Corporate Budgeting & Forecasting Flashcards
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A company applies driver-based budgeting. Its customer support cost driver is 'number of support tickets.' If the budget assumes 8,000 tickets at $15 each and 10,000 tickets are actually received, what is the flexible budget allowance for support costs?
Answer: $150,000
Flexible budget = Actual driver quantity × Budgeted rate = 10,000 × $15 = $150,000.
Which of the following best describes the 'beyond budgeting' philosophy?
Answer: Replacing fixed annual budgets with adaptive, decentralized management using rolling forecasts and relative targets
Beyond budgeting advocates replacing rigid annual budgets with dynamic planning tools, relative benchmarks, and empowered frontline decision-making.
A company's operating budget projects EBIT of $5M on revenues of $20M. If interest expense is $500K and the tax rate is 25%, what is the budgeted net income?
Answer: $3,375,000
EBT = $5M − $0.5M = $4.5M; Net income = $4.5M × (1 − 0.25) = $3,375,000.
In a capital budgeting context, which technique explicitly accounts for the time value of money to evaluate mutually exclusive projects?
Answer: Net present value (NPV)
NPV discounts all future cash flows at the required rate of return, explicitly incorporating the time value of money in the evaluation.
A sensitivity analysis on a sales forecast changes the unit price by ±10% while holding all other variables constant. This technique is used to:
Answer: Identify which assumptions have the greatest impact on the forecasted outcome
Sensitivity analysis tests how changes in a single variable affect the outcome, helping managers identify which assumptions are most critical to their forecasts.
Which financial statement is the direct output of the cash budget process?
Answer: Budgeted statement of cash flows
The cash budget maps projected cash receipts and disbursements, which directly forms the basis of the budgeted statement of cash flows.
When a company uses top-down revenue targets combined with bottom-up cost estimates, the resulting budget is best described as:
Answer: A negotiated or hybrid budget
A negotiated or hybrid budget blends senior management's strategic revenue targets with operational managers' detailed cost estimates.
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