Certified Management Accountant Financial Planning 3 — Questions and Answers
Question 1: A company expects to collect 60% of credit sales in the month of sale, 30% in the following month, and 10% in the second month after sale. If June sales are $500,000 and July sales are $600,000, what are total cash collections in July?
- $510,000 (Correct answer)
- $480,000
- $510,000
- $570,000
Correct answer: $510,000
July collections = 60% × $600,000 + 30% × $500,000 = $360,000 + $150,000 = $510,000.
Question 2: The sales mix variance arises when:
- Total unit sales differ from the master budget
- The proportion of individual products sold differs from the budgeted mix (Correct answer)
- Actual selling prices differ from budgeted selling prices
- Variable cost per unit differs from the standard
Correct answer: The proportion of individual products sold differs from the budgeted mix
The sales mix variance isolates the profitability effect of shifting the actual sales composition away from the planned product mix.
Question 3: Under zero-based budgeting (ZBB), managers must:
- Start with the prior year budget and adjust for known changes
- Justify every dollar of expenditure from a zero base each period (Correct answer)
- Allocate costs based on activity cost drivers
- Set budget targets as a fixed percentage of revenue
Correct answer: Justify every dollar of expenditure from a zero base each period
ZBB requires that all activities be re-evaluated and justified each budget period rather than simply adjusting prior-year figures.
Question 4: Which of the following is the primary advantage of participative (bottom-up) budgeting?
- It ensures budget goals align with top management's strategic objectives
- It reduces the time required to complete the budgeting process
- It increases motivation and commitment because managers set their own targets (Correct answer)
- It eliminates budgetary slack by involving multiple levels of approval
Correct answer: It increases motivation and commitment because managers set their own targets
Participative budgeting improves goal acceptance and motivation because employees who help set targets feel more accountable for achieving them.
Question 5: A company has budgeted fixed overhead of $240,000 per year and a normal capacity of 80,000 direct labor hours. Actual hours worked were 75,000 and actual fixed overhead was $245,000. What is the fixed overhead spending variance?
- $5,000 unfavorable (Correct answer)
- $5,000 favorable
- $15,000 unfavorable
- $15,000 favorable
Correct answer: $5,000 unfavorable
The fixed overhead spending variance = Actual fixed overhead − Budgeted fixed overhead = $245,000 − $240,000 = $5,000 unfavorable.
Question 6: Which planning horizon is typically associated with a strategic (long-range) plan?
- One month to one quarter
- One year
- Three to five years or more (Correct answer)
- One to two weeks
Correct answer: Three to five years or more
Strategic plans generally span three to five years or longer and focus on broad organizational goals and competitive positioning.
Question 7: Budgetary slack is most likely to occur when:
- Managers are evaluated based on their ability to meet or beat budget targets (Correct answer)
- Senior executives set top-down budget targets without input from subordinates
- The budget is prepared using zero-based budgeting techniques
- Variable costs are separated from fixed costs in a flexible budget
Correct answer: Managers are evaluated based on their ability to meet or beat budget targets
When managers are rewarded for meeting budgets, they have an incentive to understate revenues or overstate expenses to create an easier-to-achieve target.
Certified Management Accountant Financial Planning 3
A company expects to collect 60% of credit sales in the month of sale, 30% in the following month, and 10% in the second month after sale.
If June sales are $500,000 and July sales are $600,000, what are total cash collections in July?