CCM Financial Acumen and Budget Control 2 — Questions and Answers
Question 1: A commercial manager notices that actual overhead costs are $15,000 over budget at the midpoint of a project. What is the MOST appropriate immediate action?
- Absorb the variance and continue as planned
- Conduct a root cause analysis and implement corrective measures (Correct answer)
- Increase the project budget to cover the overrun
- Report the variance to the client and request additional funding
Correct answer: Conduct a root cause analysis and implement corrective measures
Root cause analysis identifies the source of the variance so targeted corrective actions can be taken before the overrun compounds.
Question 2: Which financial ratio measures a company's ability to meet short-term obligations using only its most liquid assets (excluding inventory)?
- Current ratio
- Debt-to-equity ratio
- Quick ratio (Correct answer)
- Return on assets
Correct answer: Quick ratio
The quick ratio (cash + receivables / current liabilities) excludes inventory because it cannot always be quickly converted to cash.
Question 3: In earned value management (EVM), what does a Schedule Performance Index (SPI) of 0.85 indicate?
- The project is 15% over budget
- The project is delivering only 85 cents of scheduled work for every dollar planned (Correct answer)
- The project is 15% ahead of schedule
- The project has earned 85% of its total budget value
Correct answer: The project is delivering only 85 cents of scheduled work for every dollar planned
An SPI below 1.0 means the project is behind schedule, producing less value than planned for the time elapsed.
Question 4: A company uses zero-based budgeting (ZBB). What distinguishes ZBB from traditional incremental budgeting?
- ZBB starts from the prior year's actuals and adds a fixed percentage
- ZBB requires every expense to be justified from scratch each budget cycle (Correct answer)
- ZBB only applies to capital expenditure budgets
- ZBB eliminates the need for departmental input
Correct answer: ZBB requires every expense to be justified from scratch each budget cycle
ZBB requires managers to justify every budget line from zero, preventing the perpetuation of legacy spending that may no longer add value.
Question 5: When calculating the payback period for a capital investment of $500,000 that generates annual cash inflows of $125,000, what is the payback period?
- 2 years
- 3 years
- 4 years (Correct answer)
- 5 years
Correct answer: 4 years
$500,000 ÷ $125,000 per year = 4 years to recover the initial investment.
Question 6: Which budgeting technique allocates resources based on activities that drive costs, linking expenditure directly to output?
- Flexible budgeting
- Activity-based budgeting (ABB) (Correct answer)
- Rolling budget
- Kaizen budgeting
Correct answer: Activity-based budgeting (ABB)
Activity-based budgeting links cost to the activities that consume resources, improving accuracy by tracing expenditure to value-generating outputs.
Question 7: A commercial manager reviews a contract with a 10% retention clause on a $2 million project. How much will be withheld until project completion?
- $100,000
- $150,000
- $200,000 (Correct answer)
- $250,000
Correct answer: $200,000
10% of $2,000,000 = $200,000 retained until the project meets completion requirements.
CCM Financial Acumen and Budget Control 2
A commercial manager notices that actual overhead costs are $15,000 over budget at the midpoint of a project.
What is the MOST appropriate immediate action?