CPM Financial Management & Budgeting 2

Question 1

A manager notices that actual labor costs exceeded the budget by 12% for three consecutive months. Which corrective action addresses the root cause most directly?

Accepted Answer

Conduct a variance analysis to identify whether hours or rates drove the overage

Answer

Variance analysis separates rate variance from efficiency variance, revealing whether the cause is pay rates or excess hours worked.

Question 2

Which budgeting approach requires every expense to be justified from zero each budget cycle regardless of prior-year spending?

Accepted Answer

Zero-based budgeting

Answer

Zero-based budgeting starts from a 'zero base' each period, requiring justification for all expenditures rather than simply adjusting prior figures.

Question 3

A department's fixed costs are $50,000/month and variable costs are $20 per unit. If 2,000 units are produced, what is the total cost?

Accepted Answer

$90,000

Answer

Total cost = $50,000 fixed + ($20 × 2,000) variable = $50,000 + $40,000 = $90,000.

Question 4

What does the current ratio measure in financial analysis?

Accepted Answer

Short-term liquidity by comparing current assets to current liabilities

Answer

The current ratio (current assets ÷ current liabilities) indicates an organization's ability to meet short-term obligations.

Question 5

A manager must choose between two projects: Project A yields $80,000 NPV and Project B yields $95,000 NPV but requires twice the capital. With limited funds, which principle guides the decision?

Accepted Answer

Capital rationing and profitability index

Answer

Capital rationing uses the profitability index (NPV ÷ investment) to rank projects when funds are limited, favoring the highest return per dollar invested.

(CPM) Certified Professional Manager Practice Test

(CPM) Certified Professional Manager Practice Test

CPM Financial Management & Budgeting 2