Budgeting & Financial Management Flashcards

A proposed lighting upgrade has a positive net present value (NPV) at the organization's discount rate. What does this indicate?

Answer: The project's return exceeds the required rate of return

A positive NPV means discounted cash inflows exceed the investment at the required rate.

What is the primary purpose of a reserve study for a facility?

Answer: To plan funding for future replacement of major building components

Reserve studies inventory major components, estimate remaining life, and project funding needs for replacement.

What distinguishes a flexible budget from a static budget?

Answer: It adjusts allowable costs based on the actual level of activity

A flexible budget recalculates expected costs for the actual volume of activity, such as occupied square feet or work orders.

A maintenance department bills tenant departments for the work orders it performs for them. What is this practice called?

Answer: Chargeback

A chargeback allocates service costs to the internal departments or tenants that use them.

A $40,000 control system upgrade produces $10,000 in net annual benefit. What is the simple annual return on investment (ROI)?

Answer: 25%

ROI = annual net benefit / investment = $10,000 / $40,000 = 25%.

Under accrual accounting, when is a contractor's repair expense recorded?

Answer: When the service is performed and the expense is incurred

Accrual accounting recognizes expenses when incurred, regardless of when cash is paid.

In budget tracking, what is an encumbrance?

Answer: Funds committed by a purchase order or contract but not yet spent

Encumbrances reserve budget for commitments so managers do not overspend available funds.