CBS Expense Management & Cost Control 3 — Questions and Answers
Question 1: A budget specialist is reviewing travel expenses and finds that actual spend is 30% above budget. Which immediate action is most appropriate?
- Cancel all future travel
- Conduct a variance investigation to identify root causes (Correct answer)
- Increase the travel budget retroactively
- Transfer costs to another department
Correct answer: Conduct a variance investigation to identify root causes
Investigating root causes of material variances enables informed corrective action rather than arbitrary reactions.
Question 2: Which of the following is an example of a committed cost?
- Advertising expenditure
- Overtime wages
- Lease payments on a 5-year facility contract (Correct answer)
- Office supply purchases
Correct answer: Lease payments on a 5-year facility contract
Committed costs arise from long-term contractual obligations and cannot be easily avoided in the short term.
Question 3: Cost benchmarking compares an organization's expenses to:
- Its own prior-year budget only
- Industry peers or best-in-class performers (Correct answer)
- The consumer price index exclusively
- A random sample of internal departments
Correct answer: Industry peers or best-in-class performers
Benchmarking uses external comparisons to industry peers or best-practice organizations to identify cost improvement opportunities.
Question 4: An organization implements a policy requiring three competitive bids for any purchase over $10,000. This is primarily a control over:
- Revenue recognition
- Procurement costs (Correct answer)
- Payroll expenses
- Depreciation charges
Correct answer: Procurement costs
Competitive bidding requirements are procurement controls designed to ensure costs are market-competitive and prevent overpaying.
Question 5: Which ratio is most useful for monitoring whether administrative expenses are growing faster than revenue?
- Current ratio
- SG&A as a percentage of revenue (Correct answer)
- Inventory turnover ratio
- Debt-to-equity ratio
Correct answer: SG&A as a percentage of revenue
SG&A (Selling, General & Administrative) as a percentage of revenue tracks the efficiency of administrative cost management relative to top-line growth.
Question 6: A 'spend analysis' in expense management primarily aims to:
- Forecast future revenue streams
- Categorize and evaluate historical purchasing data to find savings opportunities (Correct answer)
- Calculate employee compensation benchmarks
- Assess capital expenditure returns
Correct answer: Categorize and evaluate historical purchasing data to find savings opportunities
Spend analysis systematically examines past expenditure data to identify consolidation opportunities, negotiation leverage, and cost reduction potential.
Question 7: Which type of cost is most relevant to a make-or-buy decision?
- Sunk costs
- Allocated fixed overhead costs
- Incremental (differential) costs (Correct answer)
- Historical average costs
Correct answer: Incremental (differential) costs
Make-or-buy decisions should focus on incremental (differential) costs — those that differ between the two alternatives.
CBS Expense Management & Cost Control 3
A budget specialist is reviewing travel expenses and finds that actual spend is 30% above budget.
Which immediate action is most appropriate?