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
Scenario analysis in financial forecasting is best described as:
Answer: Evaluating multiple 'what-if' outcomes under different assumptions
Scenario analysis examines how financial results change under different sets of assumptions (e.g., base, optimistic, pessimistic), helping management plan for uncertainty.
The Delphi method for forecasting relies on:
Answer: Iterative rounds of expert opinion until consensus is reached
The Delphi method gathers judgments from a panel of experts through successive questionnaire rounds, refining estimates toward consensus.
Which metric is most useful for evaluating whether a budget is achievable and appropriately challenging?
Answer: Comparison of budget assumptions to external benchmarks
Comparing budget assumptions to industry benchmarks and economic data helps assess whether targets are realistic and appropriately stretch performance.
A direct materials budget is built upon the production budget because:
Answer: The quantity of materials needed depends on planned production units
The direct materials budget calculates required purchases based on the units to be produced, so the production budget must be finalized first.
When a company's actual revenue exceeds its static budget revenue, the resulting variance is classified as:
Answer: Favorable revenue variance
Actual revenue above budget is a favorable variance, indicating better-than-planned performance on the revenue line.
In regression-based forecasting, the R² (coefficient of determination) measures:
Answer: The proportion of variance in the dependent variable explained by the independent variable(s)
R² ranges from 0 to 1 and indicates how well the independent variable(s) explain the variation in the dependent variable; higher R² suggests a better-fitting model.
A company preparing a budget for a new product line with no historical data would most likely use which forecasting approach?
Answer: Analogous estimation based on similar products
When no historical data exists, analogy-based estimation uses data from comparable products or markets as a proxy for the new line.