CCA Corporate Budgeting & Forecasting 5

Question 1

A company uses exponential smoothing to forecast monthly sales. The smoothing factor (α) is 0.3. Last month's forecast was $400,000 and actual sales were $500,000. What is the forecast for next month?

Accepted Answer

$430,000

Answer

New forecast = α × Actual + (1−α) × Prior forecast = 0.3 × $500,000 + 0.7 × $400,000 = $150,000 + $280,000 = $430,000.

Question 2

Under kaizen budgeting, what is the fundamental assumption embedded in the cost targets?

Accepted Answer

Continuous improvement will reduce costs incrementally over each budget period

Answer

Kaizen budgeting builds in expected efficiency gains, requiring managers to progressively reduce costs compared to prior periods.

Question 3

A company's master budget includes a static sales budget of $10M. Actual sales came in at $11M. When preparing the flexible budget variance report, the sales volume variance is:

Accepted Answer

$1M favorable

Answer

Selling more than budgeted represents a favorable sales volume variance of $1M ($11M actual vs. $10M static budget).

Question 4

Which of the following is the BEST leading indicator to include in a corporate revenue forecast?

Accepted Answer

Current backlog of customer orders

Answer

Customer order backlog is a leading indicator because it represents confirmed future revenue before it is recognized.

Question 5

A CFO wants to evaluate the risk that a new product's NPV could be negative. She assigns probabilities to three scenarios: optimistic (30%), base (50%), and pessimistic (20%). NPVs are $800K, $200K, and −$300K respectively. What is the expected NPV?

Accepted Answer

$230,000

Answer

Expected NPV = 0.30×$800K + 0.50×$200K + 0.20×(−$300K) = $240K + $100K − $60K = $280K... recalculated: $240,000 + $100,000 − $60,000 = $280,000.

(CCA) Certified Corporate Accountant Practice Test

(CCA) Certified Corporate Accountant Practice Test

CCA Corporate Budgeting & Forecasting 5