Financial Management & Budgeting Flashcards
7 cards from real CPM 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
A rolling budget (continuous budget) differs from a static annual budget primarily because it:
Answer: Is updated periodically by adding a future period as the most recent period ends
A rolling budget continuously extends the planning horizon by adding a new period (e.g., a month or quarter) each time one expires, keeping a constant forward-looking window.
What is the primary purpose of a cash flow forecast in operational management?
Answer: Ensuring the organization has sufficient liquidity to meet obligations
Cash flow forecasting identifies when cash inflows and outflows will occur, allowing managers to ensure funds are available to meet obligations.
The contribution margin is best defined as:
Answer: Selling price per unit minus variable cost per unit
Contribution margin equals selling price minus variable cost per unit, representing the amount each unit contributes toward covering fixed costs and generating profit.
A manager is evaluating a capital investment using the payback period method. What is its main limitation?
Answer: It ignores the time value of money and cash flows beyond the payback period
The payback period method ignores the time value of money and disregards profitability or cash flows that occur after the investment is recovered.
Which type of cost remains constant in total regardless of production volume within the relevant range?
Answer: Fixed cost
Fixed costs (e.g., rent, salaries) do not change with production volume within the relevant range, though the per-unit fixed cost decreases as output increases.
When preparing a departmental budget, the manager should FIRST:
Answer: Align the budget with organizational strategic goals and anticipated activities
Effective budgeting begins by understanding strategic objectives so that resource allocation supports the organization's priorities.
Accounts receivable turnover ratio measures:
Answer: How efficiently a company collects cash from credit customers
Accounts receivable turnover (net credit sales ÷ average accounts receivable) indicates how many times per period the company collects its average receivables balance.