CPWM Budget and Finance 3 — Questions and Answers
Question 1: A public works manager wants to compare the total cost of owning two different fleet vehicles over their useful lives. Which analysis technique is most appropriate?
- Break-even analysis
- Life-cycle cost analysis (Correct answer)
- Payback period analysis
- Variance analysis
Correct answer: Life-cycle cost analysis
Life-cycle cost analysis evaluates all costs associated with an asset from acquisition through disposal, enabling fair comparison between alternatives.
Question 2: When a public works department's actual expenditures exceed the adopted budget appropriation, this is called a budget:
- Encumbrance
- Surplus
- Overrun (Correct answer)
- Carryforward
Correct answer: Overrun
A budget overrun occurs when actual spending exceeds the authorized appropriation, which may require a budget amendment or supplemental appropriation.
Question 3: Which federal law establishes prevailing wage requirements that affect labor costs on federally funded public works construction projects?
- Davis-Bacon Act (Correct answer)
- Fair Labor Standards Act
- Buy America Act
- Service Contract Act
Correct answer: Davis-Bacon Act
The Davis-Bacon Act requires contractors on federally funded construction projects to pay workers the locally prevailing wage rates for their job classifications.
Question 4: An encumbrance in governmental budgeting represents:
- An actual expenditure already paid
- A commitment of funds for a future obligation not yet paid (Correct answer)
- An unappropriated fund balance
- A revenue that has been collected but not yet spent
Correct answer: A commitment of funds for a future obligation not yet paid
An encumbrance reserves budget authority when a purchase order or contract is issued, before the actual expenditure is recorded.
Question 5: Which cost allocation method distributes overhead costs to programs or services based on their relative use of a shared resource?
- Direct cost method
- Reciprocal method
- Step-down method
- Activity-based costing (Correct answer)
Correct answer: Activity-based costing
Activity-based costing allocates overhead by identifying the activities that drive costs and assigning those costs based on actual resource consumption.
Question 6: A public works department charges user fees for stormwater management services. To comply with the cost-of-service principle, fees should:
- Exceed the full cost to generate surplus revenue
- Cover no more than the costs reasonably attributable to providing the service (Correct answer)
- Be set below market rates to encourage usage
- Be uniform regardless of the volume of service consumed
Correct answer: Cover no more than the costs reasonably attributable to providing the service
The cost-of-service principle requires that user fees not exceed the reasonable cost of providing the specific service to avoid operating as an illegal tax.
Question 7: What is the difference between a capital expenditure and an operating expenditure in public works budgeting?
- Capital expenditures are funded by taxes; operating expenditures are funded by fees
- Capital expenditures acquire or improve long-term assets; operating expenditures cover ongoing service delivery costs (Correct answer)
- Capital expenditures require federal approval; operating expenditures do not
- Capital expenditures are one-time; operating expenditures are recurring grants
Correct answer: Capital expenditures acquire or improve long-term assets; operating expenditures cover ongoing service delivery costs
Capital expenditures fund acquisition or significant improvement of long-lived assets, while operating expenditures cover the day-to-day costs of delivering services.
CPWM Budget and Finance 3
A public works manager wants to compare the total cost of owning two different fleet vehicles over their useful lives.
Which analysis technique is most appropriate?