Certified Management Accountant Budgeting and Forecasting 2

Question 1

Activity-based budgeting (ABB) improves on traditional budgeting primarily by:

Accepted Answer

Linking resource consumption to activities and cost drivers rather than departments alone

Answer

ABB allocates resources based on planned activities and their cost drivers, giving managers a more accurate picture of what drives spending.

Question 2

Budget slack (also called budgetary slack) occurs when managers:

Accepted Answer

Intentionally underestimate revenues or overestimate costs to create an easier target

Answer

Budget slack is the deliberate padding of budgets—underforecasting revenues or overforecasting costs—so actual results look favorable versus the budget.

Question 3

In a participative (bottom-up) budgeting process, budgets are primarily:

Accepted Answer

Developed by lower-level managers and submitted upward for approval

Answer

Participative budgeting involves operational managers in building their own budgets, which tends to increase commitment and incorporate detailed local knowledge.

Question 4

Pro forma financial statements in the budgeting context are best described as:

Accepted Answer

Projected financial statements prepared to reflect the expected results of planned activities

Answer

Pro forma statements are forward-looking financial statements built from budget assumptions to show the projected income statement, balance sheet, and cash flows.

Question 5

Which forecasting method uses the relationship between a dependent variable and one or more independent variables to predict future values?

Accepted Answer

Regression analysis

Answer

Regression analysis models the statistical relationship between variables (e.g., sales and advertising spend) to forecast the dependent variable based on expected inputs.

Certified Management Accountant Practice Test

Certified Management Accountant Practice Test

Certified Management Accountant Budgeting and Forecasting 2