CAM Financial Management & Budgeting 3 — Questions and Answers
Question 1: A rolling 12-month budget is reforecast every quarter. What is the main advantage of this approach over a static annual budget?
- It eliminates the need for budget approvals
- It always maintains a forward-looking planning horizon as months are added (Correct answer)
- It reduces total spending by automatically cutting unused funds
- It fixes spending limits so departments cannot overspend
Correct 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.
Question 2: In account management, 'cost of goods sold' (COGS) is subtracted from revenue to arrive at:
- Net income
- Operating income
- Gross profit (Correct answer)
- EBITDA
Correct answer: Gross profit
Gross profit = Revenue − COGS, representing profit before operating expenses are deducted.
Question 3: 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?
- $215,000
- $350,000 (Correct answer)
- $150,000
- $200,015
Correct answer: $350,000
Total cost = Fixed ($200,000) + Variable ($15 × 10,000 = $150,000) = $350,000.
Question 4: Which scenario best illustrates a 'favorable' budget variance?
- Actual revenue is $10,000 below forecast
- Actual expenses are $8,000 below budget (Correct answer)
- Actual headcount is 5% above plan
- Customer churn rate exceeds projected levels
Correct answer: Actual expenses are $8,000 below budget
A favorable variance occurs when actual expenses are lower than budgeted, improving the financial position.
Question 5: 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?
- 1.5 years
- 2 years
- 2.5 years (Correct answer)
- 3 years
Correct answer: 2.5 years
Payback period = Initial investment / Annual savings = $30,000 / $12,000 = 2.5 years.
Question 6: Which of the following best describes 'accrual accounting' as it relates to budgeting?
- Revenue and expenses are recorded only when cash changes hands
- Revenue is recognized when earned and expenses when incurred, regardless of cash flow (Correct answer)
- All future costs are accrued in the current period to simplify forecasting
- Only capital expenditures are tracked; operating expenses are excluded
Correct 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.
Question 7: 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?
- It requires too much time and detail from operational teams
- Targets may be unrealistic because they lack input from those doing the work (Correct answer)
- It always results in over-budgeting due to padding by executives
- It cannot account for fixed costs at the departmental level
Correct 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.
CAM Financial Management & Budgeting 3
A rolling 12-month budget is reforecast every quarter.
What is the main advantage of this approach over a static annual budget?