Financial Planning & Forecasting Flashcards

A company forecasts it will collect 70% of credit sales in the month of sale and 30% in the following month. If November credit sales are $100,000, how much cash is collected in December from November sales?

Answer: $30,000

30% of November's $100,000 credit sales = $30,000 collected in December.

Sensitivity analysis in financial planning is used to:

Answer: Assess how changes in key assumptions affect financial outcomes

Sensitivity analysis tests how sensitive a forecast or plan is to changes in one or more key input variables.

Which of the following best describes the purpose of a financial plan?

Answer: To set measurable financial targets and outline the resources needed to achieve them

A financial plan establishes targets and maps out the funding and activities required to reach them.

If a company's closing inventory budget is $40,000, opening inventory is $30,000, and budgeted cost of sales is $150,000, what is the budgeted purchases figure?

Answer: $160,000

Purchases = Cost of sales + Closing inventory – Opening inventory = $150,000 + $40,000 – $30,000 = $160,000.

Incremental budgeting is criticized mainly because it:

Answer: Encourages inefficiencies by automatically funding prior-year costs

Incremental budgeting simply adds to last year's figures, which can embed and perpetuate wasteful spending.

A business has a target receivables collection period of 30 days and forecasts annual credit sales of $1,460,000. What is the target trade receivables balance?

Answer: $120,000

Daily sales = $1,460,000 ÷ 365 = $4,000; receivables = $4,000 × 30 = $120,000.

Which variance measures the difference between the actual hours worked and the standard hours allowed for actual output, valued at the standard rate?

Answer: Labour efficiency variance

The labour efficiency variance compares hours actually worked versus standard hours for actual output, at the standard rate.