CBS Financial Planning & Analysis 4

Question 1

A favorable material price variance combined with an unfavorable material usage variance most likely indicates that:

Accepted Answer

Cheaper materials were bought but required more quantity to meet standards

Answer

Lower-cost materials may have inferior quality, causing production to use more units than the standard allows, creating an unfavorable usage variance.

Question 2

Which of the following best describes the concept of 'management by exception' in budget analysis?

Accepted Answer

Managers focus attention on variances that exceed predetermined thresholds

Answer

Management by exception directs managerial attention to significant variances from budget, improving efficiency by focusing on items that need corrective action.

Question 3

If net present value (NPV) of a project is positive, it means the project:

Accepted Answer

Generates returns exceeding the required rate of return

Answer

A positive NPV indicates the project's discounted cash inflows exceed its cost, meaning it adds value by earning more than the required rate of return.

Question 4

A budget committee is reviewing a department's request. The department head uses the 'padding' technique by inflating expense estimates. This practice is known as:

Accepted Answer

Budgetary slack

Answer

Budgetary slack is the deliberate overestimation of expenses (or underestimation of revenues) to create a cushion that makes budget targets easier to meet.

Question 5

Which metric measures the number of days it takes a company to convert inventory into cash from sales?

Accepted Answer

Cash conversion cycle

Answer

The cash conversion cycle (days inventory outstanding + days sales outstanding − days payable outstanding) measures total time from inventory purchase to cash collection.

(CBS) Certified Budget Specialist Practice Test

(CBS) Certified Budget Specialist Practice Test

CBS Financial Planning & Analysis 4