CAM Financial Management & Budgeting 2 — Questions and Answers
Question 1: A client's account shows a 15% budget variance in Q2. What is the account manager's FIRST priority?
- Immediately cut discretionary spending
- Analyze root causes before proposing corrective actions (Correct answer)
- Notify senior management and escalate immediately
- Reallocate funds from other budget lines without analysis
Correct answer: Analyze root causes before proposing corrective actions
Root cause analysis must precede corrective action to ensure the right solution is applied.
Question 2: Which budgeting method builds a new budget from zero each period rather than adjusting prior-year figures?
- Incremental budgeting
- Rolling budget
- Zero-based budgeting (Correct answer)
- Activity-based budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting requires justifying every expense from scratch each cycle regardless of prior budgets.
Question 3: An account manager tracks ROI for a client initiative. The project cost $50,000 and generated $80,000 in revenue. What is the ROI?
- 30%
- 60% (Correct answer)
- 160%
- 62.5%
Correct answer: 60%
ROI = (Net Profit / Cost) × 100 = ($30,000 / $50,000) × 100 = 60%.
Question 4: What does 'accounts receivable days' (DSO) indicate for a client's financial health?
- How quickly the client pays its own suppliers
- The average number of days to collect payment after a sale (Correct answer)
- Total outstanding invoices owed to the client
- The client's credit limit utilization rate
Correct answer: The average number of days to collect payment after a sale
Days Sales Outstanding (DSO) measures how long on average it takes to collect receivables after a sale.
Question 5: A client requests a budget increase mid-year citing unforeseen market changes. The account manager should:
- Approve the increase immediately to maintain the client relationship
- Deny the request and enforce the original budget
- Evaluate the business case, impact, and available funding before deciding (Correct answer)
- Defer the decision to the finance department without input
Correct answer: Evaluate the business case, impact, and available funding before deciding
Mid-year budget amendments require a structured business case review to justify reallocation of resources.
Question 6: Which financial metric best measures whether a company can meet its short-term obligations?
- Gross margin
- Current ratio (Correct answer)
- Debt-to-equity ratio
- Net present value
Correct answer: Current ratio
The current ratio (current assets ÷ current liabilities) measures short-term liquidity.
Question 7: When preparing an account budget, what is the primary purpose of including a contingency reserve?
- To increase the total budget request for negotiating leverage
- To cover unexpected costs without requiring a formal budget amendment (Correct answer)
- To fund new initiatives that were not part of the original plan
- To offset expected underperformance in revenue projections
Correct answer: To cover unexpected costs without requiring a formal budget amendment
A contingency reserve absorbs unanticipated costs and preserves budget integrity without requiring re-approval cycles.
CAM Financial Management & Budgeting 2
A client's account shows a 15% budget variance in Q2.
What is the account manager's FIRST priority?