Managerial Finance
Exam Answer Key
Course Introduction
Managerial Finance focuses on the principles and techniques necessary for effective financial management within organizations. The course covers topics such as financial analysis, planning, and control, the valuation of assets, capital budgeting, risk and return assessment, cost of capital, and working capital management. Emphasis is placed on the use of financial information for decision-making, understanding financial markets, and the strategic implications of financial choices. Through case studies, practical exercises, and the application of financial tools, students develop the skills needed to analyze financial data and make informed managerial decisions that contribute to organizational success.
Recommended Textbook Management Accounting 2nd Edition by Leslie
G. Eldenburg
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Chapter 1: The Role of Accounting Information in Management Decision Making
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Sample Questions
Q1) Which of the following is least likely to be an external report?
A) Credit report
B) Supplier's inventory report
C) Tax return
D) Analysis of supplier quality
Answer: D
Q2) Cost accounting information, such as the valuation of ending inventory, is shown on external financial statements.
A)True
B)False
Answer: True
Q3) Organisational core competencies can include
A) A mission statement
B) Patents, copyrights and special legal protections
C) A code of conduct
D) An operating plan
Answer: B
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Chapter 2: Cost Concepts, Behaviour and Estimation
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Q1) Liva Company wants to develop a cost function for its maintenance costs to estimate such costs for the coming year. The following data are available:
A) $500 + $1.00 per direct labor hour
B) $300 + $1.50 per direct labor hour
C) $100 + $0.20 per direct labor hour
D) $200 + $0.10 per direct labor hour
Answer: C
Q2) Janice's Kennel and Pet Spa is located in Sydney. The company employs three pet attendants, four pet groomers and two front office staff who book appointments and keep records. The spa provides a range of services for dogs and cats including boarding, grooming, and obedience training. The grooming area includes a small retail section that carries dog and cat food, pet supplies, and toys. Which of the following is a sunk cost for any cost object related to Janice's Kennel and Pet Spa?
A) Cost of the car Janice is planning to buy for pet transportation
B) Cost of existing computer equipment used to keep company records
C) Cost of annual wages for full-time employees
D) Cost of rent for the next period
Answer: B
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Chapter 3: A Costing Framework and Cost Allocation
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Q1) The costs of the computer services department of an organisation are allocated to other departments at $81 per number of computers in the department. If Department X has 38 computers and Department Y has 89 the computer services costs allocated to Department Y will be $3382.
A)True
B)False
Answer: False
Q2) The distinction between direct costs and indirect costs depends on their traceability to
A) a cost object
B) a manufacturing operation
C) an activity
D) a product
Answer: A
Q3) The reason for allocating indirect costs is:
A) for pricing decisions
B) to comply with external reporting requirements
C) to remind departmental managers of the full impact of their decisions
D) all of the above
Answer: D
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Chapter 4: Cost-Volume-Profit Cvp Analysis
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Q1) Which of the following is the amount by which sales could drop before profits reach the breakeven point?
A) Operating leverage
B) Total contribution margin
C) Margin of safety
D) Incremental sales
Q2) The breakeven point for a service organisation will decrease if
A) Volume increases
B) The variable cost ratio decreases
C) Fixed costs increase
D) The contribution margin ratio decreases
Q3) When an organisation produces and sells a number of different products or services, the weighted average contribution margin per unit is used to determine the breakeven point or target profit in units.
A)True
B)False
Q4) A linear revenue function is one of the assumptions involved in CVP analysis.
A)True
B)False
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Chapter 5: Job Costing Systems
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Q1) In a job costing system the accounting entry made at the time job 664 is delivered to the customer is:
A) debit to cost of goods sold; credit to finished goods inventory
B) debit to finished goods inventory; credit to work in process
C) debit to sales; credit to work in process
D) debit to cost of goods sold; credit to work in process
Q2) In job costing the allocation of overhead results in a debit to:
A) the overhead control account
B) the work in process inventory account
C) the finished goods inventory account
D) the cost of goods sold account
Q3) Under a job costing system the opportunity costs of spoilage are generally not measured.
A)True
B)False
Q4) The true statement is:
A) Period costs are expensed in the period the product is sold
B) Period costs are initially inventoried, then expensed
C) Product costs are expensed as the product is produced
D) Product costs are expensed in the period the product is sold
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Chapter 6: Process Costing Systems
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Sample Questions
Q1) Zuniga Ltd uses a process costing system. During May, 1,200 units were transferred into Department 2 at a cost of $38,040. Direct materials are added at the beginning of the process. Additionally: Using the FIFO method, the cost of the beginning work in process units transferred out was
A) $2,385
B) $15,476
C) $7,551
D) $6,756
Q2) Conversion costs may be separated into direct labor and overhead when it is relatively easy to track direct labor and the use of labor occurs in a different pattern than the use of overhead resources.
A)True
B)False
Q3) Conversion costs refer to the cost of direct labor and production overhead.
A)True
B)False
Q4) All spoilage in a process costing system is considered abnormal spoilage.
A)True
B)False
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Chapter 7: Absorption, Variable and Throughput Costing
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Sample Questions
Q1) Fixed overhead costs are treated differently under variable costing and throughput costing.
A)True
B)False
Q2) Brady Ltd uses a normal absorption costing system in which the overhead rate and variable manufacturing costs have remained unchanged for the last 2 years. During the current year the following activity occurred: The firm had no beginning or ending work in process inventories. However, there were 1,000 units in beginning finished goods. The sales revenue for the year was
A) $210,000
B) $215,040
C) $260,000
D) $204,960
Q3) Throughput costing income statements cannot be used to evaluate management performance.
A)True B)False
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Chapter 8: Activity Analysis: Costing and Management
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Sample Questions
Q1) Which of these factors are associated with successful ABC implementations?
A) Top management support and high market share
B) Performance evaluations and low market share
C) Top management support and performance evaluations
D) Middle management support and high market share
Q2) Both activity-based costing and traditional costing allocate overhead costs to cost objects.
A)True
B)False
Q3) BVH manufactures and sells mobile phones. Which of the following activities is least likely to be considered a value-added activity for BVH?
A) Repairing phones
B) Offering phones for sale in designer colors
C) Making phones smaller
D) Creating several ring-tone options for mobile phones
Q4) Cost accounting systems were originally developed to
A) Assign costs to products for financial reporting purposes
B) Assign costs to products for tax reporting purposes
C) Give managers better information for making decisions
D) Allocate direct costs to cost objects
10
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Chapter 9: Relevant Costs for Decision Making
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Sample Questions
Q1) In making a decision to drop a product line, variable costs are
A) Always relevant
B) Never relevant
C) Usually relevant
D) Usually sunk
Q2) Which of the following is the best definition of a qualitative factor?
A) Factors related to product or service quality
B) Factors that cannot be identified in a decision-making process
C) Factors that are not valued in monetary terms
D) Factors that are superior to quantitative factors in decision making
Q3) In non-routine situations, managers must identify the type of decision to be made. Which of the following is not an example of a non-routine operating decision?
A) Make or buy
B) Special order pricing
C) Budgeting
D) Managing limited resources
Q4) One way to deal with constrained resources is to spend money to alleviate them.
A)True
B)False
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Chapter 10: Standard Costs, Flexible Budgets and Variance Analysis
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Sample Questions
Q1) The standard cost of direct materials is computed as the standard price per unit of input times the standard quantity per unit of input.
A)True
B)False
Q2) Mason Ltd uses a standard costing system. Overhead costs are allocated based on direct labor hours. The standard variable overhead and fixed overhead rates are $1 and $5 per direct labor hour, respectively. Data relevant for the current period include: The direct materials efficiency variance is
A) $60,000 Favorable
B) $60,000 Unfavorable
C) $65,000 Favorable
D) $65,000 Unfavorable
Q3) In a traditional manufacturing accounting system, the standard cost of a unit of output is the sum of the standard costs of
A) Direct material, direct labor, and variable overhead
B) Direct material, direct labor, and fixed overhead
C) Direct material, direct labor, and period costs
D) Direct material, direct labor, variable overhead, and fixed overhead
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Chapter 11: Operational Budgets
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Sample Questions
Q1) To address the difference between budgeted cash receipts and budgeted cash disbursements, managers also budget which of the following?
A) Debits and credits
B) Short-term borrowing or investments
C) Dividend payments
D) Net income
Q2) The principles of activity-based costing can be applied to the budgeting process.
A)True
B)False
Q3) A financial budget is the master budget component that leads to all budgeted financial statements.
A)True
B)False
Q4) The actual preparation of a budget usually begins with the
A) Production budget
B) Cash budget
C) Sales budget
D) Direct materials budget
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Chapter 12: Strategy and Control
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Sample Questions
Q1) Which of these is not a financial performance measure?
A) return on investment
B) share price
C) economic value added
D) none of the above, i.e. all are financial performance measures
Q2) Management control systems have one main role; to facilitate decisions by providing relevant and timely information to support decision making.
A)True
B)False
Q3) Which of these is not one of the key questions in Otley's performance management systems framework?
A) What are the key success factors?
B) What are the key performance measures?
C) What products or services does the organisation provide
D) None of the above, i.e. all are key questions
Q4) Friedman's view of the 'Flat World' involves moving back to embrace the best of the past features of management accounting.
A)True
B)False
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Chapter 13: Planning and Budgeting for Strategic Success
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Sample Questions
Q1) With traditional budgeting it is untrue that:
A) Many entities adopt policies so that departments lose authority over unspent budget amounts
B) Adding an adjustment to last year's budget, as a means of planning, encourages managers to seek ways to use the organisation's resources more efficiently
C) If actual costs are lower than budgeted costs next year's budget is often cut
D) None of the statements are untrue
Q2) Under which of the following types of budgeting must managers justify their budget requests each year as if prior information did not exist?
A) Activity-based budgeting
B) Participative budgeting
C) Zero-based budgeting
D) Flexible budgeting
Q3) In zero-based budgeting, managers must justify budget amounts as if no information about prior budgets existed.
A)True
B)False
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Chapter 14: Capital Budgeting and Strategic Investment Decisions
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Q1) George Shaw & Co invested in a project that was to last for 2 years. The project has an internal rate of return of 12%. The project is expected to produce cash inflows of $70,000 in the first year and $80,000 in the second year. The project cost is
A) $143,760
B) $142,510
C) $150,000
D) $126,270
Q2) Phoxco would like to automate its calligraphy operation. The equipment will cost $150,000 plus freight, installation, and testing costs of $5,500. The expected life of the project is 8 years, with annual cost savings of $20,000. The minimum rate of return is 12% and estimated terminal value is $3,000. Ignore income taxes. The profitability index of the project is
A) 1.55
B) 1.57
C) 0.67
D) 0.65
Q3) The time value of money is important in completing a net present value analysis.
A)True
B)False
Page 16
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Chapter 15: The Strategic Management of Costs and Revenues
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Sample Questions
Q1) Explain why market-based pricing has increased in recent years. Correct
Q2) Low prices are not considered predatory if
A) They can be justified by cost differences
B) They are collusive
C) Customers do not complain about them
D) Price elasticity of demand is above 1.00
Q3) Peak load pricing refers to the illegal practice of charging different prices at different times to reduce capacity constraints.
A)True
B)False
Q4) When an organisation using market-based prices cannot differentiate its product due to extensive competition, the product
A) Is considered a commodity
B) Is considered a regulated price
C) Involves more non-value-added activities than value-added activities
D) Cannot be sold at a profit
Q5) Give a complete but concise explanation of the target costing cycle. Correct
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Chapter 16: Strategic Management Control: a Lean Perspective
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Q1) The theory of constraints (TOC) is concerned with constraints on the supply side, not those on the demand side.
A)True
B)False
Q2) Just-in-time manufacturing is dedicated to:
A) having excessive amounts of materials on hand at all times
B) having the right amount of materials at the time they are needed
C) having no materials on hand at any time
D) having to order materials when the factory runs out
Q3) Which of the following terms is typically associated with just-in-time systems?
A) Demand-push system
B) Manufacturing cells
C) Non-value-added activities
D) Linear regression
Q4) Under a lean accounting system it is possible to dispense with supplier's invoices.
A)True
B)False
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Chapter 17: Responsibility Accounting, Performance
Evaluation and Transfer Pricing
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Q1) THN Pty Ltd reported operating profit of $30,000, revenue of $50,000, and average operating assets of $40,000 for a recent year. Which of the following is true?
A) THN has an adequate return on investment
B) THN's return on sales was 1.67
C) THN's return on investment was 75%
D) THN's return on sales was 80%
Q2) An ideal transfer price would be the opportunity cost of internal transfers.
A)True
B)False
Q3) If manufacturing departments are only responsible for production decisions, they are considered cost centres.
A)True
B)False
Q4) If a supplying division has excess capacity, the best transfer price is the product's variable cost.
A)True B)False
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Chapter 18: The Balanced Scorecard and Strategy Maps
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Q1) Successful organisations communicate their vision, strategies, goals, and objectives to upper-level employees.
A)True
B)False
Q2) Which of the following best describes the relationship between strategies and operating plans?
A) Operating plans form the basis for strategies.
B) Operating plans are the same as strategies.
C) Strategies lead to operating plans.
D) Strategies and operating plans are unrelated to one another.
Q3) Well-run organisations evaluate performance based mainly on financial measures because they are more objective than non-financial measures.
A)True
B)False
Q4) The balanced scorecard implementation process begins with
A) Selecting an implementation team.
B) Developing measures for each perspective.
C) Hiring an outside consultant.
D) Clarifying organisational vision.
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Chapter 19: Rewards, Incentives and Risk Management
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Q1) In the largest Australian companies bonuses typically make up what percentage of the total compensation package for top executives?
A) 20%
B) 40%
C) 60%
D) 80%
Q2) Management accountants now need to integrate the impact of external reporting rules on their risk management and internal control policies.
A)True
B)False
Q3) According to agency theory, under what circumstances could companies eliminate agency costs?
A) If their shares are not traded on the stock exchange
B) If bonuses are based on financial performance
C) If they publish audited financial statements
D) Organisations cannot eliminate agency costs
Q4) An organisation's chief executive officer can be both a principal and an agent.
A)True
B)False
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Chapter 20: Sustainability Management Accounting
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Q1) A management accounting tool that can be used to achieve sustainability is:
A) value chain analysis
B) capital budgeting
C) life cycle analysis
D) all are management accounting tools that can be used to achieve sustainability
Q2) The three sustainability management goals of economic, environmental, and social sustainability are generally in harmony.
A)True
B)False
Q3) Life cycle analysis ends with the sale of the product.
A)True
B)False
Q4) Which of these will tend not to support performance and sustainability business governance?
A) aligning the key drivers of sustainability with information reported externally
B) tailoring information on sustainability to the industry and organisation
C) having a CEO who is dominant over the board
D) balancing the need for investor's returns with the wider needs of society
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