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 flexible budget differs from a static budget in that it:
Answer: Adjusts budgeted amounts based on actual activity levels
A flexible budget recalculates expected costs and revenues at the actual volume achieved, making variance comparisons more meaningful.
What is the debt-to-equity ratio primarily used to assess?
Answer: The degree of financial leverage and long-term solvency
The debt-to-equity ratio (total debt ÷ total equity) indicates how much the organization relies on borrowed funds relative to owners' equity, reflecting financial risk.
Which of the following best describes activity-based budgeting (ABB)?
Answer: Allocating resources based on the cost of activities required to meet output targets
ABB builds the budget by identifying activities, determining their cost drivers, and allocating funds based on the quantity of activities needed to achieve goals.
A manager's department shows a favorable expense variance of $15,000. This could be problematic if:
Answer: Costs were cut by deferring necessary maintenance that will cost more later
Deferring necessary maintenance creates a favorable short-term variance but increases future costs, making the apparent savings misleading.
In capital budgeting, Net Present Value (NPV) is considered superior to the accounting rate of return because NPV:
Answer: Accounts for the time value of money by discounting future cash flows
NPV discounts all future cash flows to their present value, recognizing that a dollar received today is worth more than one received in the future.
A manager discovers that a supplier invoice was coded to the wrong budget category. Which financial control process addresses this issue?
Answer: Budget reconciliation and journal entry correction
Budget reconciliation compares actual transactions to budget lines and journal entries correct miscoded expenditures to the proper accounts.
Which statement about depreciation is correct from a managerial budgeting perspective?
Answer: Depreciation is a non-cash expense that reduces taxable income and is included in operating budgets
Depreciation allocates the cost of a tangible asset over its useful life; it reduces reported income and taxes but does not involve an actual cash payment.