Financial Planning & Analysis Flashcards

Which component of the cash budget accounts for the timing difference between when sales are made and when cash is actually received?

Answer: Collections from accounts receivable

Collections from accounts receivable adjust for the lag between credit sales and actual cash inflows based on collection patterns.

If a company budgets fixed overhead at $120,000 for 10,000 units but actually produces 8,000 units, what is the fixed overhead volume variance?

Answer: $24,000 unfavorable

The volume variance is (budgeted − actual units) × standard fixed overhead rate: (10,000 − 8,000) × $12 = $24,000 unfavorable.

A company wants to achieve a net income of $200,000. Fixed costs are $300,000 and contribution margin ratio is 40%. What is the required sales revenue?

Answer: $1,250,000

Required sales = (Fixed costs + Target profit) ÷ CM ratio = ($300,000 + $200,000) ÷ 0.40 = $1,250,000.

Which type of financial analysis compares each line item on an income statement as a percentage of net sales?

Answer: Common-size analysis

Common-size analysis expresses each financial statement item as a percentage of a base figure (sales for income statements, total assets for balance sheets).

In capital budgeting, the payback period method is criticized mainly because it:

Answer: Ignores cash flows after the payback date and the time value of money

The payback period ignores profitability beyond the recovery point and does not discount future cash flows for the time value of money.

What is the purpose of a pro forma financial statement in the budgeting process?

Answer: To project future financial position based on planned activities

Pro forma statements are forward-looking projections that show expected financial results based on assumptions about future operations.

Which budgeting approach allocates resources based on activities performed and the cost drivers associated with those activities?

Answer: Activity-based budgeting (ABB)

Activity-based budgeting links resource planning directly to activities and their cost drivers, improving cost accuracy and resource allocation.