CMCA Budgeting and Reserve Studies 5

Question 1

A board is creating next year's operating budget. Which approach involves starting from zero and justifying every expense rather than adjusting prior year numbers?

Accepted Answer

Zero-based budgeting

Answer

Zero-based budgeting requires each expense to be justified from scratch each budget cycle rather than rolling over prior figures.

Question 2

When a reserve study identifies a component with 'zero remaining useful life,' the community manager should:

Accepted Answer

Advise the board that replacement or professional evaluation is urgently needed

Answer

A component at end of useful life needs immediate board attention for replacement or a professional condition evaluation.

Question 3

Which of the following best describes the purpose of a budget variance report?

Accepted Answer

Comparing actual income and expenses to budgeted amounts for a given period

Answer

A budget variance report highlights differences between budgeted and actual financial performance to guide management decisions.

Question 4

A homeowner asks why the reserve study uses a 4% inflation rate for replacement costs. The best explanation is:

Accepted Answer

Inflation increases the future cost of materials and labor, requiring higher savings today

Answer

Inflation causes future replacement costs to exceed today's prices, so reserve studies account for this to avoid underfunding.

Question 5

Which reserve funding strategy is most likely to result in large special assessments if not regularly updated?

Accepted Answer

Baseline (minimum) funding

Answer

Baseline funding keeps reserves just above zero, leaving the association highly vulnerable to special assessments when major replacements occur.

CMCA - Certified Manager of Community Associations Practice Test

CMCA - Certified Manager of Community Associations Practice Test

CMCA Budgeting and Reserve Studies 5