FIN 081 FINANCIAL MANAGEMENT MIDTERM EXAMINATION

GENERAL INSTRUCTIONS: This will serve as your questionnaire. You will input all your answers intheGoogle Form that
will be provided by your instructor. Once submitted, your exam rating will be releasedautomatically.

Read instructions carefully. There will be no consideration. Be mindful of your time. You only have until 10:00
AM to answer everything. Best of luck!

PART 1: Multiple-choice. The questions are with four answer choices. The test is composedof 50questions and is
rated as 1 point each. Make sure to use CAPITAL letters for all your answers.

PART 2: TRUE/FALSE. The questions are to be found in the google form. Option A - TRUE statement; Option B - FALSE
statement.
------------------------------------------------------------------------------------------------------------------------------------------ Questions
for Multiple Choice Section.
1. Which among the functions of finance is the most important?
a. dividend policy decision
b. investment decision
c. financing decision
d. none of the above

2. Which of the following is/are the limitations of the profit maximization goal? I. It lacks time
dimension
II. It fails to consider risk
III. The definition of profit is ambiguous
a. I only
b. I and II only
c. II and III only
d. I, II and III

3. The basic guide for financial decision making.

a. Making decisions where the benefits exceed the costs.
b. Make decisions where the total benefits exceed the total costs.
c. Make decisions where the average benefits exceed the fixed costs.
d. Make decisions where the average benefits exceed the average costs.

4. Statement I - If a firm sold some inventory on credit as opposed to cash, there is no reason to thinkthat either its
current or quick ratio would change.
Statement II - The times-interest-earned ratio measures the extent to which operating income candecline before the
firm is unable to meet its annual interest costs.
a. Both Statements are true
b. Only Statement I is true
c. Only Statement II is true
d. Both statements are false

5. Which of the following statements is CORRECT?

a. A reduction in inventories would have no effect on the current ratio b. An increase in
inventories would have no effect on the current ratio

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FIN 081 FINANCIAL MANAGEMENT MIDTERM EXAMINATION
c. If a firm increases its sales while holding its inventories constant, then, other things held constant, itsinventory
turnover ratio will increase.
d. A reduction in the inventory turnover ratio will generally lead to an increase in the ROE.

6. You observe that a firm's ROE is above the industry average, but both its profit margin and equitymultiplier are
below the industry average. Which of the following statements is CORRECT? a. Its total assets turnover must be
above the industry average
b. Its return on assets must equal the industry average.
c. Its TIE ratio must be below the industry average.
d. Its total assets turnover must be below the industry average.

7. Statement I - The first, and most critical, step in constructing a set of forecasted financial statements is
the sales forecast.
Statement II - A typical sales forecast, though concerned with future events, will usually be basedonrecent
historical trends and events as well as on forecasts of economic prospects. a. Both Statements are true
b. Only Statement I is true
c. Only Statement II is true
d. Both statements are false

8. Jefferson City Computers has developed a forecasting model to estimate its AFN for the upcomingyear. All else
being equal, which of the following factors is most likely to lead to an increase of theadditional funds needed
(AFN)?
a. A sharp increase in its forecasted sales.
b. A sharp reduction in its forecasted sales.
c. The company reduces its dividend payout ratio.
d. The company switches its materials purchases to a supplier that sells on terms of 1/5, net 90, from a
supplier whose terms are 3/15, net 35.

9. Kamath-Meier Corporation's CFO uses this equation, which was developed by regressing inventories on sales over
the past 5 years, to forecast inventory requirements: Inventories = P22.0+0.125(Sales). The company expects sales of
P400 million during the current year, and it expects sales to grow by 30% next year. What is the inventory forecast for
next year? All dollars are in millions. a. P74.6
b. P78.5
c. P82.7
d. P87.0

10. Which of the following is NOT one of the steps taken in the financial planning process? a. Assumptions are
made about future levels of sales, costs, and interest rates for use in the forecast.
b. The entire financial plan is reexamined, assumptions are reviewed, and the management teamconsiders
how additional changes in operations might improve results.
c. Projected ratios are calculated and analyzed.
d. Consult with key competitors about the optimal set of prices to charge, i.e., the prices that will
maximize profits for our firm and its competitors.

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FIN 081 FINANCIAL MANAGEMENT MIDTERM EXAMINATION
11. Which of the following is NOT a key element in strategic planning as it is described in the text? a. The mission
statement.
b. The statement of the corporation's scope.
c. The statement of cash flows.
d. The statement of corporate objectives.

12. A company has the following budget formula for annual electricity expense in its shop: Expense=P7,200 + (Units
produced × P0.60) If management expects to produce 20,000 units during February, for the purpose of performance
evaluation, what amount of expenses should the company expect toincur in February?
a. P7,200
b. P12,000
c. P12,600
d. P19,200

13. The budget for one of Simpson Company’s products is as follows.

The budgeted contribution margin for this product is

a. P5,500,000
b. P5,300,000
c. P4,500,000
d. P3,000,000

14. Statement I- The master budget is composed of operating budgets and financial budgets. Statement
II - The first budget to be prepared is the production budget.
a. Both statements are true
b. Only Statement I is true
c. Only Statement II is true
d. Both statements are false

15. Which of the following is a use of budgets for control?

a. plans can be made for the future.
b. if conditions change between the formation of the budget and the current time, budgets
can be quickly adapted.
c. budgets set a standard against which results can be compared.
d. communication is improved.

16. Budgeted operating income includes:

a. budgeted interest expense.
b. budgeted income taxes.

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FIN 081 FINANCIAL MANAGEMENT MIDTERM EXAMINATION
c. budgeted cost of goods sold.
d. budgeted net income.

17. A company anticipates selling P200,000 of goods, of which P15,000 will probably be uncollectible. Which of
the following statements is true?
a. P15,000 does not appear on the cash budget
b. P215,000 is added to the cash budget
c. P15,000 is subtracted from the cash budget
d. P185,000 appears as a disbursement on the cash budget.

18. Rodriquez Company budgeted the following sales in units:

January 30,000
February 20,000
March 40,000

Rodriquez's policy is to have 20% of the following month's sales in inventory. On January 1, inventoryequaled
7,500 units. February production in units is:
a. 20,000.
b. 28,000.
c. 40,000.
d. 24,000.

19. A company has had stable sales and production for several years. Next year, sales are expected to increase by
at least 50%. Assuming that the company maintains its policy for desiredending inventories of finished product
and direct materials purchases, what will be the likely effect onthe desired ending inventory of finished product?
a. it will increase
b. it will decrease
c. it will stay the same
d. none of these

20. A company expects the following sales for the coming year:

Budgeted sales revenue for the year is

a. P1,050,000
b. P1,260,000
c. P1,155,000
d. P1,130,000

21. A company provided the following information on sales for the coming year:

Assuming that the beginning inventory is 3,000 units, and that the company policy is to have 25%of the

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FIN 081 FINANCIAL MANAGEMENT MIDTERM EXAMINATION
next quarter's sales in ending inventory, which quarter will have the lowest production? a. Quarter 4
b. Quarter 3
c. Quarter 2
d. Quarter 1

22. Belant Company budgeted 200,000 units for June, 210,000 for July and 300,000 for August. Eachunit requires
0.25 direct labor hours. How many direct labor hours are budgeted for August? a. 50,000
b. 5,000
c. 75,000
d. 52,500

23. In budgeting direct labor hours for the coming year, it is important to:
a. multiply production in units by the direct labor hours per unit.
b. divide production in units by the direct labor hours per unit.
c. subtract production in units from the direct labor hours per unit.
d. subtract direct labor hours per unit from production in units.

24. Gilbert Company purchased P40,000 of goods in July and expects to purchase P60,000 of goods inAugust. Gilbnert
typically pays for 25% of purchases in the month of purchase and 75% in the followingmonth. What are Gilbert
Company's total expected cash disbursements for purchases in the monthof August?
a. P65,000
b. P40,000
c. P45,000
d. P60,000

25. A company has the following accounts receivable payment history:

Which of the following actions might increase the cash receipts over the coming year? a. Allow customers
longer to pay their accounts receivable balances.
b. Turn uncollectible accounts over to a collection agency with a proven history of success.
c. Give a cash discount to customers who already pay in the month of sale. d. All of these.

26. Which of the following appears on the budgeted balance sheet?

a. estimated sales
b. estimated cost of goods sold
c. estimated ending accounts receivable
d. estimated fixed selling expense

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FIN 081 FINANCIAL MANAGEMENT MIDTERM EXAMINATION
27. Singal Inc. is preparing its cash budget. It expects to have sales of P30,000 in January, P35,000inFebruary, and
P35,000 in March. If 20% of sales are for cash, 40% are credit sales paid in the monthafter the sale, and another
40% are credit sales paid 2 months after the sale, what are the expectedcash receipts for March?
a. P24,057
b. P26,730
c. P29,700
d. P33,000

28. Ebony Company has the following expected pattern of collections on credit sales: 70 percentcollected
in the month of sale, 15 percent in the month after the month of sale, and 14 percent in the secondmonth after the
month of sale. The remaining 1 percent is never collected. At the end of May, EbonyCompany has the following accounts
receivable balances:
From April sales $21,000
From May sales 48,000

Ebony's expected sales for June are $150,000. What were total sales for April? a. $150,000
b. $72,414
c. $70,000
d. $140,000

29. Ball Company has a policy of maintaining an inventory of finished goods equal to 30 percent of thefollowing
month's sales. For the forthcoming month of March, Ball has budgeted the beginninginventory at 30,000 units and
the ending inventory at 33,000 units. This suggests that a. February sales are budgeted at 10,000 units less than
March sales.
b. March sales are budgeted at 10,000 units less than April sales.
c. February sales are budgeted at 3,000 units less than March sales.
d. March sales are budgeted at 3,000 units less than April sales.

30. Budgeted sales for the first six months for Porter Corp. are listed below: JANUARY FEBRUARY MARCH APRIL MAY
JUNE UNITS: 6,000 7,000 8,000 7,000 5,000 4,000

Porter Corp. has a policy of maintaining an inventory of finished goods equal to 40 percent of the next month's
budgeted sales. If Porter Corp. plans to produce 6,000 units in June, what are budgeted sales for July?
a. 3,600 units
b. 1,000 units
c. 9,000 units
d. 8,000 units

31. Budgeted sales for Knox Inc. for the first quarter the year are shown below: JANUARY
FEBRUARY MARCH
UNITS: 35,000 25,000 32,000

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FIN 081 FINANCIAL MANAGEMENT MIDTERM EXAMINATION
The company has a policy that requires the ending inventory in each period to be 10 percent of thefollowing
period's sales. Assuming that the company follows this policy, what quantity of productionshould be
scheduled for February?
a. 24,300 units
b. 24,700 units
c. 25,000 units
d. 25,700 units

32. Budgeted sales for the first six months the year for Gibson Corporation are listed below: JANUARY
FEBRUARY MARCH APRIL MAY JUNEUNITS: 6,000 7,000 8,000 7,000 5,000 4,000

Gibson Corporation has a policy of maintaining an inventory of finished goods equal to 40 percent of the next month's
budgeted sales. How many units has Gibson Corporation budgeted to produce inthefirst quarter of the year?
a. 21,400 units
b. 20,600 units
c. 19,000 units
d. 23,000 units

33. Production of Product X has been budgeted at 200,000 units for May. One unit of X requires 2lbs. of raw material.
The projected beginning and ending materials inventory for May are: Beginning inventory: 2,000 lbs.
Ending inventory: 10,000 lbs.

How many lbs. of material should be purchased during May?

a. 192,000
b. 208,000
c. 408,000
d. 416,000

34. Refer to Xanadu Company. What amount of budgeted labor cost would appear in the July selling, general, and
administrative expense budget?
a. $10,000
b. $16,000

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FIN 081 FINANCIAL MANAGEMENT MIDTERM EXAMINATION
c. $15,000
d. $23,000

35. Refer to Xanadu Company. What is Xanadu’s budgeted factory labor cost for July? a. $8,000
b. $15,600
c. $25,600
d. $9,600

36. Harrison Company manufactures card tables. The company has a policy of maintaining a finishedgoods inventory
equal to 40 percent of the next month's planned sales. Each card table requires 3hoursof labor. The budgeted labor
rate for the coming year is $13 per hour. Planned sales for the months of April, May, and June are respectively 4,000;
5,000; and 3,000 units. What is Harrison Company’s budgeted direct labor cost for May?
a. $54,600
b. $163,800
c. $226,200
d. $179,400

37. Managers may be more willing to accept a budget if

a. it is continuous.
b. it is imposed.
c. it is very hard to attain.
d. they can participate in its development.

38. A budget manual should include which of the following?

a. a list of specific budgetary activities to be performed
b. original, revised, and approved budgets
c. a calendar of scheduled budgetary activities
d. all of the above

39. Which of the following is not true about an imposed budget?

a. It reduces the budgeting process time frame.
b. It uses the knowledge of top management as it relates to resource availability. c. It
enhances coordination.
d. It increases the feeling of teamwork.

40. The master budget

a. reflects the determination of an organization's cost of capital.
b. serves as a managerial tool for the organization.
c. includes only an organization's pro forma financial statements.
d. utilizes only information from the financial accounting system

Krebs Company
Krebs Company is preparing its Manufacturing Overhead budget for the second quarter of the year. Budgeted
variable factory overhead is $3.00 per unit produced; budgeted fixed factory overheadis $75,000 per month, with
$16,000 of this amount being factory depreciation.

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FIN 081 FINANCIAL MANAGEMENT MIDTERM EXAMINATION
41. Refer to Krebs Company. If the budgeted production for April is 6,000 units, then the total budgetedfactory
overhead for April is:
a. $77,000
b. $82,000
c. $85,000
d. $93,000

42. Refer to Krebs Company. If the budgeted production for May is 5,000 units, then the total budgetedfactory
overhead per unit:
a. $15
b. $18
c. $20
d. $22

43. Refer to Krebs Company. If the budgeted cash disbursements for factory overhead for June are$80,000, then the
budgeted production for June must be:
a. 7,400 units
b. 6,200 units
c. 6,500 units
d. 7,000 units
44. A budget aids in
a. communication.
b. motivation.
c. coordination.
d. all of the above.

45. Measuring the firm's performance against established objectives is part of which of the followingfunctions?
a. Planning
b. Controlling
c. Organizing
d. Staffing

46. The preparation of an organization's budget

a. forces management to look ahead and try to see the future of the organization. b. requires that the entire
management team work together to make and carry out the yearly plan.
c. makes performance review possible at all levels of management.
d. all of the above.

47. Which of the following is a basic element of effective budgetary control? a. cost behavior
patterns
b. cost-volume-profit analysis
c. standard costing
d. all of the above

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FIN 081 FINANCIAL MANAGEMENT MIDTERM EXAMINATION
48. External factors that cause the achievement of company goals are the a. annual budget.
b. industry price and cost structure.
c. talents possessed by its managers.
d. board of directors.

49. A budget is
a. a planning tool.
b. a control tool.
c. a means of communicating goals to the firm's divisions.
d. all of the above.

50. Ineffective budgets and/or control systems are characterized by the use of a. budgets as a
planning tool only and disregarding them for control purposes. b. budgets for motivation.
c. budgets for coordination.
d. the budget for communication.
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