CCA Corporate Budgeting & Forecasting 3

Question 1

Which type of budget flexes to reflect actual activity levels and is most useful for performance evaluation?

Accepted Answer

Flexible budget

Answer

A flexible budget adjusts cost allowances to the actual level of activity, enabling a meaningful comparison between actual and expected costs at that activity level.

Question 2

A company's direct materials budget shows a need for 50,000 lbs of raw material. Desired ending inventory is 5,000 lbs and beginning inventory is 3,000 lbs. How many lbs must be purchased?

Accepted Answer

52,000 lbs

Answer

Purchases = Production needs + Desired ending inventory − Beginning inventory = 50,000 + 5,000 − 3,000 = 52,000 lbs.

Question 3

In scenario-based forecasting, what distinguishes a 'base case' from a 'stress case'?

Accepted Answer

The base case reflects most-likely assumptions; the stress case tests extreme adverse conditions

Answer

The base case captures the most probable outcome, while the stress case evaluates the impact of severe but plausible adverse scenarios.

Question 4

Which term describes the practice of embedding intentional slack into a budget by understating revenues or overstating costs to make targets easier to achieve?

Accepted Answer

Budget padding or budgetary slack

Answer

Budgetary slack occurs when managers deliberately set easy targets by understating revenues or overstating expenses to protect their performance evaluations.

Question 5

A corporate treasurer reviews the cash budget and notices a projected cash shortfall of $2 million in Q3. Which action is MOST appropriate?

Accepted Answer

Arrange a revolving credit facility in advance to cover the shortfall

Answer

Proactively arranging a revolving credit facility before the shortfall occurs is the most prudent treasury management response.

(CCA) Certified Corporate Accountant Practice Test

(CCA) Certified Corporate Accountant Practice Test

CCA Corporate Budgeting & Forecasting 3