CPM Financial Management & Budgeting 3

Question 1

A rolling budget (continuous budget) differs from a static annual budget primarily because it:

Accepted Answer

Is updated periodically by adding a future period as the most recent period ends

Answer

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.

Question 2

What is the primary purpose of a cash flow forecast in operational management?

Accepted Answer

Ensuring the organization has sufficient liquidity to meet obligations

Answer

Cash flow forecasting identifies when cash inflows and outflows will occur, allowing managers to ensure funds are available to meet obligations.

Question 3

The contribution margin is best defined as:

Accepted Answer

Selling price per unit minus variable cost per unit

Answer

Contribution margin equals selling price minus variable cost per unit, representing the amount each unit contributes toward covering fixed costs and generating profit.

Question 4

A manager is evaluating a capital investment using the payback period method. What is its main limitation?

Accepted Answer

It ignores the time value of money and cash flows beyond the payback period

Answer

The payback period method ignores the time value of money and disregards profitability or cash flows that occur after the investment is recovered.

Question 5

Which type of cost remains constant in total regardless of production volume within the relevant range?

Accepted Answer

Fixed cost

Answer

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.

(CPM) Certified Professional Manager Practice Test

(CPM) Certified Professional Manager Practice Test

CPM Financial Management & Budgeting 3