COM Financial Management & Budgeting 2

Question 1

A company's operating budget shows revenue of $500,000 and total costs of $420,000. What is the operating margin?

Accepted Answer

16%

Answer

Operating margin = (Revenue - Costs) / Revenue = $80,000 / $500,000 = 16%.

Question 2

Which budgeting technique requires every expense to be justified from scratch each budget cycle regardless of prior spending?

Accepted Answer

Zero-based budgeting

Answer

Zero-based budgeting starts from zero and requires justification for every line item each period.

Question 3

What does a negative cash conversion cycle indicate about a company?

Accepted Answer

The company collects cash before paying suppliers

Answer

A negative cash conversion cycle means the company receives payment from customers before it must pay its suppliers.

Question 4

An operations manager needs to choose between two capital projects with equal investment. Project A has NPV of $45,000 and Project B has NPV of $38,000. Which should be selected?

Accepted Answer

Project A, because it has the higher NPV

Answer

When comparing mutually exclusive projects with equal investment, the project with the higher NPV creates more shareholder value.

Question 5

In cost accounting, what is the primary purpose of a standard cost system?

Accepted Answer

To provide a benchmark for comparing actual costs and identifying variances

Answer

Standard costs serve as benchmarks so managers can measure performance by analyzing variances from expected costs.

(COM) Certified Operations Manager Practice Test

(COM) Certified Operations Manager Practice Test

COM Financial Management & Budgeting 2