Financial Management Exam Preparation Guide
Course Introduction
Financial Management is a comprehensive course that introduces students to the principles and practices of managing an organizations financial resources. The course covers key topics such as financial planning, capital budgeting, risk assessment, working capital management, and financial analysis. Students will learn how to make informed decisions regarding investments, financing, and dividends, utilizing financial statements and analytical tools. Throughout the course, emphasis is placed on value maximization, ethical considerations, and strategic financial planning in both corporate and personal finance contexts.
Recommended Textbook
Managerial Accounting 2nd Edition by
Charles E. Davis
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17 Chapters
2470 Verified Questions
2470 Flashcards
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Page 2
Chapter 1: Accounting As a Tool for Management
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162 Flashcards
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Sample Questions
Q1) Michael Porter,a management strategy expert,developed a strategic framework in which a firm has ways to develop a competitive advantage.Which of the following is one of the ways Porter suggested a firm use to develop a competitive advantage?
A)Supply chain management
B)Low-cost production
C)Just-in-time management
D)None of these ans choices are correct
Answer: B
Q2) If a company chooses a low-cost production strategy,the company will set itself apart from competitors in terms of
A)Quality
B)Lower selling price
C)Demand
D)High-cost design
Answer: B
Q3) The supply chain's goal is to reduce or eliminate defects.
A)True
B)False
Answer: False
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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) Data concerning Engel Company's activity for the first three months are shown below.
\(\begin{array}{lcc}
\textbf { Month } & \textbf { Machine Hours } & \textbf { Repair Cost } \\
\text { January } & 4,000 & \$ 3,100 \\
\text { February } & 4,800 & \$ 3,500 \\
\text { March } & 3,600 & \$ 2,900
\end{array}\) Using the high-low method of analysis,determine the estimated variable cost per machine hour and the total fixed cost.
Answer: $3,500 - $2,900 ÷ 4,800 3,600 = $0.50 variable cost per machine hour
$3,500 = $0.504,800 + FC
Fixed Cost = $3,500 - $2,400
Fixed Cost = $1,100
Q2) A contribution format income statement just rearranges the individual costs components and produces the same operating income as the traditional functional income statement.
A)True
B)False
Answer: True
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Chapter 3: Cost-Volume-Profit Analysis and Pricing
Decisions
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Sample Questions
Q1) Knowing the breakeven point helps managers evaluate
A)The profitability of various business opport
B)The desirability of various business opport
C)The profitability and desirability of various business opport
D)Neither the profitability nor the desirability of various business opport
Answer: C
Q2) Knowing the breakeven point helps managers evaluate the profitability,but not the desirability of various business opportunities.
A)True
B)False
Answer: False
Q3) A drawback of cost-plus pricing is that it is a relatively difficult approach to pricing.
A)True
B)False
Answer: False
Q4) Net income divided by 1 - tax rate = Operating income
A)True
B)False
Answer: True
Page 5
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Chapter 4: Product Costs and Job Order Costing
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Sample Questions
Q1) Raw Materials Inventory decreases when
A)Materials are purchased.
B)Materials are used.
C)Materials are transferred to Finished Goods Inventory.
D)Goods are sold.
Q2) Which of the following is \(\textbf{ not }\) classified as manufacturing overhead?
A)The cost of depreciation on office equipment
B)The cost of wages paid to the forklift operator in the factory
C)The cost of wages for the plant manager
D)All of these ans choices are classified as manufacturing overhead.
Q3) Period costs are associated with the
A)Selling of products.
B)The administration of the business.
C)Both selling of products and the administration of the business.
D)Neither selling of products nor the administration of the business..
Q4) Describe why companies that use job order costing have over-/or under-applied overhead and list the two methods used to dispose of any over-/or under-applied overhead?
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Chapter 5: Planning and Forecasting
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Sample Questions
Q1) Which of the following is \(\textbf{ not }\) a characteristic of zero-based budgeting?
A)This method of budgeting is often used in governmental entities.
B)This method of budgeting is much more time-consuming than incremental budgeting.
C)This method of budgeting encourages budgetary slack.
D)All of these ans choices are characteristics of zero-based budgeting.
Q2) The first section of the cash budget reconciles the cash available to the borrowing required to meet the minimum cash balance.
A)True
B)False
Q3) An imposed budget
A)Tends to elicit more commitment to the budget from employees since they have had some input into its creation.
B)Begins at the lowest levels of management and filters up through the organization.
C)Is the least efficient method of budget preparation.
D)Involves the fewest number of people in the budgeting process.
Q4) What is budgetary slack and why is it an issue in budget preparation?
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Page 7
Chapter 6: Performance Evaluation: Variance Analysis
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Sample Questions
Q1) The direct labor efficiency variance is that part of the direct labor flexible budget variance that is caused by using more or less direct labor than the standard allows. A)True
B)False
Q2) Adobe Company produces electric lawn mowers suitable for home and industrial use.During the year Adobe produced 54,000 mowers,using 163,000 direct labor hours.Adobe's fixed overhead rate is $12 per direct labor hour and the company budgeted 166,500 direct labor hours.Actual fixed overhead for the year was $1,996,000.What is Adobe's fixed overhead spending variance?
A) $2,000 unfavorable
B) $2,000 favorable
C) $40,000 favorable
D) $42,000 favorable
Q3) The direct labor rate variance is part of the direct labor flexible budget variance that arises when the actual wage rate differs from the standard wage rate.
A)True B)False
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8
Chapter 7: Activity-Based Costing and Activity Based Management
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178 Flashcards
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Sample Questions
Q1) Which of the following activities would be classified as non-value-added in the manufacture of decorative pillows?
A)Cutting
B)Sewing
C)Storing
D)Stuffing
Q2) Which of the following activities would be classified as non-value added in the manufacture of wooden bird houses?
A)Moving materials
B)Nailing
C)Painting
D)Sanding
Q3) 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)Analyzing industry averages
C)Both asking employees what they do and analyzing industry averages.
D)Neither asking employees what they do nor analyzing industry averages.
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Chapter 8: Using Accounting Information to Make Managerial Decisions
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Sample Questions
Q1) Offshoring means moving a company's business processes to a foreign country.
A)True
B)False
Q2) Which of the following should \(\textbf{ not }\) influence a manager's decision in deciding whether or not to close a division?
A)Qualitative factors
B)Allocated fixed costs
C)Allocated product costs
D)Allocated variable selling expenses
Q3) Which of the following terms indicate that costs are not directly caused by the cost object?
A)Allocated
B)Assigned
C)Common
D)All of these ans choices are correct
Q4) Variable costs associated with a segment's sales may \(\textbf{ not }\) always be avoidable.
A)True
B)False
10
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Chapter 9: Capital Budgeting
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Sample Questions
Q1) To calculate the present value of an annuity,multiply
A)The principal amount by the present value factor
B)The amount to be received each year by the present value factor
C)The principal by the discounted interest rate
D)The amount to be received each year by the discounted interest rate
Q2) If you wish to have $25,000 at the end of five years,how much must your deposit each year if you earn 12% compounded annually?
Q3) Which of the following uses interest expense in its computations?
A)Net present value
B)Internal rate of return
C)Both net present value and internal rate of return
D)Neither net present value nor internal rate of return
Q4) To calculate the present value of an annuity,multiply
A)The total dollars to be received by the present value factor
B)The total dollars to be received by the discounted interest rate
C)The amount to be received each year by the present value factor
D)The amount to be received each year by the discounted interest rate
Q5) Capital budgeting differs from cash budgeting in terms of its time horizon.
A)True
B)False
Page 11
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Chapter 10: Decentralizing and Performance Evaluation
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Sample Questions
Q1) Warner Company produces flash drives. The Custom division would like to buy 1,000,000 units from the Thumb Drive division, which currently has sufficient excess capacity. The units are normally sold for $9.99. The Thumb Drive divisions variable production cost per unit is $2.10, variable selling and administrative expenses are $.80 and fixed cost per unit are $1.65. The drives could be purchased from another company for $9.75. Both the Thumb Drive and the Custom divisions are operated as profit centers. If the company choses to use a cost-plus-based transfer price based on variable cost for the drives, what transfer price would the company use assuming a 50% markup?
A) $4.35
B) $4.55
C) $6.83
D) $9.75
Q2) The organizational structure in which decision-making authority is dispersed throughout the organization is called
A)Centralized.
B)Decentralized.
C)Divisional stability.
D)Segmented decision making.
Q3) What is EVA and how is it calculated?
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Page 12
Chapter 11: Performance Evaluation Revisited: a Balanced Approach
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Sample Questions
Q1) For managers to adequately monitor the organization's performance,they need to use
A)Leading indicators.
B)Lagging indicators.
C)Both leading indicators and lagging indicators.
D)Neither leading indicators nor lagging indicators.
Q2) Which of the following is a measure that relates to the customer perspective?
A)Time to market
B)Market share
C)Revenue growth
D)Defect rate
Q3) Which of the following is a measure that relates to the internal business processes perspective?
A)Delivery cycle time
B)Market share
C)Training hours per employee
D)Cash flow
Q4) Return on investment,residual income,and EVA all have qualitative components.
A)True
B)False
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) The formula for calculating the debt ratio is
A)Total liabilities divided by total assets.
B)Long-term liabilities divided by total assets.
C)Total liabilities divided by total liabilities and stockholders' equity.
D)Total debt divided by total stockholders' equity.
Q2) While the current and acid-test ratios provide information about liquidity,they do not indicate the underlying quality of current assets.
A)True
B)False
Q3) ans the following questions related to common-size financial statements?
a.What are common-size financial statements? How are common-size financial statements used?
b.What is the base for a common-size income statement?
c.What is the base for a common-size balance sheet?
Q4) A firm's ability to convert non-cash assets into cash is referred to as liquidity. A)True
B)False
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14
Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) Which of the following items would be subtracted from net income when using the indirect method of calculating cash flows provided by operating activities?
A)A gain on the sale of equipment
B)Repayment of debt
C)Receipt of cash dividends
D)A gain on the sale of equipment and repayment of debt,but not receipt of cash dividends
Q2) Investing activities include purchases and sales of property and equipment,loans made and collected,and purchases and sales of another company's stock.
A)True
B)False
Q3) When a company issues new shares of common stock,which of the following is the correct reporting on the statement of cash flows?
A)A source of cash in the financing section
B)A use of cash in the financing section
C)A source of cash in the investing section
D)A use of cash in the investing section
Q4) What is the basic form of the statement of cash flows?
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Page 15
Chapter 14: Topic Focus: Process Costing
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Sample Questions
Q1) When a department has work in process at the end of the period, the incomplete units must be converted to
A)Actual units
B)Equivalent units
C)Transferred-in units
D)None of these ans choices are correct
Q2) The units of product in the ending work in process inventory must be converted to equivalent units of production separately for the direct materials and conversion costs because
A) The units may be in different departments at the end of the period
B) The units may not be at the same stage of completion
C) The conversion cost may have been added at the beginning of the process
D) None of these answer choices are correct
Q3) The journal entries used to record cost flows in a process costing system differ from those used to record cost flows in a job order costing system.
A)True
B)False
Q4) List three goods or services likely to use a process costing system and three that are likely to use a job order costing system.
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Chapter 15: Topic Focus Variable and Absorption Costing
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Sample Questions
Q1) Walkers Manufacturing began its operations on January 1 of the current year. Walker produced 10,000 units during the year, sold 8,000 units at an average cost of $22 per unit, and had 2,000 units in ending inventory. Variable production cost were $14 per unit, variable selling expenses were $2 per unit, fixed overhead totaled $12,000, and fixed selling and administrative expenses totaled $30,000. Under variable costing, what was Walkers ending inventory on the balance sheet?
A) $8,000
B) $28,000
C) $30,000
D) $30,400
Q2) Based on the matching principle,all product costs flow through
A)Raw materials Inventory
B)Work in Process
C)Finished Goods
D)All of these ans choices are correct.
Q3) In variable costing,fixed manufacturing overhead is treated as a product cost.
A)True
B)False
Q4) What managerial behavior does variable costing render ineffective?
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Chapter 16: Topic Focus Standard Costing Systems
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Sample Questions
Q1) When using a standard costing system,direct material and direct labor are recorded at actual cost while manufacturing over is applied at a standard rate.
A)True
B)False
Q2) Wolfe Manufacturing has provided the following information related to fixed overhead.
\(\begin{array}{ll}
\text { Standard hours per unit of production } & 5 \text { hours } \\
\text { Fixed overhead rate } & \$ 12 \text { per hour } \\
\text { Budgeted units of production } & 1,500 \text { units } \\
\text { Actual fixed overhead cost } & \$ 85,000 \\
\text { Actual units of production } & 1,440
\end{array}\)
a.Calculate the fixed overhead spending variance for the period.
b.Calculate the fixed overhead volume variance for the period.
Q3) When using a standard costing system,recording events related to variable overhead requires four separate entries.
A)True
B)False
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Page 18
Chapter 17: Topic Focus Customer Profitability
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Sample Questions
Q1) Which of the following measures shows manager how many dollars a customer contributes to the company's bottom line?
A)Customer net profit
B)Customer revenue margin
C)Times revenue earned per customer
D)Customer profit margin
Q2) Which of the following is \(\textbf{ not }\) a step in using activity-based costing to estimate customer profitability?
A)Develop activity cost pools
B)Calculate equivalent
C)Allocate selling costs to customers
D)Calculate customer profitability
Q3) Which of the following is \(\textbf{ not }\) an administrative expense?
A)Factory supervisor's salary
B)Depreciation on office equipment
C)Payroll clerk's salary
D)Janitorial supplies
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