Budgeting & Forecasting Flashcards
7 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Budgeting & Forecasting flashcards as text
A favorable budget variance on labor costs most likely indicates that:
Answer: Actual labor costs were lower than budgeted
A favorable variance means actual results were better than budget; for a cost, this means actual spending was less than planned.
Capital budgeting differs from operating budgeting primarily in that it:
Answer: Focuses on long-term investment decisions with multi-year impacts
Capital budgeting evaluates long-term investments in assets or projects spanning multiple years, whereas operating budgets cover day-to-day activities within a fiscal year.
Which budget variance analysis technique compares the flexible budget to actual results to measure efficiency?
Answer: Spending (efficiency) variance
The spending or efficiency variance compares flexible budget costs (at actual volume) to actual costs, isolating operational efficiency from volume effects.
In participative budgeting, a key risk is:
Answer: Budgetary slack introduced by managers padding their estimates
Participative budgeting can lead to budgetary slack where managers deliberately understate revenues or overstate costs to make targets easier to achieve.
A company forecasts cash collections assuming 60% of sales are collected in the month of sale and 40% in the following month. If January sales are $500,000 and February sales are $600,000, what are February cash collections?
Answer: $560,000
February collections = 60% × $600,000 + 40% × $500,000 = $360,000 + $200,000 = $560,000.
What is the primary purpose of a cash budget?
Answer: To project cash inflows and outflows and identify potential shortfalls
A cash budget forecasts cash receipts and disbursements to ensure the company can meet obligations and identify when external financing may be needed.
Activity-based budgeting (ABB) allocates costs by:
Answer: Linking resource consumption to cost drivers and activities
ABB identifies activities that drive costs and budgets resources based on expected activity levels, providing more accurate cost allocation than traditional methods.