CPM Budgeting & Variance Analysis 3

Question 1

When comparing a flexible budget to a static budget, the key advantage of the flexible budget is that it:

Accepted Answer

Adjusts cost allowances to the actual level of activity achieved

Answer

A flexible budget recalculates cost allowances based on actual activity, making variance analysis more meaningful by separating volume effects from efficiency effects.

Question 2

The labor efficiency variance is calculated as:

Accepted Answer

(Standard Hours − Actual Hours) × Standard Rate

Answer

Labor efficiency variance = (Standard Hours for actual output − Actual Hours worked) × Standard Rate, measuring whether workers were more or less efficient than planned.

Question 3

A capital budget is primarily used to plan for:

Accepted Answer

Long-term investments in assets such as equipment and facilities

Answer

Capital budgets address long-term investment decisions, covering expenditures on assets expected to provide benefits over multiple years.

Question 4

Which of the following best describes 'budgetary slack'?

Accepted Answer

Deliberately understating revenue or overstating expense targets to make goals easier to achieve

Answer

Budgetary slack occurs when managers intentionally build cushion into budgets—lower revenue targets or higher cost targets—to improve their chances of meeting or beating goals.

Question 5

An unfavorable sales volume variance most directly indicates that:

Accepted Answer

Actual units sold were less than budgeted units

Answer

The sales volume variance compares budgeted and actual unit sales; fewer units sold than planned produces an unfavorable outcome.

(CPM) Certified Professional Manager Practice Test

(CPM) Certified Professional Manager Practice Test

CPM Budgeting & Variance Analysis 3