Financial Management & Budgeting Flashcards

A rolling 12-month budget is reforecast every quarter. What is the main advantage of this approach over a static annual budget?

Answer: It always maintains a forward-looking planning horizon as months are added

Rolling budgets continuously extend the planning horizon, keeping forecasts current and relevant.

In account management, 'cost of goods sold' (COGS) is subtracted from revenue to arrive at:

Answer: Gross profit

Gross profit = Revenue − COGS, representing profit before operating expenses are deducted.

A client's budget shows fixed costs of $200,000 and variable costs of $15 per unit. At 10,000 units, what is the total budget?

Answer: $350,000

Total cost = Fixed ($200,000) + Variable ($15 × 10,000 = $150,000) = $350,000.

Which scenario best illustrates a 'favorable' budget variance?

Answer: Actual expenses are $8,000 below budget

A favorable variance occurs when actual expenses are lower than budgeted, improving the financial position.

An account manager is building a business case for a new tool. The tool costs $30,000 and saves $12,000 per year. What is the payback period?

Answer: 2.5 years

Payback period = Initial investment / Annual savings = $30,000 / $12,000 = 2.5 years.

Which of the following best describes 'accrual accounting' as it relates to budgeting?

Answer: Revenue is recognized when earned and expenses when incurred, regardless of cash flow

Accrual accounting matches revenues and expenses to the periods in which they are earned or incurred.

A sales account manager notices that a client's budget was set using top-down allocation rather than bottom-up estimation. What is a key risk of top-down budgeting?

Answer: Targets may be unrealistic because they lack input from those doing the work

Top-down budgets set by leadership without operational input risk being disconnected from ground-level realities.