CIA Budgeting and Forecasting 2

Question 1

A company uses a rolling budget that is continuously updated by adding a new quarter as each quarter ends. What is the primary advantage of this approach?

Accepted Answer

Management always has a forward-looking plan covering a full period

Answer

Rolling budgets ensure management always has a current, forward-looking plan covering the same horizon (e.g., 12 months ahead), improving planning continuity.

Question 2

Which forecasting method uses the historical relationship between a dependent variable and one or more independent variables to project future values?

Accepted Answer

Regression analysis

Answer

Regression analysis models the statistical relationship between a dependent variable (e.g., sales) and independent variables (e.g., advertising spend) to forecast future outcomes.

Question 3

In a manufacturing company, a flexible budget variance is computed by comparing actual results to:

Accepted Answer

The flexible budget adjusted to the actual output level achieved

Answer

A flexible budget variance compares actual costs to the budget that has been recalculated at the actual activity level achieved, isolating spending efficiency.

Question 4

A firm's sales forecast shows a 20% increase in unit volume, but selling price per unit will decrease by 5%. If current revenue is $500,000, what is the projected revenue?

Accepted Answer

$570,000

Answer

$500,000 × 1.20 × 0.95 = $570,000; the volume increase is partially offset by the price reduction.

Question 5

Which budgeting approach requires every budget line item to be justified from zero each period, regardless of prior year spending?

Accepted Answer

Zero-based budgeting

Answer

Zero-based budgeting requires managers to justify all expenditures from scratch each cycle, eliminating the assumption that prior-year spending levels are automatically continued.

(CIA) Certified Industrial Accountant Practice Test

(CIA) Certified Industrial Accountant Practice Test

CIA Budgeting and Forecasting 2