CBS Performance Measurement & Variance Analysis 2

Question 1

What is the purpose of a variance analysis report in budget management?

Accepted Answer

To explain differences between budgeted and actual financial results

Answer

Variance analysis reports identify and explain deviations between planned (budgeted) and actual results, helping management understand performance and take corrective action.

Question 2

A company budgeted $500,000 in sales but achieved $480,000. How is this variance classified?

Accepted Answer

Unfavorable, $20,000

Answer

When actual revenue is below the budget target, the variance is unfavorable because the organization performed worse than planned by $20,000.

Question 3

Which budgeting method establishes performance targets based on prior-period spending plus an incremental adjustment?

Accepted Answer

Incremental budgeting

Answer

Incremental budgeting starts with the prior year's figures and adds or subtracts a percentage to arrive at the new budget, making it the most common and simplest method.

Question 4

In flexible budget variance analysis, the 'activity variance' measures the effect of:

Accepted Answer

Operating at a different volume than originally planned

Answer

The activity variance (also called the volume variance) captures the financial impact of actual production or service volume differing from the original static budget volume.

Question 5

A return on investment (ROI) metric is best used in performance measurement to evaluate:

Accepted Answer

How effectively capital was deployed to generate profit

Answer

ROI measures the profitability of an investment relative to its cost, making it a key metric for assessing how well capital resources are being utilized.

(CBS) Certified Budget Specialist Practice Test

(CBS) Certified Budget Specialist Practice Test

CBS Performance Measurement & Variance Analysis 2