CFC Budgeting & Forecasting 3

Question 1

A favorable budget variance on labor costs most likely indicates that:

Accepted Answer

Actual labor costs were lower than budgeted

Answer

A favorable variance means actual results were better than budget; for a cost, this means actual spending was less than planned.

Question 2

Capital budgeting differs from operating budgeting primarily in that it:

Accepted Answer

Focuses on long-term investment decisions with multi-year impacts

Answer

Capital budgeting evaluates long-term investments in assets or projects spanning multiple years, whereas operating budgets cover day-to-day activities within a fiscal year.

Question 3

Which budget variance analysis technique compares the flexible budget to actual results to measure efficiency?

Accepted Answer

Spending (efficiency) variance

Answer

The spending or efficiency variance compares flexible budget costs (at actual volume) to actual costs, isolating operational efficiency from volume effects.

Question 4

In participative budgeting, a key risk is:

Accepted Answer

Budgetary slack introduced by managers padding their estimates

Answer

Participative budgeting can lead to budgetary slack where managers deliberately understate revenues or overstate costs to make targets easier to achieve.

Question 5

A company forecasts cash collections assuming 60% of sales are collected in the month of sale and 40% in the following month. If January sales are $500,000 and February sales are $600,000, what are February cash collections?

Accepted Answer

$560,000

Answer

February collections = 60% × $600,000 + 40% × $500,000 = $360,000 + $200,000 = $560,000.

(CFC) Certified Financial Controller Practice Test

(CFC) Certified Financial Controller Practice Test

CFC Budgeting & Forecasting 3