Budgeting & Forecasting Flashcards
7 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Budgeting & Forecasting flashcards as text
Which of the following best describes a 'top-down' budgeting approach?
Answer: Senior management sets overall targets that are then allocated to departments
Top-down budgeting has senior leadership establish high-level targets that are then disaggregated and communicated down to operating departments.
A financial controller notices that the company's selling and administrative expense budget is consistently overstated. The most likely corrective action is to:
Answer: Switch from incremental to zero-based budgeting
Persistent over-budgeting often signals embedded slack; ZBB forces managers to justify each dollar, eliminating padding built into historical baselines.
What is the key assumption underlying the high-low method for cost estimation?
Answer: There is a linear relationship between cost and activity between the highest and lowest data points
The high-low method assumes linearity between the highest and lowest activity levels and uses only those two data points to estimate fixed and variable cost components.
An operating budget that uses contribution margin analysis is primarily designed to:
Answer: Highlight the relationship between volume, variable costs, and profit
Contribution margin budgeting separates variable from fixed costs, making it easier to analyze the profit impact of volume changes and inform break-even decisions.
When actual fixed overhead costs exceed the budgeted fixed overhead, the resulting variance is:
Answer: Unfavorable fixed overhead spending variance
An unfavorable fixed overhead spending variance occurs when actual fixed overhead costs are higher than the budgeted amount, indicating overspending.
In forecasting, the term 'bias' refers to:
Answer: A systematic tendency to consistently over- or under-forecast
Forecast bias is a consistent directional error — always forecasting too high or too low — which undermines budget reliability and requires recalibration of assumptions.
Which of the following is a limitation of using historical data as the primary basis for financial forecasting?
Answer: It assumes past trends and relationships will continue into the future
Relying solely on historical data presumes that past patterns will persist, which can be misleading when market conditions, competition, or business models change.