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
In responsibility accounting, a cost center manager is evaluated primarily on:
Answer: Costs incurred relative to the budget
A cost center manager controls only costs, so performance is measured by comparing actual costs to budgeted costs.
Which of the following is an example of an opportunity cost relevant to a make-or-buy decision?
Answer: The revenue foregone from the next best alternative use of production capacity
Opportunity cost is the value of the best forgone alternative, such as revenue that could be earned if capacity were used differently.
A rolling (continuous) budget is updated by:
Answer: Adding a new period as each current period ends, maintaining a constant forward horizon
A rolling budget drops the most recently completed period and adds a new future period, always maintaining the same planning horizon.
Which financial statement is most useful for assessing whether a highly profitable company can pay its upcoming debt obligations?
Answer: Cash flow statement
The cash flow statement shows actual cash generated and used, revealing whether enough cash is available to service debt even if accounting profits are high.
When evaluating a lease-vs-buy decision, which factor is least relevant?
Answer: The original purchase price paid by the lessor
The lessor's original cost is irrelevant to the lessee's decision; what matters is the lease payment, financing cost, tax benefits, and residual value.
A company's debt-to-equity ratio increases from 0.5 to 1.8 after taking on significant new debt. The most immediate concern for an operations manager would be:
Answer: Higher financial risk and potential difficulty meeting interest obligations
A sharply rising debt-to-equity ratio means greater financial leverage and increased risk of being unable to service debt if earnings decline.
Which budgeting approach is best suited to an organization operating in a rapidly changing, unpredictable environment?
Answer: Rolling budget with frequent re-forecasting
Rolling budgets with frequent updates allow organizations to adapt quickly to changing conditions by continuously revising near-term forecasts.