Cost Accounting

Budgeting and Appraisal Techniques [Quiz]

Q1. Choose the best statement regarding non-financial performance indication:
a. it is short-sighted to consider that human resources might factor in as an indicator of performance
b. absenteeism in the workplace probably indicates the work systems and the environment is stimulating
c. being an employer of choice is an excellent example of a non-financial performance indicator
d. non-financial performance indicators are ethereal and fluffy, not worth much thought

Q2. Which of the following represent investments?
a. building a factory to make tennis racquets
b. constructing a toll road as principal contractor and lessee
c. supplying capital for a new venture
d. all of the above

Q3. Which of the following is incorrect regarding budgeting styles
a. In an authoritarian style of budgeting, unit mangers have little say in the targets that are set.
b. A more participative-style budget process will produce a number of advantages including managers’ having more ownership in targets
c. In an authoritarian style of budgeting, senior management always set targets that are too difficult to achieve.
d. A participative-style budget process can be time consuming and require greater communication between the accounting department and department managers.

Q4. An advantage of using IRR is:
a. IRR takes into account all of the cash flows;
b. IRR factors the scale of projects
c. An investment decision calculation can produce two IRR values or even no IRR
d. Based on the rate of return (RRR), which can be a foreign concept to management

Q5. Pick the most relevant statement with regard to capital investment:
a. the internal rate of return (IRR) and net present value (NPV) methods are practically equal in every way
b. if the IRR is 0 or less, the decision to invest will always be ‘no’
c. NPV is the most superior of discounted cash flow techniques
d. IRR is not based on this same assumption

Q6. Describe Economic Value Added EVA:
a. In calculating EVA the average net profit over the period of investment as a percentage of the average investment.
b. EVA is based on the economic increase in an organisation’s value after a suitable charge for capital is subtracted.
c. Entities accepting projects with EVAs which exceed required rates of return, subject to capital management issues.
d. EVA measures the amount of return on an investment, relative to the investment’s cost.

Q7. When analysing the risks and opportunity costs of an investment:
a. NPV is the superior calculation tool as it is a discounted cash flow technique
b. Ratio analysis should be completed first
c. The implications of taxation effects, human resources and finance need to be taken into consideration
d. NPV, ARR, PP and IRR have to be calculated

Q8. Identify the best statement regarding financial performance:
a. financial performance indicators are uniform metrics that can be applied and benchmarked across all industries and sectors
b. return on investment (ROI) and residual income (RI) emphasise performance in the short term
c. it is always better to use one metric to avoid confusion
d. financial performance indicators stand alone in their ability to determine how well a firm is doing

Q9. A Balanced Scorecard
a. Focuses on Internal Key Performance Indicators only
b. Ensures organisational alignment, improves communications and achieves much stronger strategic planning
c. Improves financial reporting overall as the approach determines items that need to be reported
d. Creates a direct link between measures and the economic impact on the organisation

Q10. The balanced scorecard has the following four perspectives:
a. people, planet, profit, peace
b. financial perspective, customer perspective, internal business process perspective and learning and growth perspective
c. employability, happiness, market value, return
d. financial performance, economic performance, social performance and environmental performance

Q11. Which of the following is the most appropriate:
a. one of the functions of budgets is to foster goal congruence in organisations
b. a budget is a difficult tool to use in order to maintain direction and control in the firm
c. computing and spreadsheets are rarely used in the preparation and execution of budgets
d. budgets are not required for government and the not-for-profit sector

Q12. List the formula for the three basic financial performance indicators to measure divisional performance:

a. ROI, RI, EVA
b. ROI, NPV, PP
c. ROI, ROE, ROA
d. IRR, ARR, RRR

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