Certified Management Accountant Financial Planning 4 — Questions and Answers
Question 1: A company's budgeted contribution margin ratio is 40%. Actual sales were $800,000 and flexible-budget sales were $750,000. What is the sales price variance?
- $20,000 favorable (Correct answer)
- $20,000 unfavorable
- $50,000 favorable
- $30,000 favorable
Correct answer: $20,000 favorable
Sales price variance = (Actual revenue − Flexible budget revenue) × contribution margin ratio = ($800,000 − $750,000) × 40% = $20,000 favorable.
Question 2: When a company converts its accrual-basis budgeted income statement to a cash budget, which adjustment is most commonly required?
- Adding back depreciation to net income
- Subtracting capital expenditures and adjusting for changes in working capital (Correct answer)
- Converting gross profit to contribution margin format
- Deducting the cost of goods sold from net sales
Correct answer: Subtracting capital expenditures and adjusting for changes in working capital
The cash budget adjusts net income for non-cash charges, timing differences in receivables/payables, capital expenditures, and debt service.
Question 3: Which of the following scenarios would result in a favorable direct materials usage variance?
- Actual material price was lower than the standard price
- Fewer materials were used than the standard quantity allowed for actual production (Correct answer)
- More units were produced than budgeted
- The purchase price of materials increased unexpectedly
Correct answer: Fewer materials were used than the standard quantity allowed for actual production
The usage (quantity/efficiency) variance is favorable when actual materials consumed are less than the standard quantity allowed for actual output.
Question 4: A company is preparing its direct labor budget. Budgeted production is 5,000 units, each requiring 2.5 hours at $18 per hour. What is the total direct labor budget?
- $225,000 (Correct answer)
- $90,000
- $112,500
- $180,000
Correct answer: $225,000
Direct labor budget = 5,000 units × 2.5 hours × $18/hour = $225,000.
Question 5: In a decentralized organization, which budgeting approach is most consistent with maintaining divisional autonomy while ensuring corporate goal alignment?
- Imposed (top-down) budgeting
- Participative budgeting with negotiated targets (Correct answer)
- Zero-based budgeting applied uniformly across all divisions
- Incremental budgeting based solely on prior-year divisional results
Correct answer: Participative budgeting with negotiated targets
Participative budgeting with negotiated targets balances divisional input with corporate oversight, promoting alignment without eliminating autonomy.
Question 6: A firm's purchasing department exceeded its budget because commodity prices rose unexpectedly. This best represents:
- An efficiency variance
- A volume variance
- A price variance (Correct answer)
- A mix variance
Correct answer: A price variance
An unexpected increase in commodity prices results in a price (spending) variance because actual cost per unit of input differs from standard.
Question 7: Which of the following best describes the relationship between the operating budget and the financial budget within the master budget?
- The financial budget is prepared before the operating budget to determine available funding
- The operating budget feeds into the financial budget by providing projected income and resource needs (Correct answer)
- Both budgets are prepared independently and then reconciled at year-end
- The financial budget replaces the operating budget when capital expenditures are significant
Correct answer: The operating budget feeds into the financial budget by providing projected income and resource needs
The operating budget (sales, production, cost budgets) is completed first and its outputs drive the financial budget (cash budget, budgeted balance sheet, budgeted income statement).
Certified Management Accountant Financial Planning 4
A company's budgeted contribution margin ratio is 40%.
Actual sales were $800,000 and flexible-budget sales were $750,000.
What is the sales price variance?