Budgeting & Financial Management Flashcards

A 150,000-square-foot building has an annual maintenance cost of $450,000. What is the maintenance cost per square foot?

Answer: $3.00

$450,000 / 150,000 sq ft = $3.00 per square foot.

What is the most likely financial consequence of repeatedly deferring maintenance to meet short-term budget targets?

Answer: A growing backlog and higher future repair and replacement costs

Deferred maintenance accelerates deterioration, leading to costlier repairs and earlier replacements.

Why is a contingency line included in a capital project budget?

Answer: To cover unforeseen costs and scope changes

Contingency funds absorb unexpected conditions and changes without requiring new budget approval.

Why is net present value often preferred over simple payback when evaluating equipment investments?

Answer: It accounts for the time value of money and cash flows over the asset's full life

Simple payback ignores the time value of money and benefits after payback, while NPV captures both.

When comparing in-house staffing with an outsourced contract, which in-house cost is most often overlooked?

Answer: Fully burdened labor costs such as benefits, training, and supervision

A fair comparison must include all employee overhead, not just base wages.

A technician earns $25 per hour and the labor burden rate is 40%. What is the burdened hourly labor cost?

Answer: $35.00

$25 x 1.40 = $35.00 per hour including benefits, taxes, and insurance.

Which argument best supports increasing the preventive maintenance budget?

Answer: It reduces costly reactive and emergency repairs and extends equipment life

Planned maintenance lowers total cost by preventing expensive breakdowns and premature replacement.