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 manager is asked to perform a cost-benefit analysis for a new training program costing $30,000. The expected productivity gain is $45,000 over two years. The benefit-cost ratio is:
Answer: 1.5
Benefit-cost ratio = total benefits ÷ total costs = $45,000 ÷ $30,000 = 1.5, meaning every dollar spent returns $1.50 in value.
When a manager delegates budget authority to team leaders, the organization is practicing:
Answer: Decentralized budgeting
Decentralized budgeting distributes budget authority to lower-level managers closest to operations, improving accountability and responsiveness.
Which metric best measures how effectively a company uses its assets to generate revenue?
Answer: Asset turnover ratio
Asset turnover ratio (net sales ÷ average total assets) measures how efficiently the organization converts its asset base into revenue.
A project has an internal rate of return (IRR) of 14% and the organization's cost of capital is 10%. The manager should:
Answer: Accept the project because IRR exceeds the cost of capital, indicating value creation
When IRR exceeds the cost of capital (hurdle rate), the project generates returns above what it costs to finance, creating positive value for the organization.
An operating budget typically covers:
Answer: Day-to-day revenues and expenses for a specific period, usually one year
The operating budget plans expected revenues and operating expenses (salaries, supplies, utilities) for the upcoming period, usually one fiscal year.
Sunk costs should be excluded from managerial decision-making because they:
Answer: Are already incurred, cannot be recovered, and are irrelevant to future choices
Sunk costs are past expenditures that cannot be changed; including them in forward-looking decisions leads to irrational choices based on non-recoverable spending.
A manager reviews the budget and finds that travel expenses are consistently 30% below budget each quarter. The best long-term action is to:
Answer: Revise the budget downward to reflect actual usage and reallocate funds strategically
Consistently underused budget lines should be revised to match reality, freeing resources for higher-priority needs rather than maintaining inflated allocations.