Practice Test Geeks(COM) Certified Operations Manager Practice Test
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Financial Management & Budgeting Flashcards

7 cards from real COM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Financial Management & Budgeting flashcards as text

  1. What is the weighted average cost of capital (WACC) used for in capital budgeting?

    Answer: To set the discount rate for evaluating investment projects

    WACC represents the minimum return a company must earn on investments to satisfy its debt and equity holders, used as the discount rate in NPV analysis.

  2. An unfavorable labor efficiency variance most likely indicates that:

    Answer: More labor hours were used than the standard hours allowed

    Labor efficiency variance measures the difference between actual hours worked and standard hours allowed, multiplied by the standard rate.

  3. Which of the following is a sunk cost and therefore irrelevant to future capital investment decisions?

    Answer: A $200,000 feasibility study already completed and paid for

    Sunk costs are already spent and cannot be recovered, so they should not influence future investment decisions.

  4. A company uses activity-based costing (ABC). Which step comes first in implementing ABC?

    Answer: Identify the activities that consume resources

    ABC implementation begins by identifying all activities performed, then tracing costs to those activities before assigning them to products.

  5. Days Sales Outstanding (DSO) of 75 days compared to an industry average of 45 days suggests:

    Answer: The company may have credit or collection problems

    A DSO significantly above the industry average signals the company is slower to collect payment, which ties up working capital.

  6. In a master budget, the production budget is prepared directly after the:

    Answer: Sales budget

    The production budget is driven by the sales forecast; it calculates the units that must be produced to meet sales demand plus desired ending inventory.

  7. What is the primary risk of relying exclusively on the payback period method for capital investment decisions?

    Answer: It ignores cash flows occurring after the payback period and time value of money

    The payback period ignores all cash flows beyond the break-even point and does not discount future cash flows for time value.