Q2) Which of the following can be a reason for a favorable price variance for direct materials?
A)a decrease in the price of materials due to an oversupply of materials
B)an unexpected increase in the price of materials
C)less amount of material used during production than planned for actual output
D)workers taking less time to produce the products
Q3) If a sales-volume variance was caused by poor-quality products,then the ________ would be in the best position to explain the variance.
A)production manager
B)sales supervisor
C)financial supervisor
D)logistic manager
Q4) A favorable variance can be automatically interpreted as "good news."
A)True
B)False
9
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Chapter 8: Flexible Budgets, overhead Cost Variances, and Management Control
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Sample Questions
Q1) Explain two concerns when interpreting the production-volume variance as a measure of the economic cost of unused capacity.
Q2) Compared to variable overhead costs planning,fixed overhead cost planning has an additional strategic issue beyond undertaking only essential activities and efficient operations.That additional requirement is best described as:
A)focusing on the highest possible quality
B)increasing the linearity between total costs and volume of production
C)choosing the appropriate level of capacity that will benefit the company in the long-run
D)identifying essential value-adding activities
Q3) Skytalk Company manufactures weathervanes.The 2015 operating budget is based on the production of 5,300 weathervanes with 1.25 machine-hour allowed per weathervane.Variable manufacturing overhead is anticipated to be $145,750. Actual production for 2015 was 5,250 weathervanes using 6,050 machine-hours.Actual variable costs were $21.75 per machine-hour.
Required:
Calculate the variable overhead spending and the efficiency variances.
Q4) Explain how service-sector companies can benefit from variance analysis.
Page 10
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Chapter 9: Inventory Costing and Capacity Analysis
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Sample Questions
Q1) If activity based cost accounting is used to allocate capacity related costs,normal capacity measures should be used.
A)True
B)False
Q2) Venus Corporation incurred fixed manufacturing costs of $4,800 during 2017.Other information for 2017 includes:
The budgeted denominator level is 1,600 units.
Units produced total 770 units. Units sold total 630 units.
Beginning inventory was zero.
The company uses variable costing and the fixed manufacturing cost rate is based on the budgeted denominator level.Manufacturing variances are closed to cost of goods sold.
Operating income using variable costing will be ________ than operating income if using absorption costing.
A)$2,490 higher
B)$2,490 lower
C)$1,890 higher
D)$420 lower
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Chapter 10: Determining How Costs Behave
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Sample Questions
Q1) The coefficient of determination (r<sup>2</sup>)measures the percentage of variation in X (the independent variable)explained by Y (the dependent variable).
A)True
B)False
Q2) The ideal database for estimating cost functions contains ________.
A)numerous cost driver observations
B)only the independent variable and not the dependent variable
C)cost driver observations spanning a narrow range
D)a few values of the cost driver that are grouped closely together
Q3) Data collection problems arise when ________.
A)data are recorded electronically rather than manually
B)accrual-basis costs are used rather than cash-basis costs
C)fixed and variable costs are not separately identified and both are allocated to products on a per unit basis
D)purely inflationary price effects are removed
Q4) When new products are introduced,learning-curve effects can have a major influence on production scheduling.
A)True
B)False
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) Why is the depreciation of an old equipment irrelevant to decision making?
Q2) When capacity is constrained,the relevant revenues and costs of any alternative equal the incremental future revenues and costs plus the opportunity cost.
A)True
B)False
Q3) Full costs of a product include variable and fixed costs in a particular business function in the value chain.
A)True
B)False
Q4) What role does a trade-in allowance on old equipment play in a decision to retain or replace equipment?
A)It is relevant since it increases the cost of the new equipment.
B)It is irrelevant since it reduces the cost of the old equipment.
C)It is irrelevant to the decision since it does not impact the cost of the new equipment.
D)It is relevant since it reduces the cost of the new equipment.
Q5) What are opportunity costs? Explain why opportunity costs are not recorded in financial accounting systems.
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Chapter 12: Strategy,balanced Scorecard,and Strategic
Profitability Analysis
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Sample Questions
Q1) What is re-engineering.Can you contrast a re-engineering approach to change with a kaizen approach to change?
Q2) Direct material cost is an example of ________.
A)conversion costs
B)discretionary costs
C)engineered costs
D)downsized costs
Q3) For each of the following measures,identify which perspective of the balanced scorecard it represents: financial,customer,internal-business-process,or learning-and growth.
1.service response time
2.market share
3.gross margin percentage
4.defect rates
5.customer satisfaction
6.information system availability
7.new-product development time
8.revenue growth
9.employee turnover rates
10.setup time
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Chapter 13: Pricing Decisions and Cost Management
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Sample Questions
Q1) Twenty Technologies,currently sells 17" monitors for $280.It has costs of $220.A competitor is bringing a new 17" monitor to market that will sell for $230.Management believes it must lower the price to $230 to compete in the market for 17" monitors.Twenty Technologies believes that the new price will cause sales to increase by 10%,even with a new competitor in the market.Twenty Technologies' sales are currently 5100 monitors per year.
What is the target cost if the target operating income is 25% of sales?
A)$230.00
B)$210.00
C)$172.50
D)$165.00
Q2) A life-cycle budget is usually prepared to budget for costs and production for a period of one year.
A)True
B)False
Q3) Companies operating in competitive markets generally use the cost-plus approach to price products.
A)True
B)False
Q4) What factors may influence the level of markups?
Page 15
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Chapter 14: Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis
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Sample Questions
Q1) Customer-profitability analysis is the reporting and assessment of revenues earned from customers and the costs incurred to earn those revenues.
A)True
B)False
Q2) When the cost pools are homogeneous which of the following will be true?
A)the number of needed cost pools will be more
B)the costs in the cost pool have a similar cause-and-effect or benefits-received relationship with the cost-allocation base
C)managers should not allocate both variable costs and costs that are fixed in the short-run
D)there will be a greater variety of cause-and-effect,benefits-received,or fair-and-equitable relationship with the cost-allocation base
Q3) Costs of displays at customer sites is an example of customer batch-level costs.
A)True
B)False
Q4) What are the two components of the sales-quantity variance?
Q5) What actions might be taken with an unprofitable customer?
Page 16
Q6) How can a company's revenues and costs differ across customers?
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Chapter 15: Allocation of Support-Department Costs, common
Costs, and Revenues
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Sample Questions
Q1) Which of the following is not one of the methods used to to allocate the revenues of a bundled product?
A)direct revenue method
B)stand-alone selling prices method
C)Stand-alone physical units method
D)incremental revenue method
Q2) Which of the following best describes the stand-alone revenue-allocation method?
A)uses product-specific information on the products in the bundle as weights for allocating the bundled revenues to the individual products
B)ranks individual products in a bundle according to criteria determined by management
C)ranks individual products in a bundle according to costs allocated to the products
D)survey customers about the importance of each of the individual products in their purchase decision
Q3) Revenue allocation is required to determine the profitability of individual items within a bundled product.
A)True
B)False
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Chapter 16: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) Silver Company uses one raw material,silver ore,for all of its products.It spends considerable time getting the silver from the ore before it starts the actual processing of the finished products,rings,lockets,etc.Traditionally,the company made one product at a time and charged the product with all costs of production,from ore to final inspection.However,in recent months,the cost accounting reports have been somewhat disturbing to management.It seems that some of the finished products are costing more than they should,even to the point of approaching their retail value.It has been noted by the accounting manager that this problem began when the company started buying ore from different parts of the world,some of which require difficult extraction methods.
Required:
Can you explain how the company might change its accounting system to reflect the reporting problems better? Are there other problems with the purchasing area?
Q2) Which of the following is a is a market-based approach to allocating joint costs?
A)sales units
B)units of production
C)physical measures
D)net realizable value
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Page 18
Chapter 17: Process Costing
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Sample Questions
Q1) Both,the standard-costing method and FIFO,assumes that the earliest equivalent units in beginning work in process are completed first.
A)True
B)False
Q2) If manufacturing labor costs are added to the process at a different time compared to other conversion costs,an additional cost category-direct manufacturing labor costs-would be needed to assign these costs to products.
A)True
B)False
Q3) The president of the Gulf Coast Refining Corporation wants to know why his golfing partner,who is the chief financial officer of a large construction company,calculates his costs by the job,but his own corporation calculates costs by large units rather than by individual barrel of oil.
Q4) The last step in a process-costing system is to compute cost per equivalent unit.
A)True
B)False
Q5) List and describe the five steps in process costing.
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Chapter 18: Spoilage, rework, and Scrap
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Q1) The loss from abnormal spoilage account would appear ________.
A)on a balance sheet
B)as a detailed item in the retained earnings schedule of a balance sheet
C)a separate line item on an income statement
D)a deduction from the cost of goods sold
Q2) Scrap is residual material that results from manufacturing a product;it has low total sales value compared with the total sales value of the product.
A)True
B)False
Q3) Which of the following statements is true of scrap?
A)When a production process yields two or more products with high total sales values relative to the total sales values of other products,those are called scrap.
B)For accounting purpose,distinction is made between normal and abnormal scrap.
C)Scrap refers to units of production,fully or partially completed,that do not meet the specifications required by customers for good units and are discarded or sold at reduced prices
D)Scrap is either sold or disposed of quickly or it is stored for later sale,disposal,or reuse.
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Page 20
Chapter 19: Balanced Scorecard: Quality and Time
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Sample Questions
Q1) Discuss the methods used to identify quality problems.
Q2) If Six Sigma's goal is to get defect rates down to 3.4 defects per every 100,000 units produced.
A)True
B)False
Q3) A corporation can measure its quality performance by using financial or nonfinancial measures of quality.Discuss the merits of each method and whether the use of one precludes the use of the other.
Q4) Which of the following is true of a bottleneck?
A)It occurs in an operation when the work to be performed approaches or exceeds the capacity available to do it.
B)It occurs in an operation when there is excess capacity to complete the work given.
C)It is the uncertainty about when customers will order products or services.
D)It is the time taken by a manufacturing department to produce a finished product.
Q5) What are control charts and how can inferences be drawn from them?
Q6) The two basic aspects of quality are quality of design and conformance quality.Define and give an example of each.
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Chapter 20: Inventory Management, just-In-Time, and Simplified Costing Methods
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Sample Questions
Q1) The costs of storage space owned are always relevant costs of carrying inventory. A)True
B)False
Q2) Which of the following statements best defines lean accounting?
A)an accounting system that comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities
B)a costing method that supports creating value for the customer by costing the entire value stream thereby eliminating waste in the accounting process
C)an accounting system that omits recording some of the journal entries relating to the stages from the purchase of direct materials to the sale of finished goods
D)an integrated costing system covering a company's accounting,distribution,manufacturing,purchasing,human resources,and other functions
Q3) What are the implications of JIT and backflush costing systems for activity-based costing (ABC)systems?
Q4) Lean accounting is much simpler than traditional product costing.Why?
Q5) What are five features of a just-in-time manufacturing system?
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Chapter 21: Capital Budgeting and Cost Analysis
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Sample Questions
Q1) Which of the following is a stage of the capital budgeting process that forecasts all potential cash flows attributable to the alternative projects?
A)identify projects stage
B)make decisions by choosing among alternatives stage
C)implement the decision,evaluate performance,and learn stage
D)make predictions stage
Q2) In using the net present value method,only projects with a zero or positive net present value are acceptable because ________.
A)the return from these projects equals or exceeds the cost of capital
B)a positive net present value on a particular project guarantees company profitability
C)the company will be able to pay the necessary payments on any loans secured to finance the project
D)it results in high payback period
Q3) In nominal rate of return,the inflation element is the premium above the real rate.
A)True
B)False
Q4) How is inflation related to capital budgeting? Discuss.
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Chapter 22: Management Control Systems, transfer Pricing, and Multinational Considerations
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Q1) Decisions regarding sources of long-term financing are best made at subunit level as the subunit has local knowledge and can leverage it in negotiations.
A)True
B)False
Q2) The choice of a transfer-pricing method has minimal effect on the allocation of company-wide operating income among divisions.
A)True
B)False
Q3) 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
Q4) An investment center is always a decentralized subunit.
A)True
B)False
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Chapter 23: Performance Measurement, compensation,
and Multinational Considerations
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Q1) ROI,RI,or EVA measures are more appropriate than ROS to measure the performance of a company.Why?
Q2) All of the following are ways to calculate different versions of ROI except ________.
A)Revenues/Total Assets
B)Return on sales x investment turnover
C)Income/Investments
D)Operating Income/Revenues x Revenues/Total Assets
Q3) Relative performance evaluation ________.
A)determines the effective intensity of incentives placed on each measure of performance
B)filters out the effect of common uncontrollable factors
C)results in managers helping each other who run similar operations
D)leads to goal congruence
Q4) Average number of repeat visits in a spa unit is a ________ measure on a balanced scorecard.
A)customer perspective
B)financial perspective
C)learning-and-growth perspective
D)internal-business-process perspective
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