CBS Financial Planning & Analysis 2 — Questions and Answers
Question 1: Which budgeting method builds each budget period from zero, requiring all expenses to be justified regardless of prior-year spending?
- Incremental budgeting
- Zero-based budgeting (Correct answer)
- Rolling budget
- Flexible budgeting
Correct 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.
Question 2: A company's operating budget shows revenue of $500,000 and total expenses of $420,000. What is the operating income?
- $80,000 (Correct answer)
- $420,000
- $500,000
- $920,000
Correct answer: $80,000
Operating income equals revenue minus total expenses: $500,000 − $420,000 = $80,000.
Question 3: Which variance arises when actual labor hours worked differ from the standard hours allowed for actual production?
- Labor rate variance
- Labor efficiency variance (Correct answer)
- Labor mix variance
- Labor yield variance
Correct answer: Labor efficiency variance
Labor efficiency variance measures the difference between actual hours worked and standard hours allowed, multiplied by the standard rate.
Question 4: In a master budget, which budget is typically prepared FIRST because it drives all other operating budgets?
- Production budget
- Cash budget
- Sales budget (Correct answer)
- Cost of goods sold budget
Correct answer: Sales budget
The sales budget is prepared first because projected sales volumes drive production, purchasing, labor, and overhead budgets.
Question 5: What does a flexible budget do that a static budget does not?
- Eliminates all variable costs
- Adjusts cost allowances to actual activity levels (Correct answer)
- Locks spending limits for the entire year
- Projects cash flows monthly
Correct 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.
Question 6: Which financial ratio measures how efficiently a company collects its accounts receivable?
- Current ratio
- Debt-to-equity ratio
- Accounts receivable turnover (Correct answer)
- Gross margin ratio
Correct answer: Accounts receivable turnover
Accounts receivable turnover (net credit sales ÷ average accounts receivable) indicates how many times receivables are collected per period.
Question 7: A rolling (continuous) budget differs from a traditional annual budget primarily because it:
- Allocates resources across multiple business units
- Is always updated to cover a fixed future period as time passes (Correct answer)
- Uses prior-year actuals without modification
- Focuses exclusively on capital expenditures
Correct 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).
CBS Financial Planning & Analysis 2
Which budgeting method builds each budget period from zero, requiring all expenses to be justified regardless of prior-year spending?