CAT Financial Planning & Forecasting 2 — Questions and Answers
Question 1: A company's sales last year were $500,000. Using a 12% growth rate, what is the projected sales figure for next year?
- $560,000 (Correct answer)
- $512,000
- $550,000
- $540,000
Correct answer: $560,000
$500,000 × 1.12 = $560,000.
Question 2: Which forecasting method uses the average of all historical data points, giving equal weight to each period?
- Simple moving average (Correct answer)
- Weighted moving average
- Exponential smoothing
- Regression analysis
Correct answer: Simple moving average
A simple moving average assigns equal weight to each period included in the average.
Question 3: In a cash flow forecast, which of the following is classified as a capital expenditure outflow?
- Purchase of new machinery (Correct answer)
- Payment of employee salaries
- Payment of utility bills
- Purchase of raw materials
Correct answer: Purchase of new machinery
Capital expenditures are long-term asset purchases such as machinery, not day-to-day operating costs.
Question 4: A master budget is best described as:
- A comprehensive set of budgets covering all aspects of a business (Correct answer)
- A single-line summary of revenues and costs
- The capital expenditure plan only
- The cash flow statement for the year
Correct answer: A comprehensive set of budgets covering all aspects of a business
The master budget consolidates all sub-budgets (sales, production, cash, etc.) into one integrated plan.
Question 5: If fixed costs are $80,000 and the contribution margin ratio is 40%, what sales revenue is required to break even?
- $200,000 (Correct answer)
- $112,000
- $80,000
- $320,000
Correct answer: $200,000
Break-even sales = Fixed costs ÷ CM ratio = $80,000 ÷ 0.40 = $200,000.
Question 6: Which term describes the difference between budgeted revenue and actual revenue when actual is lower than budget?
- Adverse variance (Correct answer)
- Favorable variance
- Zero-base variance
- Rolling variance
Correct answer: Adverse variance
An adverse (unfavorable) variance occurs when actual revenue falls below the budgeted amount.
Question 7: A rolling forecast differs from a static annual budget because it:
- Is continuously updated to extend the planning horizon as time passes (Correct answer)
- Is prepared only once at the start of the fiscal year
- Excludes capital expenditure projections
- Uses only historical data with no forward-looking assumptions
Correct answer: Is continuously updated to extend the planning horizon as time passes
Rolling forecasts are regularly revised to maintain a constant forward-looking period, unlike fixed annual budgets.
CAT Financial Planning & Forecasting 2
A company's sales last year were $500,000.
Using a 12% growth rate, what is the projected sales figure for next year?