CIA Budgeting and Forecasting 4

Question 1

A company applies activity-based budgeting (ABB). Compared to traditional departmental budgeting, ABB primarily focuses on:

Accepted Answer

The cost of activities and the cost drivers that cause resource consumption

Answer

ABB identifies activities, their cost drivers, and the resources each activity consumes, linking budgeted costs directly to planned activity levels rather than departments.

Question 2

When a company's actual sales volume exceeds the budgeted volume, which budget variance arises at the master budget level?

Accepted Answer

Sales volume variance

Answer

The sales volume variance measures the impact of selling more or fewer units than budgeted, calculated as the difference between actual and budgeted volume at the standard margin.

Question 3

Which of the following is an example of a financial budget (as opposed to an operating budget)?

Accepted Answer

Capital expenditure budget

Answer

The capital expenditure budget is a financial budget that plans long-term asset purchases, whereas production, materials, and selling expense budgets are operating budgets.

Question 4

A cost that remains fixed in total regardless of activity level within a relevant range is called a fixed cost. Which budgeting implication does this have?

Accepted Answer

Fixed cost per unit decreases as volume increases, providing operating leverage

Answer

As volume increases, fixed costs are spread over more units, lowering the per-unit fixed cost and creating operating leverage that amplifies profit growth.

Question 5

A company uses exponential smoothing to forecast demand. If the smoothing constant (α) is set close to 1, what does this imply?

Accepted Answer

The forecast is nearly identical to last period's actual demand

Answer

An α near 1 places nearly all weight on the most recent observation, making the forecast highly responsive to the latest actual demand.

(CIA) Certified Industrial Accountant Practice Test

(CIA) Certified Industrial Accountant Practice Test

CIA Budgeting and Forecasting 4