Certified Management Accountant Financial Planning 5

Question 1

Which of the following is the most significant limitation of the traditional annual budgeting process?

Accepted Answer

It can become disconnected from current business conditions due to its rigid one-year fixed horizon

Answer

Annual budgets may quickly become outdated in dynamic environments, reducing their usefulness as management control tools.

Question 2

A company budgets production of 20,000 units. Each unit requires 3 lbs of raw material at $4/lb. The company wants ending raw material inventory of 5,000 lbs and has beginning inventory of 8,000 lbs. What is the budgeted raw material purchase cost?

Accepted Answer

$228,000

Answer

Purchases needed = (20,000 × 3) + 5,000 − 8,000 = 57,000 lbs × $4 = $228,000.

Question 3

A beyond budgeting approach differs from traditional budgeting primarily because it:

Accepted Answer

Replaces fixed annual targets with relative performance benchmarks and rolling forecasts

Answer

Beyond budgeting replaces fixed annual plans with adaptive processes using rolling forecasts and relative targets such as industry benchmarks or peer comparisons.

Question 4

If a company's actual direct labor hours are less than standard hours allowed for actual production, the direct labor efficiency variance is:

Accepted Answer

Favorable, because workers completed production in fewer hours than planned

Answer

A favorable labor efficiency variance results when actual hours worked are less than the standard hours allowed, meaning workers were more productive than planned.

Question 5

Which of the following capital items would typically appear in a capital expenditure budget but NOT in the operating budget?

Accepted Answer

Purchase of a new manufacturing machine

Answer

Capital expenditure budgets cover long-term asset purchases, while the operating budget covers recurring revenues and expenses within the current period.

Certified Management Accountant Practice Test

Certified Management Accountant Practice Test

Certified Management Accountant Financial Planning 5