Financial Planning & Analysis Flashcards

Which budgeting method builds each budget period from zero, requiring all expenses to be justified regardless of prior-year spending?

Answer: Zero-based budgeting

Zero-based budgeting requires every line item to be justified from scratch each cycle, eliminating automatic carryover of prior-year expenditures.

A company's operating budget shows revenue of $500,000 and total expenses of $420,000. What is the operating income?

Answer: $80,000

Operating income equals revenue minus total expenses: $500,000 − $420,000 = $80,000.

Which variance arises when actual labor hours worked differ from the standard hours allowed for actual production?

Answer: Labor efficiency variance

Labor efficiency variance measures the difference between actual hours worked and standard hours allowed, multiplied by the standard rate.

In a master budget, which budget is typically prepared FIRST because it drives all other operating budgets?

Answer: Sales budget

The sales budget is prepared first because projected sales volumes drive production, purchasing, labor, and overhead budgets.

What does a flexible budget do that a static budget does not?

Answer: Adjusts cost allowances to actual activity levels

A flexible budget recalculates budget figures at the actual level of activity, allowing for more meaningful variance analysis.

Which financial ratio measures how efficiently a company collects its accounts receivable?

Answer: Accounts receivable turnover

Accounts receivable turnover (net credit sales ÷ average accounts receivable) indicates how many times receivables are collected per period.

A rolling (continuous) budget differs from a traditional annual budget primarily because it:

Answer: Is always updated to cover a fixed future period as time passes

A rolling budget adds a new period as each period ends, maintaining a constant planning horizon (e.g., always 12 months ahead).