Financial Management
Textbook Exam Questions
Course Introduction
Financial Management is a foundational course that explores the principles and practices involved in managing an organization's financial resources. The course covers key topics such as financial analysis, planning and forecasting, capital budgeting, risk assessment, and working capital management. Students will learn how to evaluate investment opportunities, determine optimal financing strategies, and make decisions that maximize shareholder value. Through case studies and real-world examples, the course emphasizes the application of financial theories to solve practical business problems, preparing students for roles in corporate finance, banking, and financial consulting.
Recommended Textbook
Cost Accounting A Managerial Emphasis 6th Canadian Edition by Charles T. Horngren
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Chapter 1: The Accountants Vital Role in Decision Making
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Q1) The approaches and activities of managers in short-run and long-run planning and control decisions that increase value for customers and lower costs of products and services are known as
A) value chain management.
B) enterprise resource planning.
C) cost management.
D) customer value management.
E) management information system.
Answer: C
Q2) The ________ is primarily responsible for the quality of the information supplied in both internal and external reports.
A) COO (Chief Operating Officer)
B) CIO (Chief Information Officer)
C) treasurer
D) controller
E) accountant
Answer: D
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Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) What is the unit cost for the direct materials for 20X4 assuming direct materials costs are for the production of 1,014,000 units?
A) $0.80
B) $0.95
C) $1.00
D) $1.08
E) $1.11
Answer: C
Q2) Service-sector companies provide services or intangible products to their customers.
A)True
B)False
Answer: True
Q3) Changes in particular cost drivers automatically result in decreases in overall costs.
A)True
B)False
Answer: False
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Target net income is computed by multiplying operating income by one minus the entity's tax rate, or by multiplying operating income by the tax rate, and subtracting that amount from operating income.
A)True
B)False
Answer: True
Q2) Revenues less all costs that vary with respect to an output level is the gross margin.
A)True
B)False
Answer: False
Q3) If unit sales exceed the break-even point when using the graph method,
A) there is a loss because the total cost line exceeds the total revenue line.
B) total sales exceed total costs.
C) there is a profit because the total cost line exceeds the total revenue line.
D) expenses are extremely high relative to revenues.
E) operating income is negative (an operating loss).
Answer: B
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Chapter 4: Job Costing
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Sample Questions
Q1) Manufacturing Overhead Control and Manufacturing Overhead Allocated in the General Ledger respectively, refer to
A) the record of actual overhead costs, and the record of overhead allocated to specific jobs using budgeted rates × actual base units.
B) the record of total budgeted overhead costs and the record of actual overhead allocated to date.
C) the record of actual overhead costs, and the record of overhead allocated to specific jobs using actual rates × budgeted base units.
D) the record of total budgeted overhead costs, and the record of overhead allocated to specific jobs using budgeted rates × actual base units.
E) the record of actual overhead costs, and the record of overhead allocated to specific jobs using budgeted rates × budgeted base units.
Q2) It is not a requirement to identify the indirect costs associated with each job when assigning costs to individual jobs.
A)True
B)False
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Chapter 5: Activity-Based Costing and Management
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Sample Questions
Q1) The previous controller at the transportation company had always estimated the indirect costs at 25% of billings. What indirect costs were accumulated for each major client for the month under this assumption?
A) School Board, $33,610.00; City Gov't, $1,080.88
B) School Board, $2,022.50; City Gov't, $33,610.00
C) School Board, $33,610.00; City Gov't, $1,762.63
D) School Board, $1,762.63; City Gov't, $1,921.25
E) School Board, $2,022.50; City Gov't, $1,762.63
Q2) In an activity-cost pool,
A) a measure of the activity performed serves as the cost allocation base.
B) the costs have a cause-and-effect relationship with the cost-allocation base for that activity.
C) the cost pools are homogeneous over time.
D) costs in a cost pool can always be traced directly to products.
E) each pool pertains to a narrow and focused set of costs.
Q3) Activity-based costing can "unlock" savings, not apparent when traditional costing is used, because the system requires a closer examination of operations.
A)True
B)False
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) A master budget
A) includes only financial aspects of a plan and excludes nonfinancial aspects.
B) is an aid to coordinating what needs to be done to implement a plan.
C) includes broad expectations and visionary results.
D) should not be altered after it has been agreed upon.
E) is based upon budget constraints outside of management control.
Q2) In going from the sales budget to the production budget, adjustments need to be made for
A) finished goods inventories.
B) overhead charges.
C) direct materials inventories.
D) sales returns and allowances.
E) changing from revenue to costs.
Q3) The budget constraint describes only financial limitations that are within the company's control.
A)True
B)False
Q4) Describe some of the drawbacks of using the operating budget as a control device.
Q5) Describe the concept of kaizen budgeting.
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Chapter 7: Flexible Budgets, Variances, and Management
Control: I
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Sample Questions
Q1) Give at least three good reasons why a favourable price variance for direct materials might be reported.
Q2) July's direct manufacturing labour price variance is
A) $250.00 favourable.
B) $262.50 favourable.
C) $487.50 favourable.
D) $262.50 unfavourable.
E) $250.00 unfavourable.
Q3) The term efficiency variance is the direct cost portion of the flexible-budget variance.
A)True
B)False
Q4) Cayman Designs makes chair cushions. The standard direct materials quantity is 1 kilogram per cushion at a cost of $2.50 per kilogram. The actual results for the production of 20,000 cushions was 1.25 kilograms per cushion, at a cost of $2.40 per kilogram. Calculate the direct materials input price variance and the direct materials efficiency variance.
Q5) The sales-volume variance of operating income is a measure of efficiency.
A)True
B)False
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Chapter 8: Flexible Budgets, Variances, and Management
Control: II
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Sample Questions
Q1) What is the flexible-budget amount for fixed-overhead?
A) $120,000
B) $122,000
C) $123,000
D) $125,000
E) $120,983
Q2) Financial measures of performance include
A) operating income.
B) market share.
C) on-time delivery performance.
D) customer acquisition rate.
E) order time to completion.
Q3) How is a budgeted fixed overhead cost rate calculated?
Q4) What is the variable overhead flexible-budget variance?
A) $1,200 favourable
B) $360 unfavourable
C) $840 favourable
D) $1,200 unfavourable
E) $1,560 unfavourable
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Q5) Explain the meaning of a favourable production-volume variance.
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Chapter 9: Income Effects of Denominator Level on Inventory Valuation
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Sample Questions
Q1) Variable manufacturing costs are accounted for in the same manner on the income statement regardless of whether absorption or variable costing is used.
A)True
B)False
Q2) Briefly discuss two methods of reducing the undesirable incentives associated with the use of absorption costing to evaluate the performance of a plant manager.
Q3) What are break-even sales in units using variable costing?
A) 5,625 units
B) 6,250 units
C) 11,875 units
D) 12,180 units
E) 10,556 units
Q4) Under variable costing, which of the following expenses is inventoriable?
A) variable manufacturing overhead
B) direct manufacturing labour and fixed manufacturing overhead
C) marketing and direct manufacturing labour
D) variable manufacturing overhead and administrative
E) variable and fixed manufacturing overhead
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Chapter 10: Quantitative Analyses of Cost Functions
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Sample Questions
Q1) The account analysis method classifies cost accounts with respect to the identified cost driver.
A)True
B)False
Q2) Which of the following is TRUE concerning the collection of data to be used in estimating a cost function?
A) Data should contain observations for periods both before and after a major economic or technological change.
B) The time periods used to measure the outcome variable and the cost driver(s) should not be concurrent.
C) Both time series data and cross-sectional data are relevant, although both are not required.
D) All data should be viewed as being representative of the normal relationship between the outcome variable and the cost driver.
E) Data should contain observations for periods both before and after a major economic or technological change, and, both time series data and cross-sectional data are required.
Q3) What were total fixed costs for 2012?
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) Business function costs consist of all variable costs associated with a particular business function in the value chain.
A)True
B)False
Q2) For short-term pricing decisions, what costs are relevant when there is available surplus capacity? When there is no available surplus capacity?
Q3) A computer system installed last year is an example of a(n)
A) sunk cost.
B) relevant cost.
C) differential cost.
D) avoidable cost.
E) opportunity cost.
Q4) Which of the following anticipated future costs always differ among alternative courses of actions?
A) direct labour costs
B) historical costs
C) relevant costs
D) direct materials costs
E) indirect costs
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Chapter 12: Pricing Decisions, Product Profitability Decisions, and Cost Management
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Sample Questions
Q1) Explain the differences between short-run pricing decisions and long-run pricing decisions.
Q2) Cost systems emphasize cost incurrence by recognizing and recording costs only when a resource is sacrificed or consumed.
A)True
B)False
Q3) Explain the difference between locked in costs and costs incurred. Which of these types of costs does a traditional accounting system emphasize? At which stage of the value chain are most costs locked-in? At which stage of the value chain are most costs incurred? What implication does this have for good cost management?
Q4) Including unit fixed costs for pricing is often used because of its simplicity. A)True
B)False
Q5) Upstream costs refer to post-production costs such as after-sales service.
A)True B)False
Q6) Locked-in costs are costs that have been incurred.
A)True
B)False
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Chapter 13: Strategy, Balanced Scorecard, and Profitability Analysis
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Sample Questions
Q1) Uncertainty refers to the possibility that an actual amount will be equal to an expected amount.
A)True
B)False
Q2) Strategy requires integration of product and process development.
A)True
B)False
Q3) Required:
Present the following,
a. The change in operating income from cost leadership.
b. The change in operating income due to industry wide effects.
c. The effect of product differentiation on operating income and a summarization of the change in operating income between Year 1 to Year 2.
Q4) Required:
a. What amount is the revenue effect of the growth component?
b. What amount is the cost effect of the growth component?
c. What is the net effect on operating income as a result of the growth component?
Q5) What is the primary purpose of the balanced scorecard?
Q6) What are the four key perspectives in the balanced scorecard?
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Chapter 14: Period Cost Allocation
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Sample Questions
Q1) How much of the cost of the Personnel Department is allocated to Department B using the direct method?
A) $8,000
B) $15,000
C) $13,333
D) $12,632
E) $48,000
Q2) The step-down allocation method allows partial recognition of services rendered by support departments to other support departments.
A)True
B)False
Q3) There are multiple cost objects in most costing systems.
A)True
B)False
Q4) Once a cost pool has been established, it should not need to be revisited or revised.
A)True
B)False
Q5) Should a company allocate its corporate costs to divisions?
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Chapter 15: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) The net realizable value method is generally used for products or services that are processed and after splitoff additional value is added to the product and a selling price can be determined.
A)True
B)False
Q2) What are the paper's and the pencil's approximate weighted cost proportions using the sales value at split off method, respectively?
A) 28.57% and 71.43%
B) 33.33% and 66.67%
C) 40% and 60%
D) 49.00% and 51.00%
E) 50.00% and 50.00%
Q3) A criticism of the practice of carrying inventories at estimated net realizable values is that this practice recognizes income before sales are made.
A)True
B)False
Q4) Scrap frequently has a zero sales value.
A)True
B)False
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Chapter 16: Revenue and Customer Profitability Analysis
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Sample Questions
Q1) Costs incurred to handle each unit sold would MOST likely be classified as a
A) customer output unit-level cost.
B) customer batch-level cost.
C) customer-sustaining cost.
D) corporate-sustaining cost.
E) distribution-channel cost.
Q2) Companies that only record the invoice price can usually track the magnitude of price discounting.
A)True
B)False
Q3) When the actual mix of products sold shifts in favour of the high-contribution-margin product,
A) the total sales-mix variance is unfavourable.
B) the total sales-mix variance is favourable.
C) the total sales-volume variance is unfavourable.
D) the total sales-volume variance is favourable.
E) the total sales volume is more favourable (or less unfavourable).
Q4) A customer cost hierarchy may include distribution-channel costs.
A)True
B)False
Page 18
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Chapter 17: Process Costing
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Sample Questions
Q1) Discuss some typical products which would likely use process costing.
Q2) Process-costing journal entries and job-costing journal entries are similar except for the multiple work-in-process accounts in the job-costing system.
A)True B)False
Q3) What are the equivalent units for direct materials and conversion costs, respectively, for April?
A) 1,350 units; 1,350 units
B) 1,850 units; 1,690 units
C) 1,600 units; 1,550 units
D) 250 units; 200 units
E) 1,600 units; 1,350 units
Q4) Equivalent units measure output in terms of the physical quantities of each of the inputs (factors of production) that have been consumed by the units.
A)True B)False
Q5) Transferred-in costs are an allocated indirect cost in process costing. A)True B)False
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Chapter 18: Spoilage, Rework, and Scrap
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Q1) Spoilage issues arise in accounting for process costing but not in accounting for job costing.
A)True
B)False
Q2) Which account is debited when scrap is reused as direct material?
A) work-in-process-control
B) materials control
C) manufacturing overhead control
D) scrap inventory
E) manufacturing overhead allocated
Q3) Assuming Hawk uses the weighted average method of process costing, the cost per equivalent unit for direct materials and conversion costs respectively are:
A) $3.20; $6.40
B) $3.44; $6.89
C) $2.81; $6.09
D) $3.64; $6.40
E) $3.22; $6.42
Q4) Distinguish among spoilage, reworked units, and scrap. Give an example of each.
Q5) What are the objectives in accounting for spoilage?
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Chapter 19: Cost Management: Quality, Time, and the Theory of Constraints
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Sample Questions
Q1) In the banking industry, depositing a customer's check into the wrong bank account is an example of quality of design failure.
A)True
B)False
Q2) On-time performance will increase customer satisfaction.
A)True
B)False
Q3) Bank of Bowmanville has variable demand for its counter services. The daily demand ranges from 200 to 250 customers a day and the average banking transaction takes 6 minutes. The average daily demand is 228 customers. The bank currently has 5 staff members serving the counter and operates 7 hours a day.
Required:
a. What is the average customer waiting time in minutes?
b. In an effort to reduce costs, the bank is considering eliminating one of its counter services staff and having a manager fill in during two hours of the day. What would be the effect of this change on wait time? What might the customers' reaction be?
Q4) Define cost of quality (COQ), list the four categories, and provide an example of each.
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Chapter 20: Inventory Cost Management Strategies
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Q1) A financial benefit of a just-in-time system is that inventory carrying costs are reduced.
A)True
B)False
Q2) The possibility of a conflict between the order quantity that an EOQ model recommends and the order quantity that the purchasing manager regards as optimal is increased with
A) inventory costs which are computed with the FIFO method.
B) lower priced inventory items.
C) the absence of opportunity costs not being recorded in conventional accounting systems.
D) the absence of quality costs not being recorded in conventional accounting systems.
E) lower priced costs of goods sold.
Q3) Shrinkage is measured by comparing the cost of inventory on the books to the cost of inventory physically counted.
A)True B)False
Q4) The costs associated with storage are an example of which cost category?
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Chapter 21: Capital Budgeting: Methods of Investment Analysis
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Sample Questions
Q1) Brown Corporation recently purchased a new machine for $339,013.20. The new equipment has a useful life of 10 years. Net cash flows will be $60,000 per year, end of year payments. What is the internal rate of return?
A) 10 percent
B) 12 percent
C) 14 percent
D) 16 percent
E) 18 percent
Q2) The payback method allows for managers to highlight liquidity.
A)True
B)False
Q3) Which of the following statements about the net present value method is true?
A) Projects with higher net present values are preferred when all other factors are equal.
B) Projects with negative NPV are acceptable, if no positive NPV projects are available.
C) It focuses on operating income.
D) The origination of cash flows is not important in the analysis.
E) Acceptable projects are those with the highest discount rate.
Q4) Briefly describe the processes in the Capital Budgeting Decision Process Model.
Page 23
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Chapter 22: Capital Budgeting: a Closer Look
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Q1) Melvin, Otto, and Clapman consulting firm is considering the purchase of a new telephone system for $10,000. It is believed that the new equipment will save $750 a year over current costs. Telephone equipment is included in Class 3 for tax purposes. Class 3 CCA rate is 5%. The new equipment has an estimated life of five years. Its salvage value is estimated at $400 at the end of five years.
Required:
What items must be considered in the analysis of the purchase?
Q2) Using the certainty equivalent approach means that
A) the expected cash flows are reduced for projects perceived to have higher risk. B) the required rate of return is increased for projects perceived to have higher risk. C) the expected cash flows are increased for projects perceived to have higher risk. D) the expected cash flows are increased and the required rate of return is increased for projects perceived to have higher risk.
E) the expected cash flows are reduced and the required rate of return is increased for projects perceived to have higher risk.
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Chapter 23: Transfer Pricing and Multinational Management Control Systems
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Q1) Assume the transfer price for a pair of soles is 180% of total costs of the Sole Division and 40,000 of soles are produced and transferred to the Assembly Division. The Sole Division's operating income is:
A) $320,000
B) $360,000
C) $248,000
D) $440,000
E) $400,000
Q2) Under what conditions would transferring products or services at market prices lead to optimal decisions within the organization?
A) when the immediate market is a monopoly
B) when there is minimal interdependence between subunit divisions
C) when there is excess capacity
D) when the immediate market is not a monopoly, and there is minimal interdependence between subunit divisions
E) when the immediate market is only somewhat competitive and there is excess capacity
Q3) Briefly describe the arm's length principle and how it applies to transfers among international divisions.
25
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Chapter 24: Multinational Performance Measurement and Compensation
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Sample Questions
Q1) What were the sales for Beta Division?
A) $4,333,333
B) $5,952,380
C) $6,500,000
D) $7,151,800
E) $6,326,787
Q2) Team incentives encourage cooperation by
A) forcing people to work together on difficult tasks.
B) changing management style.
C) letting individuals help one another as they strive toward a common goal.
D) rewarding all teams members by the same amount.
E) rewarding team members individually.
Q3) What is the return on investment for the Sarnia division?
A) 0.21
B) 0.27
C) 0.48
D) 2.06
E) 0.25
Q4) The economic value added concept has attracted considerable attention in recent years. Explain the attractiveness of this number as a measure of performance.
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