Financial Planning & Forecasting Flashcards

In a scenario analysis for financial planning, which three scenarios are typically modeled?

Answer: Base case, best case, and worst case

Scenario analysis models a central (base), optimistic (best), and pessimistic (worst) set of assumptions.

A company uses regression analysis and finds the equation y = 20,000 + 5x, where y = total cost and x = units produced. What is the total cost when 3,000 units are produced?

Answer: $35,000

y = 20,000 + (5 × 3,000) = 20,000 + 15,000 = $35,000.

Which of the following would cause a business's cash forecast to show a surplus even when the profit forecast shows a loss?

Answer: High non-cash depreciation charges increasing the loss

Depreciation is a non-cash expense; it reduces profit but has no cash outflow, so adding it back in a cash forecast can reveal a cash surplus.

A budget that adjusts to reflect the actual level of activity achieved is called a:

Answer: Flexed budget

A flexed budget is restated to the actual volume of activity to provide a fair basis for variance analysis.

Which of the following is NOT typically included in an operating budget?

Answer: Capital expenditure on new equipment

Capital expenditure is included in the capital budget, not the operating budget, which covers day-to-day revenues and costs.

The percentage of completion method in project forecasting recognizes revenue based on:

Answer: The proportion of work completed relative to total project work

The percentage of completion method matches revenue to the stage of completion of a contract.

If a company wants to maintain a minimum cash balance of $15,000 and the opening cash balance is $8,000 with forecast net cash outflows of $5,000, what is the shortfall that needs financing?

Answer: $12,000

Closing cash = $8,000 – $5,000 = $3,000; shortfall = $15,000 – $3,000 = $12,000.