Financial Acumen and Budget Control Flashcards
7 cards from real CCM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Acumen and Budget Control flashcards as text
In cost-volume-profit (CVP) analysis, the contribution margin is best defined as:
Answer: Selling price per unit minus variable cost per unit
Contribution margin measures how much each unit sold contributes to covering fixed costs and generating profit after variable costs are deducted.
A project has a Net Present Value (NPV) of -$45,000. What does this indicate for the investment decision?
Answer: The project destroys value at the required discount rate and should be rejected
A negative NPV means the present value of cash outflows exceeds inflows at the required rate, indicating the investment would destroy shareholder value.
What is the purpose of a cash flow forecast in commercial management?
Answer: To identify future periods where cash inflows may not cover outflows, enabling proactive funding arrangements
Cash flow forecasting reveals timing mismatches between receipts and payments, allowing managers to arrange short-term financing before a deficit occurs.
Which type of cost remains constant in total regardless of changes in production volume within a relevant range?
Answer: Fixed cost
Fixed costs such as rent and insurance do not change with production volume within the relevant range, though per-unit fixed cost decreases as output rises.
A commercial manager is comparing two suppliers: Supplier A offers 2/10 net 30 terms. What does this mean?
Answer: A 2% discount is available if payment is made within 10 days; otherwise full payment is due in 30 days
2/10 net 30 is a trade credit term offering a 2% early-payment discount within 10 days, with the net amount due by day 30.
When performing a sensitivity analysis on a business case, what is the primary objective?
Answer: To assess how changes in key assumptions affect the financial outcome
Sensitivity analysis tests which variables have the greatest impact on results, helping managers focus risk management on the most critical assumptions.
Variance analysis in budget control compares actual results to budget. An adverse (unfavorable) material usage variance means:
Answer: More material was used than the standard quantity for actual output
An adverse material usage variance occurs when actual material consumption exceeds the standard quantity allowed for the level of output achieved.