CIA Budgeting and Forecasting 3

Question 1

In participative (bottom-up) budgeting, lower-level managers submit budget proposals to upper management. A key risk associated with this approach is:

Accepted Answer

Budgetary slack introduced by subordinates

Answer

Participative budgeting carries the risk of budgetary slack, where managers intentionally underestimate revenues or overestimate costs to make targets easier to achieve.

Question 2

Which of the following best describes a pro forma financial statement?

Accepted Answer

A projected statement based on assumptions about future business conditions

Answer

Pro forma statements are forward-looking projections built on management's assumptions about revenues, costs, and other business conditions for a future period.

Question 3

A company experiences highly seasonal demand. Which budgeting technique is most appropriate for managing and evaluating performance across seasons?

Accepted Answer

Monthly flexible budgets tied to seasonal activity levels

Answer

Monthly flexible budgets that adjust for seasonal activity levels allow meaningful performance comparisons by reflecting expected costs at each period's actual volume.

Question 4

The spending variance for variable overhead is computed as:

Accepted Answer

Actual variable overhead − Flexible budget variable overhead at actual hours

Answer

The variable overhead spending variance = Actual variable overhead − (Standard variable overhead rate × Actual hours), isolating the rate difference from the efficiency difference.

Question 5

A company's sales budget shows 10,000 units at $50 each. The desired ending finished goods inventory is 1,500 units, and beginning inventory is 2,000 units. What is the required production in units?

Accepted Answer

9,500 units

Answer

Required production = Budgeted sales + Desired ending inventory − Beginning inventory = 10,000 + 1,500 − 2,000 = 9,500 units.

(CIA) Certified Industrial Accountant Practice Test

(CIA) Certified Industrial Accountant Practice Test

CIA Budgeting and Forecasting 3