CAS3701 Assignment with
(COMPLETE ANSWERS)
2025 - DUE October 2025
(Financial Analysis, CVP, Ratios,
Reporting & Decision-Making)
Q1. Financial accounting primarily provides information for
a) Managers
b) Shareholders and external users
c) Production supervisors
d) Internal auditors
Answer: b
Explanation: Financial accounting reports are designed for external users such as investors,
creditors, and regulators. Managers also use them, but managerial accounting is more relevant
internally.
Q2. Managerial accounting is mainly used for
a) External reporting
b) Internal decision-making
c) Tax compliance
d) Government audits
Answer: b
Explanation: Managerial accounting provides forward-looking information to help managers
plan, control, and make decisions. Unlike financial accounting, it is not regulated by
GAAP/IFRS.
Q3. Which of the following is NOT a component of CVP analysis?
a) Fixed costs
b) Contribution margin
c) Variable costs
d) Audit risk
Answer: d
Explanation: CVP analysis focuses on cost, volume, and profit relationships. Audit risk belongs
to auditing and assurance, not CVP.
Q4. The breakeven point is where
a) Total costs = Total revenues
b) Total revenues = Profit
,c) Contribution margin = Variable cost
d) Profit is maximum
Answer: a
Explanation: At breakeven, revenues cover all costs, yet profit is zero. This point is critical for
understanding the minimum sales required to avoid losses.
Q5. A high current ratio generally indicates
a) Low liquidity
b) High liquidity
c) Low profitability
d) High leverage
Answer: b
Explanation: The current ratio measures short-term liquidity. A high ratio means a firm has
sufficient current assets to cover its liabilities.
Q6. Return on equity (ROE) measures
a) Efficiency of asset use
b) Profitability for shareholders
c) Liquidity of current assets
d) Cost of debt
Answer: b
Explanation: ROE shows how effectively a firm uses shareholder equity to generate profit. It is
an important profitability measure for investors.
Q7. The contribution margin ratio is calculated as
a) Contribution margin ÷ Sales
b) Fixed cost ÷ Sales
c) Net income ÷ Sales
d) Variable cost ÷ Sales
Answer: a
Explanation: The contribution margin ratio indicates the proportion of sales available to cover
fixed costs and generate profits. It is a key tool in CVP analysis.
Q8. Which financial statement shows a company’s financial position at a point in time?
a) Balance sheet
b) Income statement
c) Cash flow statement
d) Retained earnings statement
Answer: a
Explanation: The balance sheet provides a snapshot of assets, liabilities, and equity at a
specific date. Other statements cover performance over a period.
Q9. A flexible budget is useful because it
a) Remains constant regardless of activity
, b) Adjusts to actual levels of activity
c) Ignores fixed costs
d) Eliminates variances
Answer: b
Explanation: Flexible budgets allow adjustment for actual activity levels, making variance
analysis more accurate. They are better than static budgets in dynamic environments.
Q10. Variance analysis is primarily used to
a) Prepare tax returns
b) Analyze deviations from budgets
c) Calculate ratios
d) Plan external reports
Answer: b
Explanation: Variance analysis enables managers to evaluate the differences between planned
and actual performance. It provides insights for corrective actions.
Q11. The margin of safety in CVP analysis measures
a) Profit per unit
b) Sales above breakeven
c) Contribution margin ratio
d) Fixed cost coverage
Answer: b
Explanation: The margin of safety shows how much sales can fall before reaching breakeven. A
high margin signals a lower risk of loss.
Q12. In decision-making, relevant costs are
a) Past costs
b) Future costs that differ between alternatives
c) Sunk costs
d) Book value of assets
Answer: b
Explanation: Relevant costs are future costs that change based on the decision. Past costs are
irrelevant since they cannot be altered.
Q13. Which ratio evaluates a firm’s ability to meet interest payments?
a) Quick ratio
b) Debt-to-equity ratio
c) Times interest earned
d) Current ratio
Answer: c
Explanation: Times interest earned measures how many times operating income covers interest
expense. It indicates solvency and financial health.
Q14. Vertical analysis expresses financial statement items as
(COMPLETE ANSWERS)
2025 - DUE October 2025
(Financial Analysis, CVP, Ratios,
Reporting & Decision-Making)
Q1. Financial accounting primarily provides information for
a) Managers
b) Shareholders and external users
c) Production supervisors
d) Internal auditors
Answer: b
Explanation: Financial accounting reports are designed for external users such as investors,
creditors, and regulators. Managers also use them, but managerial accounting is more relevant
internally.
Q2. Managerial accounting is mainly used for
a) External reporting
b) Internal decision-making
c) Tax compliance
d) Government audits
Answer: b
Explanation: Managerial accounting provides forward-looking information to help managers
plan, control, and make decisions. Unlike financial accounting, it is not regulated by
GAAP/IFRS.
Q3. Which of the following is NOT a component of CVP analysis?
a) Fixed costs
b) Contribution margin
c) Variable costs
d) Audit risk
Answer: d
Explanation: CVP analysis focuses on cost, volume, and profit relationships. Audit risk belongs
to auditing and assurance, not CVP.
Q4. The breakeven point is where
a) Total costs = Total revenues
b) Total revenues = Profit
,c) Contribution margin = Variable cost
d) Profit is maximum
Answer: a
Explanation: At breakeven, revenues cover all costs, yet profit is zero. This point is critical for
understanding the minimum sales required to avoid losses.
Q5. A high current ratio generally indicates
a) Low liquidity
b) High liquidity
c) Low profitability
d) High leverage
Answer: b
Explanation: The current ratio measures short-term liquidity. A high ratio means a firm has
sufficient current assets to cover its liabilities.
Q6. Return on equity (ROE) measures
a) Efficiency of asset use
b) Profitability for shareholders
c) Liquidity of current assets
d) Cost of debt
Answer: b
Explanation: ROE shows how effectively a firm uses shareholder equity to generate profit. It is
an important profitability measure for investors.
Q7. The contribution margin ratio is calculated as
a) Contribution margin ÷ Sales
b) Fixed cost ÷ Sales
c) Net income ÷ Sales
d) Variable cost ÷ Sales
Answer: a
Explanation: The contribution margin ratio indicates the proportion of sales available to cover
fixed costs and generate profits. It is a key tool in CVP analysis.
Q8. Which financial statement shows a company’s financial position at a point in time?
a) Balance sheet
b) Income statement
c) Cash flow statement
d) Retained earnings statement
Answer: a
Explanation: The balance sheet provides a snapshot of assets, liabilities, and equity at a
specific date. Other statements cover performance over a period.
Q9. A flexible budget is useful because it
a) Remains constant regardless of activity
, b) Adjusts to actual levels of activity
c) Ignores fixed costs
d) Eliminates variances
Answer: b
Explanation: Flexible budgets allow adjustment for actual activity levels, making variance
analysis more accurate. They are better than static budgets in dynamic environments.
Q10. Variance analysis is primarily used to
a) Prepare tax returns
b) Analyze deviations from budgets
c) Calculate ratios
d) Plan external reports
Answer: b
Explanation: Variance analysis enables managers to evaluate the differences between planned
and actual performance. It provides insights for corrective actions.
Q11. The margin of safety in CVP analysis measures
a) Profit per unit
b) Sales above breakeven
c) Contribution margin ratio
d) Fixed cost coverage
Answer: b
Explanation: The margin of safety shows how much sales can fall before reaching breakeven. A
high margin signals a lower risk of loss.
Q12. In decision-making, relevant costs are
a) Past costs
b) Future costs that differ between alternatives
c) Sunk costs
d) Book value of assets
Answer: b
Explanation: Relevant costs are future costs that change based on the decision. Past costs are
irrelevant since they cannot be altered.
Q13. Which ratio evaluates a firm’s ability to meet interest payments?
a) Quick ratio
b) Debt-to-equity ratio
c) Times interest earned
d) Current ratio
Answer: c
Explanation: Times interest earned measures how many times operating income covers interest
expense. It indicates solvency and financial health.
Q14. Vertical analysis expresses financial statement items as
