Financial Management
Practice Questions
Course Introduction
Financial Management explores the fundamental principles and practices involved in making effective financial decisions within organizations. The course covers topics such as financial statement analysis, budgeting, capital structure, working capital management, investment appraisal, risk assessment, and dividend policy. Students will develop an understanding of the tools and techniques used to analyze financial performance, allocate resources, and maximize shareholder value. Through case studies and real-world scenarios, the course emphasizes strategic planning and the role of financial managers in achieving organizational objectives.
Recommended Textbook
Managerial Accounting 2nd Edition by Charles E. Davis
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17 Chapters
2470 Verified Questions
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Page 2
Chapter 1: Accounting As a Tool for Management
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Sample Questions
Q1) The goal of an ERP system is to
A)Reduce waste and inefficiency in the production process.
B)To integrate all data from the company's many business processes into a single information system.
C)To establish the direction in which an organization wishes to go.
D)To monitor day-to-day operations to ensure that processes are operating as expected.
Answer: B
Q2) One purpose of planning activities is to monitor day-to-day operations to ensure that processes are operating as expected.
A)True
B)False
Answer: False
Q3) The forefront of managerial activity is
A)Planning activities.
B)Controlling activities.
C)Evaluating activities.
D)Decision making.
Answer: D
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Page 3
Chapter 2: Cost Behavior and Cost Estimation Summary of
Questions by Objectives and Blooms Taxonomy
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Sample
Questions
Q1) Pam's Puppy Parlor is a pet grooming parlor and boutique.Pam sells personalized puppy blankets at $20 each.Her contribution margin is $5.If Pam has an additional $100 in blanket sales,how much will her profit increase?
A)$5
B)$25
C)$50
D)$100
Answer: B
Q2) If activity level decreases,what happens to the total variable cost?
A)It decreases.
B)It increases.
C)It remains the same.
D)It depends on how much the activity level increases.
Answer: A
Q3) Discretionary fixed costs are fixed costs that cannot be changed over the short run.
A)True
B)False
Answer: False
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Chapter 3: Cost-Volume-Profit Analysis and Pricing
Decisions
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Sample Questions
Q1) Lochte Inc.has collected the following data concerning one of its products: \(\begin{array}{ll}
\text { Unit sales price } & \$ 145 \\
\text { Total sales } & 15,000 \text { units } \\
\text { Unit cost } & \$ 115 \\
\text { Total investment } & \$ 1,800,000 \end{array}\)
A)20.69%.
B)22.59%.
C)25%.
D)26.09%.
Answer: D
Q2) Which of the following formulas is used to calculate the breakeven point in units?
A)Total fixed costs divided by contribution margin per unit
B)Total fixed costs divided by total contribution margin.
C)Total fixed costs divided by contribution margin ratio.
D)None of these formulas calculates the breakeven point in units
Answer: A
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Chapter 4: Product Costs and Job Order Costing
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Sample Questions
Q1) Which of the following items is \(\textbf{ not }\) classified as direct labor for Family Ice Cream Parlor?
A)Salary of workers making banana splits
B)Salary of workers adding toppings to sundaes
C)Salary of store manager
D)All of these ans choices classified as direct labor.
Q2) Curly Girl Manufacturing manufactures salon-quality hair dryers.Curly Girl applies overhead based on direct labor hours.The company's predetermined overhead rate was based on an estimated 480,000 direct labor hours and $1,728,000 estimated total overhead.During November,the company manufactured 22,400 hair dryers in Job CG12 and incurred the following costs: \(\begin{array}{ll}
\text { Direct materials } & \$ 103,040 \\
\text { Direct labor, } 39,200 \text { hours @ \$18 } & \$ 705,600 \\
\text { Actual overhead incurred during the month } & \$ 148,960
\end{array}\) What is the
A) $36.10
B) $42.40
C) $24.23
D) $42.75
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Page 6
Chapter 5: Planning and Forecasting
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Sample Questions
Q1) Which of the following is not a criticism of ideal standards?
A)Product quality may decline if standards are not met.
B)Employee morale will suffer if standards are not met.
C)Employees may take shortcuts in order to meet the standards.
D)All of these ans choices are criticisms of ideal standards.
Q2) Which of the following budget approaches begins each year at $0 and each individual budget item must be justified?
A)Dollar value based budgeting
B)Governmental-based budgeting
C)Justification-based budgeting
D)Zero-based budgeting
Q3) The final component of the operating budget is the ending inventory and cost of goods sold budget.
A)True
B)False
Q4) Overhead is typically divided into which of the following components?
A)Direct and indirect
B)Fixed and variable
C)Product and period
D)Controllable and non-controllable.
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Chapter 6: Performance Evaluation: Variance Analysis
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Sample Questions
Q1) A favorable variance is a variance that
A)Increases cash relative to the budgeted amount.
B)Decreases cash relative to the budgeted amount.
C)Increases operating income relative to the budgeted amount.
D)Decreases operating income relative to the budgeted amount.
Q2) The flexible budget variance is the difference between the static budgeted amounts and the flexible budgeted amounts.
A)True
B)False
Q3) Which of the following employees is typically held accountable for the direct materials price variance?
A)Controller
B)Purchasing Manager
C)Production Manager
D)Engineering Department Manager
Q4) The algebraic equation for the direct labor rate variance is
A)Direct labor rate variance = AQ x AP - SP.
B)Direct labor rate variance = SQ<sub> </sub>x AP - SP.
C)Direct labor rate variance = SP x AQ - SQ.
D)Direct labor rate variance = AP x AQ - SQ.
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Chapter 7: Activity-Based Costing and Activity Based Management
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Sample Questions
Q1) Identifying activities performed in the organization is the first step in developing activity-based product costs.Which of the following is a way to identify these activities?
A)Asking employees what they do
B)Observe what employees do
C)Both asking employees what they do and observing what employees do.
D)Neither asking employees what they do nor observing what employees do.
Q2) What is an activity cost pool and how are activity cost pool rates calculated?
Q3) The examination of business processes to identify incremental changes that may reduce operating costs is referred to as
A)Variance analysis.
B)Incremental analysis.
C)Process improvement.
D)Total quality management.
Q4) Which of the following is a way a company can use information about activities to manage its operations?
A)Activity-based costing
B)Activity-based management
C)Activity-based budgeting
D)All of these ans choices are correct.
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Chapter 8: Using Accounting Information to Make Managerial Decisions
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Sample Questions
Q1) Relevant information meets two criteria: 1 it differs between the alternatives and 2 the differences have occurred in the past.
A)True
B)False
Q2) The costs that should be included in an outsourcing decision are the:
A)Sunk costs.
B)Recurring costs.
C)Relevant costs.
D)All of these ans choices are correct.
Q3) The first step in making any decision is to consider all available alternatives.
A)True
B)False
Q4) The formula for computing the contribution per constrained resource is
A)Contribution margin per unit multiplied by the constrained resource per unit.
B)Contribution margin per unit divided by the constrained resource per unit.
C)Total contribution margin multiplied by the constrained resource per unit.
D)Total contribution margin divided by the constrained resource per unit.
Q5) If a product has a positive segment margin but is not as profitable as other products,what should managers do? What if the segment margin is negative?
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Chapter 9: Capital Budgeting
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Sample Questions
Q1) Capital budgeting decisions involve both outflows of cash at one or more times and inflows of cash at other times.
A)True
B)False
Q2) Mauldin Welding Shop is considering the purchase of new high-tech welding equipment.If the equipment is purchased,Mauldin will have to incur $2,000 to install the equipment and pay a technician to adjust the computer settings.In determining the cash flows associated with the new equipment,the $2,000 payment will be
A)A cash outflow
B)A cash inflow
C)An opport
D)Not relevant
Q3) The value today of the dollars to be paid or received in the future is referred to as A)Present value
B)Future value
C)Either a or b
D)Neither a nor b
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Chapter 10: Decentralizing and Performance Evaluation
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Sample Questions
Q1) In a decentralized organization, upper managers need a way to evaluate the performance of unit managers. Based on factors under the unit managers control, organizational units are categorized as cost centers, profit centers, or investment centers. Classify each of the following centers by placing an X in the appropriate column. \[\begin{array}{|l|c|c|c|}
\hline & \textbf{Cost} & \textbf{Profit} & \textbf{Investment} \\
\hline \text{Manager is responsible for revenues and costs} & & & \\
\hline \text{Payroll department} & & & \\
\hline \text{Customer service department} & & & \\
\hline \text{Independently operated division with sole decision-making}\\
\text{authority for all areas} & & & \\
\hline \text{Computer department in Best-Buy} & & & \\
\hline \text{ROI is used to evaluate unit manager} & & & \\
\hline \text{Children's department in retail store} & & & \\
\hline \text{Locally owned bakery} & & & \\
\hline \text{Unit's overall profit is used to evaluate unit manager} & & & \\
\hline \end{array}\]
Q2) What is a transfer price? List the four ways of determining a transfer price.
Q3) What is EVA and how is it calculated?
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Chapter 11: Performance Evaluation Revisited: a Balanced Approach
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Sample Questions
Q1) Nonfinancial measures can be \(\begin{array}{cccc} & \text { Quantitative } & & \text { Qualitative } \\
\text { a. } & \text { Yes } & & \text { Yes } \\
\text { b. } & \text { Yes } & & \text { No } \\
\text { c. } & \text { No } & & \text { Yes } \\
\text { d. } & \text { No } & & \text { No } \end{array}\)
Q2) Countless measures could be captured and reported to managers.The best measures relate to corporate strategy and are SMART.
Required:
Explain the five components of SMART and give an example of each component.
Q3) A balanced scorecard should include five to seven measures in each of four perspectives: Learning and growth,internal business processes,customer,and financial. Required:
List six measures that relate to the learning and growth perspective.
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Page 13
Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) Utica Corporation reported the following financial information:
\[\begin{array} { l c c c }
& \underline{2012} & \underline{2013} & \underline{2014} \\
\text { Cash } & \$ 30,000 & \$ 54,000 & \$ 10,000 \\
\text { Inventory } & \$ 80,000 & \$ 88,000 & \$ 94,000 \\
\text { Sales } & \$ 640,000 & \$ 580,000 & \$ 460,000
\end{array}\]
a.What is the trend percentage for cash in 2014 with 2012 as the base year?
b.What is the trend percentage for inventory in 2014 with 2012 as the base year?
Q2) The following financial statement items are shown for J&T Manufacturing.
\[\begin{array} { l r }
\text { Inventory } & \$ 24,000 \\
\text { Total assets } & \$ 120,000 \\
\text { Salaries payable } & \$ 12,000 \\
\text { Total liabilities } & \$ 52,000
\end{array}\] Calculate the common-size percentage for salaries payable.
A) 7%
B) 10%
C) 23%
D) 433%
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Page 14
Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) Which of the following cash flows results from an operating activity?
A)Purchasing an investment in another company
B)Issuing common stock
C)Receiving dividends on investment in another company
D)Repaying long-term debt
Q2) A company's inventory account decreased by $1,000 during the year.Which of the following would appear on the statement of cash flows prepared using the indirect method?
A)An addition under investing activities
B)A deduction under investing activities
C)An addition under operating activities
D)A deduction under operating activities
Q3) Which of the following cash flows results from an operating activity?
A)Paying employees monthly payroll
B)Declaring a dividend of $5 per share
C)Selling an investment in another company
D)Purchasing a new delivery truck
Q4) What is the basic form of the statement of cash flows?
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Chapter 14: Topic Focus: Process Costing
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Sample Questions
Q1) Companies that mass produce similar products or employ a continuous production process typically use a process costing system.
A)True
B)False
Q2) Which of the following is \(\textbf{ not }\) a step in calculating the
A)Calculate the equivalent
B)Allocate the equivalent
C)Divide the total equivalent costs by the total
D)Reconcile the costs of production
Q3) In process costing,all materials are added at the beginning of the production process,then labor and overhead is added during the production process.
A)True
B)False
Q4) In process costing,direct materials may be added at different points of a department's production process.
A)True
B)False
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Chapter 15: Topic Focus Variable and Absorption Costing
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Sample Questions
Q1) Which of the following is \(\textbf{ not }\) a product cost?
A)Direct material
B)Direct labor
C)Selling expenses
D)Manufacturing overhead
Q2) When using variable costing,fixed manufacturing overhead is treated as which of the following types of costs?
A)Product
B)Mixed
C)Period
D)Variable
Q3) When the units produced exceeds the units sold
A)Ending inventory on the balance sheet is lower under absorption costing than under variable costing.
B)Ending inventory on the balance sheet is higher under absorption costing than under variable costing.
C)Ending inventory on the balance sheet is the same under absorption costing and variable costing.
D)Cannot be determined with the information given.
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Page 17
Chapter 16: Topic Focus Standard Costing Systems
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Sample Questions
Q1) Manufacturing Overhead is a temporary account that must have a zero balance at the end of the accounting period.
A)True
B)False
Q2) When using a standard costing system,which of the following statements is true?
A)There is never any question about the recorded cost of a unit in inventory; it is always at the standard cost.
B)There is always a question about the recorded cost of a unit in inventory; the standard cost differs with each purchase.
C)A unit recorded in inventory last week and one recorded in inventory today will not have the same recorded cost.
D)None of these ans choices are true.
Q3) When using a standard costing system,the direct materials quantity variance is recorded at the time direct materials are transferred to the production floor.
A)True
B)False
Q4) What is the difference between a normal costing system and a standard costing system?
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18
Chapter 17: Topic Focus Customer Profitability
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Sample Questions
Q1) In their book Killer Customers,Larry Selden and Geoffrey Colvin estimate what percentage of a company's customers generates approximately 120% of a company's profits?
A)20%
B)40%
C)60%
D)80%
Q2) Calculations to measure customer profitability include customer net profit and customer profit margin.
A)True
B)False
Q3) Which of the following is \(\textbf{ not }\) an administrative expense?
A)Controller's salary
B)Depreciation on office equipment
C)Fixed overhead
D)All of these ans choices are administrative expenses
Q4) Customer profit margin is calculated as customer net profit divided by customer gross profit.
A)True
B)False
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