CAT Financial Planning & Forecasting 3

Question 1

In exponential smoothing, what does a higher smoothing constant (α closer to 1) indicate?

Accepted Answer

More weight is given to the most recent data

Answer

A smoothing constant close to 1 places almost all weight on the most recent observation.

Question 2

Which budget is typically prepared first when building a master budget?

Accepted Answer

Sales budget

Answer

The sales budget is prepared first because all other budgets (production, purchases, cash) depend on forecast sales volume.

Question 3

A company has a net profit margin of 8% and forecasts sales of $2,500,000. What is the projected net profit?

Accepted Answer

$200,000

Answer

$2,500,000 × 0.08 = $200,000.

Question 4

Which of the following is an example of a qualitative forecasting technique?

Accepted Answer

Delphi method

Answer

The Delphi method gathers expert opinions iteratively, making it a qualitative rather than quantitative technique.

Question 5

A favorable cost variance means:

Accepted Answer

Actual costs were lower than budgeted costs

Answer

A favorable variance on costs means the company spent less than planned, which is positive for profitability.

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