Financial Decision Making
Study Guide Questions
Course Introduction
Financial Decision Making is a course designed to equip students with the analytical tools and conceptual understanding necessary to make sound financial choices in both personal and organizational settings. The course covers key topics such as time value of money, risk and return analysis, capital budgeting, financial statement interpretation, and portfolio management. Through case studies, real-world scenarios, and problem-solving exercises, students learn how to evaluate investment opportunities, assess financing options, and apply financial theories to practical decision-making contexts. Emphasis is placed on the integration of quantitative analysis with strategic thinking to enable effective financial planning and management.
Recommended Textbook
Cost Accounting A Managerial Emphasis 7th Canadian Edition by Charles T. Horngren
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22 Chapters
3533 Verified Questions
3533 Flashcards
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Chapter 1: The Accountants Vital Role in Decision Making
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Sample Questions
Q1) The cost-benefit approach should be used to make resource allocation decisions.
A)True
B)False
Answer: True
Q2) List the Five-Step Decision-Making Process in order.
Answer: 1.Identify the problem and uncertainties.
2.Obtain information.
3.Make predictions about the future.
4.Decide on and implement one of the alternatives.
5.Implement the decision,evaluate performance,and learn.
Q3) The text identifies six ways to classify the major differences between Management and Financial Accounting.The statement "Varies from hourly to 15 to 20 years" is an example of which of the following classes of differences?
A)purpose of information
B)primary users
C)focus and emphasis
D)rules of measurement and reporting
E)time span and type of reports
Answer: E
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Page 3
Chapter 2: An Introduction to Cost Terms and Purposes
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Sample Questions
Q1) Which of the following is an indirect production cost?
A)materials placed into production
B)calibrating factory equipment
C)labour placed into production
D)cost of shipping a product to the customer
E)advertising
Answer: B
Q2) Inventoriable costs for merchandising companies are held in the work-in-process account.
A)True
B)False
Answer: False
Q3) Which of the following is TRUE concerning prime costs?
A)Prime costs are direct manufacturing costs.
B)They include indirect manufacturing labour.
C)They equal the sum of direct manufacturing costs plus conversion costs.
D)They equal the sum of fixed manufacturing costs plus conversion costs.
E)They are indirect manufacturing costs.
Answer: A
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Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) What is the "operating income" assuming 250 people attend and option two is chosen?
A)$7,000
B)$2,900
C)$2,750
D)$4,620
E)$5,080
Answer: D
Q2) A profit-volume graph shows the impact on operating income from changes in the output level.
A)True
B)False
Answer: True
Q3) Operating costs include
A)interest costs.
B)income taxes.
C)only cost of goods sold.
D)all fixed and variable costs.
E)operating expenses and cost of goods sold.
Answer: E
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Chapter 4: Job Costing
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Sample Questions
Q1) A job costing system assigns costs to a distinct unit or set of units of a product or service.
A)True
B)False
Q2) A company employs 25 full-time staff.The company spent $75,000 in advertising in the year (this amount is a period cost with a constant amount spent each year).Budgeted indirect manufacturing costs total $250,000 and the direct labour rate is $15 per hour.Budgeted labour hours were 500,000,and actual labour hours were 524,000.Actual indirect overhead was $274,600.
What are the actual and normal indirect-cost rates respectively?
A)$0.52 and $0.50
B)$0.50 and $0.52
C)$0.55 and $0.48
D)$0.67 and $0.65
E)$0.65 and $0.67
Q3) Actual costing can also be a method of job costing.
A)True
B)False
Q4) Describe job-costing and process-costing systems.Explain when it would be appropriate to use each.
Page 6
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Chapter 5: Activity-Based Costing and 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 improve the efficiency of activities.
B)is easy to analyze and interpret.
C)takes the choices and judgement challenges away from managers.
D)emphasizes how managers can achieve higher sales.
E)helps identify trends in the market place.
Q2) 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
Q3) Activity-based costing relies heavily on broad averages to assign costs to jobs,products,and services.
A)True
B)False
Q4) List and describe the purposes of the three main guidelines for refining a cost system.
Q5) Explain how a top-selling product may actually result in losses for the company.
Q6) How are cost drivers selected in activity-based costing systems?
Page 7
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Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) What is the ending cash balance for March after borrowing,if required?
A)$8,000
B)$6,400
C)$5,600
D)$6,000
E)$6,600
Q2) How many scoreboards should Fair Score Company produce in 2015?
A)23,000
B)21,000
C)20,000
D)19,000
E)16,000
Q3) How many chests should be budgeted to be produced in the first quarter of 2016?
A)37,000 chests
B)44,800 chests
C)41,800 chests
D)38,800 chests
E)48,400 chests
Q4) List and describe the four approaches to budgeting.
Q5) Describe the benefits to an organization of preparing an operating budget.
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Chapter 7: Flexible Budgets,variances,and Management
Control: I
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Sample Questions
Q1) What is the static-budget variance of revenues?
A)$60,000 favourable
B)$240,000 favourable
C)$240,000 unfavourable
D)$6,000 favourable
E)$6,000 unfavourable
Q2) Cost variances should be investigated when
A)the results are favourable but within acceptable limits.
B)costs incurred must be reduced.
C)expected costs of investigation exceed expected benefits.
D)the results are unfavourable but within acceptable limits.
E)the amounts are immaterial.
Q3) The direct materials yield variance is the difference between: 1)the budgeted cost for the actual mix of the total quantity of direct materials used,and 2)the budgeted cost of the budgeted mix of the actual total quantity of direct materials used.
A)True
B)False
Q4) What is benchmarking,and how is it useful to a company?
Q5) Describe the purpose of variance analysis.
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Chapter 8: Flexible Budgets,variances,and Management
Control: II
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148 Flashcards
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Sample Questions
Q1) A favourable variable manufacturing overhead efficiency variance may be interpreted as meaning which of the following if machine hours are the cost allocation base?
A)Employees used too much electricity during production.
B)Improved quality of materials resulting in less downtime to clean the machines of debris.
C)Excess supplies were used.
D)Too much of the cost driver was used.
E)The cost driver is inappropriate.
Q2) Davis Company produced 20,000 cases of beer.Machinery usage is 1.5 hours per case.Budget outputs are 22,000 cases.What are the required static budget machine hour inputs and flexible budget machine hour inputs,respectively?
A)30,000 Machine hours,33,000 Machine hours
B)33,000 Machine hours,30,000 Machine hours
C)39,000 Machine hours,34,000 Machine hours
D)34,000 Machine hours,39,000 Machine hours
E)39,000 Machine hours,33,000 Machine hours
Q3) Explain the meaning of a favourable production-volume variance.
Q4) How can a standard costing system be useful in negotiating new sales?
Q5) How is a budgeted fixed overhead cost rate calculated?
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Chapter 9: Income Effects of Denominator Level on Inventory Valuation
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Sample Questions
Q1) What is the cost per statue if throughput costing is used?
A)$22.00
B)$19.00
C)$15.00
D)$10.00
E)$13.00
Q2) Throughput costing considers only direct materials and direct manufacturing labour to be truly variable costs.
A)True
B)False
Q3) The main difference between variable costing and absorption costing is the way in which fixed manufacturing costs are accounted.
A)True
B)False
Q4) Determining the "right" level of capacity is an important strategic decision.
A)True
B)False
Q5) Explain the difference between the gross margin format and the contribution margin format for the income statement.What information is highlighted with each?
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Chapter 10: Analysis of Cost Behaviour
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Sample Questions
Q1) An example of a nonfinancial measure for customer satisfaction is A)delivery delay.
B)employee turnover.
C)number of defects on the production line.
D)process yield.
E)number of employees trained.
Q2) Internal failure costs include
A)field repairs.
B)rework.
C)liability claims
D)warranty expenses.
E)supplier evaluations.
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) Compare financial and nonfinancial performance,and explain why planning and control systems should consider both.
Q5) Manufacturing lead times can affect costs but do not affect sales revenue.
A)True
B)False
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Chapter 11: Decision Making and Relevant Information
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Sample Questions
Q1) What is the change in operating profits if the one-time-only special order for 1,000 units is accepted for $180 a unit by Welch?
A)$70,000 increase in operating profits
B)$10,000 increase in operating profits
C)$10,000 decrease in operating profits
D)$75,000 decrease in operating profits
E)$40,000 increase in operating profits
Q2) The Glass Shop,a manufacturer of large windows,is experiencing a bottleneck in its plant.Setup time at one of its workstations has been identified as the culprit.A manager has proposed a plan to reduce setup time at a cost of $72,000.The change will result in 8,000 additional windows.The selling price per window is $18,direct labour costs are $3 per window,and the cost of direct materials is $5 per window.Assume all units produced can be sold.The change will result in an increase in the throughput contribution of A)$104,000.
B)$80,000.
C)$32,000.
D)$8,000.
E)$120,000.
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Chapter 12: Pricing Decisions, product Profitability
Decisions, and Cost Management
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Sample Questions
Q1) What is the target operating income?
A)$240,000
B)$360,000
C)$200,000
D)$192,000
E)$400,000
Q2) The three major influences on pricing decisions are: costs,competitors,and customers.
A)True
B)False
Q3) What is the change in operating income if marketing is correct and only the sales price is changed?
A)$1,421,250
B)$(204,000)
C)$(352,500)
D)$(435,000)
E)$18,750
Q4) 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) The price-recovery component of a change in operating income from one year to the next measures the increase in operating income from selling more units of the product.
A)True
B)False
Q2) Referring to Barry Company,which of the following is a measure of the internal business process perspective?
A)operating income growth from charging higher margins for XX 300
B)market share in the high-end appliance market
C)production cycle time
D)number of employees trained in quality management
E)real-time customer feedback
Q3) The productivity component of operating income focuses exclusively on revenues. A)True B)False
Q4) What is the primary purpose of the balanced scorecard?
Q5) Discretionary costs arise from periodic (usually yearly)decisions regarding the maximum amount to be incurred.
A)True
B)False
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Chapter 14: Period Cost Allocation
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Sample Questions
Q1) Which purpose of cost allocation is used to decide on the selling price for a customized product or service?
A)to provide information for economic decisions
B)to motivate managers and other employees
C)to justify costs
D)to measure income and assets for reporting to external parties
E)to compute reimbursement
Q2) Under which of the following methods of cost allocation is there no distinction between fixed and variable costs?
A)fixed method
B)dual-rate method
C)homogeneous method
D)standard cost method
E)single-rate method
Q3) What is the complete reciprocated cost of the Maintenance Department?
A)$165,634
B)$163,333
C)$150,000
D)$0
E)$93,803
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Chapter 15: Cost Allocation: Joint Products and Byproducts
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Sample Questions
Q1) Separable costs include manufacturing costs only.
A)True
B)False
Q2) What are separable costs?
Q3) If joint products end up with the same gross margin percentage,which of the following is TRUE?
A)The cost allocation method assigned the same cost per unit to each product.
B)The physical measure method must have been used.
C)The gross margin percentage NRV method must have been used.
D)The estimated net realizable method must have been used.
E)If all products are sold at the splitoff point,and there were no opening inventories,the sales value at splitoff method could have been used.
Q4) A major deficiency of the sales value at splitoff method is that this method does not allow management to obtain individual product costs and gross margin information.
A)True
B)False
Q5) How should toxic waste be accounted for?
Q6) What are a joint cost and a splitoff point?
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Chapter 16: Revenue and Customer Profitability Analysis
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Sample Questions
Q1) Revenue allocation occurs where revenues can be identified with an individual product (service,customer,and so on)in an economically feasible (cost-effective)way.
A)True
B)False
Q2) The market-size variance is the difference between two amounts: (1)the budgeted amount at budgeted mix based on the actual market size in units and the actual market share,and (2)the budgeted amount at budgeted mix based on actual market size in units and the budgeted market share.
A)True
B)False
Q3) If one of four distribution channels is discontinued,corporate-sustaining costs such as general administration costs will most likely be reduced by 25%.
A)True
B)False
Q4) Revenue tracing results in a more accurate assignment of revenues to products,than does revenue allocation.
A)True
B)False
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Chapter 17: Process Costing
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Sample Questions
Q1) Which of the following is FALSE concerning process costing?
A)Process costing can only be used in manufacturing.
B)Process costing is used when outputs are homogeneous.
C)In process costing,labour and overhead costs are often combined and classified as conversion costs.
D)In process costing,some units will be incomplete at the end of the period.
E)Process costing averages unit costs of production.
Q2) What is the direct materials cost per equivalent unit during June at Father Time Clock Shop?
A)$982.92
B)$1,226.61
C)$952.38
D)$1,123.81
E)$1,000.00
Q3) Production costs are divided into three classifications: administrative costs,direct materials,and conversion costs in process costing.
A)True
B)False
Q4) Compare and contrast process costing and job order costing.
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Chapter 18: Spoilage, rework, and Scrap
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Sample Questions
Q1) Under the FIFO method,all spoilage costs are assumed to be
A)related to the units in beginning inventory,plus the units completed during the period.
B)related to the units completed during the period.
C)related to the units in ending inventory.
D)related to the units in both beginning and ending inventory plus the units completed during the period.
E)related to the units completed in both beginning and ending inventory.
Q2) If the inspection point occurs at 33% into the production cycle,which of the following units would be allocated costs of spoilage detected at inspection?
A)all units in the system
B)units that are under 33% complete
C)units detected to be spoiled units
D)units that are more than 33% complete
E)units that are under 33% complete,and units detected to be spoiled units
Q3) Reworked goods are unacceptable units of production usually not capable of being repaired or converted into a salable product.
A)True
B)False
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Chapter 19: Inventory Cost Management Strategies
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Sample Questions
Q1) The economic order quantity decision model
A)calculates the amount of inventory that may be purchased with the monetary constraint.
B)determines the minimum amount of inventory to purchase.
C)determines the maximum amount of inventory to keep on hand.
D)determines the optimal amount of inventory to order.
E)calculates the numbers of employees needed.
Q2) Purchasing costs consist of the costs of preparing and issuing a purchase order.
A)True
B)False
Q3) Just-in-Time (JIT)Production is a system in which each component on a production line is produced immediately as needed by the next step in the production line.
A)True
B)False
Q4) Just-in-Time (JIT)Production is also called "lean production." A)True
B)False
Q5) What are five features of a just-in-time manufacturing system?
Q6) What are the principles of lean accounting? Are there any limitations? Discuss.
Page 21
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Chapter 20: Capital Budgeting: Methods of Investment Analysis
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Sample Questions
Q1) What is the net present value of the investment,assuming the required rate of return is 12%? Would the hospital want to purchase the new machine?
A)$(97,340);no
B)$51,430;no
C)$ 97,340;yes
D)$166,830;yes
Q2) The Income Tax Act classifies every amortizable asset into one of several classes.
A)True
B)False
Q3) The terminal disposal price of a replacement machine
A)generally increases cash inflow in the year of disposal.
B)is the total of the salvage values of the old machine and the new machine.
C)is the salvage value of the old machine.
D)is the NPV value of the new machine salvage value.
E)is the NPV of the salvage value of the old machine.
Q4) What are the four alternative methods for evaluating capital budgeting projects? What is an advantage and disadvantage of each method?
Q5) Explain why the term tax shield is used in conjunction with amortization.
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Chapter 21: Transfer Pricing and Multinational Management
Control
Systems
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Sample Questions
Q1) Sales between multi-national corporation subunits are termed arm's-length transactions.
A)True B)False
Q2) Explain what transfer prices are,and what are the four criteria used to evaluate them?
Q3) A benefit of decentralization should be increased motivation of subunit managers.
A)True
B)False
Q4) Assume the transfer price for a furnace is 130% of total costs of the Manufacturing Division and 5,000 of the furnaces are produced and transferred to the Assembly Division.The Manufacturing Division's operating income is
A)$3,250,000.
B)$1,175,000.
C)$2,500,000.
D)$2,625,000.
E)$2,760,000.
Q5) Provide a complete definition of a management control system.
Q6) What is the purpose of the internal control system within an organization?
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Chapter 22: Multinational Performance Measurement and Compensation
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Sample Questions
Q1) Measures which monitor critical performance variables that help managers track progress toward achieving a company's strategic goals are collectively called diagnostic control systems.
A)True
B)False
Q2) Pay for performance measures in the best interests of shareholders would,logically,exclude long-term achievement and deferred compensation.
A)True
B)False
Q3) The cost today of purchasing an asset identical to the one currently held is called a(n)
A)actual cost.
B)current cost.
C)dual cost.
D)fixed cost.
E)sunk cost.
Q4) Residual income is income plus an imputed interest charge for the investment. A)True
B)False
Page 24
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