Financial Management & Budgeting Flashcards

An account manager is evaluating two projects. Project A has NPV of $45,000 and Project B has NPV of $30,000. All else equal, which should be prioritized?

Answer: Project A because it has a higher net present value

A higher NPV indicates greater value creation in today's dollars, making Project A the better financial choice.

A client overspends by $25,000 in Q1 but promises to recover in Q2. What financial control should an account manager implement?

Answer: Establish monthly budget checkpoints with early warning triggers

Proactive monitoring with early warning thresholds allows corrective action before variances compound.

Which budgeting approach allocates costs based on actual business activities and their drivers?

Answer: Activity-based budgeting

Activity-based budgeting links costs to specific activities and their volume drivers for more accurate allocation.

When a client's gross margin is 40% and revenue is $500,000, what is the gross profit?

Answer: $200,000

Gross profit = Revenue × Gross margin % = $500,000 × 40% = $200,000.

Which term describes the minimum revenue a business must generate to cover all fixed and variable costs?

Answer: Break-even point

The break-even point is where total revenues equal total costs, resulting in zero profit or loss.

A client asks why their income statement shows profit, but they are experiencing cash flow shortages. The account manager should explain:

Answer: Accrual-based profits do not equal cash flows due to timing differences and non-cash items

Accrual profits include non-cash items like depreciation and unpaid receivables, which don't reflect actual cash on hand.

In the context of account budgeting, 'scope creep' most directly threatens which financial dimension?

Answer: Cost overruns and budget exhaustion

Scope creep adds unplanned work and costs that erode budget reserves and push spending beyond approved limits.