Corporate Budgeting & Forecasting Flashcards

A company's sales budget shows projected units of 10,000 at $50 each, but the production budget reflects only 9,500 units. What is the most likely cause of this discrepancy?

Answer: Planned reduction in ending finished goods inventory

If production is less than budgeted sales, the company plans to draw down finished goods inventory, resulting in lower ending inventory.

Which rolling forecast approach replaces the traditional annual budget by continuously adding a new period as the most recent period expires?

Answer: Rolling 12-month forecast

A rolling 12-month forecast always maintains a forward-looking horizon by dropping the completed period and adding a new future period.

During a budget variance analysis, a favorable volume variance combined with an unfavorable price variance most likely indicates that:

Answer: The company sold more units than planned but at lower prices than budgeted

A favorable volume variance means more units were sold than budgeted, while an unfavorable price variance means the selling price was below budget.

In preparing a cash budget, which of the following items would NOT appear as a cash outflow?

Answer: Depreciation expense

Depreciation is a non-cash expense and does not involve any actual outflow of cash.

A manufacturing company uses an activity-based budget. Which of the following would be the BEST cost driver for its machine setup costs?

Answer: Number of production runs

Machine setup costs are incurred each time a new production run begins, so number of production runs is the most appropriate cost driver.

When a budget is described as 'participative' or 'bottom-up,' what is the primary advantage over a top-down imposed budget?

Answer: It increases management commitment and accuracy through direct involvement

Participative budgeting increases buy-in and motivation because managers who set their own targets are more committed to achieving them.

A company forecasts next year's revenue using the formula: Y = $500,000 + ($45 × units sold). If the sales team projects 20,000 units, what is the forecasted revenue?

Answer: $1,400,000

Revenue = $500,000 + ($45 × 20,000) = $500,000 + $900,000 = $1,400,000.