CAFM Financial Management & Budgeting 2 — Questions and Answers
Question 1: A fleet manager is preparing a capital budget request for 15 new vehicles. Which financial metric BEST demonstrates return on investment to senior leadership?
- Net present value (NPV) of future cost savings (Correct answer)
- Total sticker price of the vehicles
- Number of vehicles replaced per year
- Average fuel cost per vehicle
Correct answer: Net present value (NPV) of future cost savings
NPV captures the time value of money and quantifies the net financial benefit of the investment, making it the most persuasive capital budget metric.
Question 2: Which cost is classified as a fixed fleet operating cost?
- Fuel expenditure
- Tire replacement
- Insurance premiums (Correct answer)
- Oil changes
Correct answer: Insurance premiums
Insurance premiums remain constant regardless of vehicle utilization, making them a fixed cost, while fuel, tires, and oil changes vary with usage.
Question 3: What does a fleet's 'cost per mile' metric primarily help a fleet manager evaluate?
- Driver satisfaction scores
- Overall operational efficiency and vehicle lifecycle economics (Correct answer)
- The number of accidents per route
- Vendor contract compliance
Correct answer: Overall operational efficiency and vehicle lifecycle economics
Cost per mile aggregates all fleet expenses relative to distance traveled, serving as a comprehensive efficiency and lifecycle economic indicator.
Question 4: When using zero-based budgeting (ZBB) for fleet, the manager must:
- Increase last year's budget by a fixed percentage
- Justify every budget line item from scratch each cycle (Correct answer)
- Remove all capital expenditures from the plan
- Base spending only on historical averages
Correct answer: Justify every budget line item from scratch each cycle
ZBB requires justifying all expenditures anew each budget period rather than using the prior year's figures as a baseline.
Question 5: A fleet manager observes that maintenance costs spike in Q4 each year. The MOST appropriate budgeting response is to:
- Reduce the maintenance budget in Q4
- Use monthly accruals to smooth the expense across the year (Correct answer)
- Delay all Q4 maintenance to Q1
- Assign extra drivers in Q4 only
Correct answer: Use monthly accruals to smooth the expense across the year
Monthly accruals distribute anticipated seasonal costs evenly, preventing large budget variances in any single quarter.
Question 6: Which disposal method typically yields the HIGHEST residual value for fleet vehicles?
- Wholesale auction
- Direct retail sale (Correct answer)
- Trade-in at dealership
- Government surplus sale
Correct answer: Direct retail sale
Direct retail sale removes intermediary fees and auction premiums, generally producing the highest net proceeds for the fleet.
Question 7: Under an operating lease, fleet vehicles appear on the company's financial statements as:
- Capital assets subject to depreciation
- Off-balance-sheet obligations under older GAAP rules (Correct answer)
- Long-term liabilities only
- Inventory assets
Correct answer: Off-balance-sheet obligations under older GAAP rules
Under older GAAP (pre-ASC 842), operating leases were off-balance-sheet; under ASC 842 they are recognized as right-of-use assets, but the question reflects the traditional classification still tested on CAFM.
CAFM Financial Management & Budgeting 2
A fleet manager is preparing a capital budget request for 15 new vehicles.
Which financial metric BEST demonstrates return on investment to senior leadership?