CBS Budget Development & Forecasting 2 — Questions and Answers
Question 1: Which forecasting method uses historical data patterns to project future budget figures by analyzing trends over multiple periods?
- Zero-based budgeting
- Time series analysis (Correct answer)
- Activity-based costing
- Incremental budgeting
Correct answer: Time series analysis
Time series analysis examines historical data over time to identify patterns, trends, and seasonal variations for future projections.
Question 2: A budget analyst notices that sales consistently increase 15% in Q4 each year. This pattern is best described as:
- A cyclical variation
- A secular trend
- A seasonal variation (Correct answer)
- An irregular variation
Correct answer: A seasonal variation
Seasonal variations are predictable fluctuations that recur within a year, such as Q4 sales spikes driven by holidays.
Question 3: In a bottom-up budgeting approach, who initiates the budget development process?
- The CFO and executive team
- Department managers and operational staff (Correct answer)
- The board of directors
- External auditors
Correct answer: Department managers and operational staff
Bottom-up budgeting starts with department managers and frontline staff submitting budget requests that are aggregated upward.
Question 4: When developing a capital budget, which factor distinguishes it from an operating budget?
- Capital budgets cover expenses under $500
- Capital budgets address long-term asset investments with multi-year impact (Correct answer)
- Capital budgets are updated monthly
- Capital budgets exclude depreciation calculations
Correct answer: Capital budgets address long-term asset investments with multi-year impact
Capital budgets plan for long-term investments in assets like equipment and facilities that provide value beyond a single fiscal year.
Question 5: The Delphi method of forecasting is primarily characterized by:
- Statistical regression of historical data
- Iterative rounds of expert opinion gathering with feedback (Correct answer)
- Computer simulation modeling
- Customer survey aggregation
Correct answer: Iterative rounds of expert opinion gathering with feedback
The Delphi method collects expert opinions through multiple rounds, sharing summarized responses until consensus emerges.
Question 6: A rolling budget (also called a continuous budget) differs from a static annual budget because it:
- Is approved only once and never revised
- Adds a new period as each period ends, maintaining a set planning horizon (Correct answer)
- Allocates zero resources at the start of each cycle
- Is prepared exclusively by senior management
Correct answer: Adds a new period as each period ends, maintaining a set planning horizon
A rolling budget continuously extends by adding a new future period when the most recent period concludes, keeping the planning horizon constant.
Question 7: Which budget variance analysis term describes the difference between the actual cost and the standard cost for actual output produced?
- Budget slack
- Flexible budget variance (Correct answer)
- Static budget variance
- Contribution margin variance
Correct answer: Flexible budget variance
The flexible budget variance compares actual costs to what costs should have been for the actual level of output, isolating efficiency from volume effects.
CBS Budget Development & Forecasting 2
Which forecasting method uses historical data patterns to project future budget figures by analyzing trends over multiple periods?