Certified Management Accountant Budgeting and Forecasting 1 — Questions and Answers
Question 1: A flexible budget differs from a static budget in that a flexible budget:
- Is prepared only once per year and never revised
- Adjusts revenues and costs based on actual activity levels (Correct answer)
- Uses only fixed costs and ignores variable costs
- Is approved by senior management before the fiscal year begins
Correct answer: Adjusts revenues and costs based on actual activity levels
A flexible budget recalculates expected revenues and costs at different levels of activity, allowing meaningful comparison to actual results.
Question 2: Under zero-based budgeting (ZBB), each budget period requires managers to:
- Increase the prior year's budget by an inflation factor
- Justify all expenditures from scratch, regardless of prior spending (Correct answer)
- Match budgeted spending to the previous year's actual spending
- Allocate costs based solely on activity drivers
Correct answer: Justify all expenditures from scratch, regardless of prior spending
ZBB requires every line item to be justified anew each period rather than simply rolling forward prior-period amounts.
Question 3: A rolling (continuous) budget is best described as one that:
- Covers only the current calendar year and is replaced annually
- Adds a new period as the most recent period expires, maintaining a constant planning horizon (Correct answer)
- Consolidates multiple departmental budgets into a single master budget
- Is prepared using regression analysis to project future sales
Correct answer: Adds a new period as the most recent period expires, maintaining a constant planning horizon
A rolling budget continuously extends the planning horizon by adding a new future period each time the nearest period ends.
Question 4: Which budget is typically prepared first when constructing a master budget for a manufacturing company?
- Cash budget
- Production budget
- Sales budget (Correct answer)
- Direct materials budget
Correct answer: Sales budget
The sales budget is the starting point of the master budget because all other operating budgets depend on the projected sales volume.
Question 5: A cash budget is primarily used by management to:
- Determine the optimal product mix for the upcoming year
- Forecast periods of cash surplus or shortage to plan financing needs (Correct answer)
- Set selling prices based on full cost absorption
- Allocate overhead costs to individual product lines
Correct answer: Forecast periods of cash surplus or shortage to plan financing needs
The cash budget projects cash inflows and outflows over time, enabling management to anticipate shortfalls and arrange financing or identify surplus funds for investment.
Question 6: Kaizen budgeting is most closely associated with:
- Building budgets from historical cost data without change
- Incorporating continuous improvement targets into the budgeting process (Correct answer)
- Using statistical regression to forecast next year's costs
- Allocating overhead based on machine hours alone
Correct answer: Incorporating continuous improvement targets into the budgeting process
Kaizen budgeting embeds incremental improvement goals (cost reductions, efficiency gains) directly into the budget rather than assuming current standards remain constant.
Question 7: When actual sales volume differs from budgeted sales volume, the resulting difference in profit is best isolated using a:
- Static budget variance
- Price variance
- Sales volume variance (Correct answer)
- Spending variance
Correct answer: Sales volume variance
The sales volume variance measures the impact on profit of selling more or fewer units than planned, holding prices and costs constant.
Certified Management Accountant Budgeting and Forecasting 1
A flexible budget differs from a static budget in that a flexible budget: