CPRP Administration & Finance 3 — Questions and Answers
Question 1: Which budgeting approach requires managers to justify every expenditure from zero each budget cycle?
- Incremental budgeting
- Zero-based budgeting (Correct answer)
- Program budgeting
- Performance budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting starts from a base of zero and requires each program to justify all expenses, rather than using prior year figures as a starting point.
Question 2: A park agency's debt service coverage ratio is 1.2. What does this indicate?
- The agency cannot meet its debt payments
- Revenue exceeds debt service payments by 20% (Correct answer)
- The agency has $1.20 in assets for every dollar of debt
- Operating costs are 20% above debt obligations
Correct answer: Revenue exceeds debt service payments by 20%
A coverage ratio of 1.2 means revenues are 120% of debt service requirements, indicating a 20% cushion above the minimum needed.
Question 3: Which fund type is used by park agencies to account for revenues restricted for specific purposes such as park dedication fees?
- General fund
- Special revenue fund (Correct answer)
- Capital projects fund
- Debt service fund
Correct answer: Special revenue fund
Special revenue funds account for revenues that are legally restricted or committed to expenditures for specific purposes other than debt service or capital projects.
Question 4: An agency is considering outsourcing its golf course operations. The most critical financial analysis to perform is:
- Cash flow projection
- Make-or-buy cost comparison (Correct answer)
- Depreciation schedule review
- Grant eligibility assessment
Correct answer: Make-or-buy cost comparison
A make-or-buy analysis compares the full cost of providing the service in-house versus contracting it out to determine the most economical option.
Question 5: Under the Americans with Disabilities Act, capital improvement funds must prioritize:
- Projects with the highest return on investment
- Transition plan barrier removal before other capital improvements (Correct answer)
- New facility construction over renovation
- Projects generating the most revenue
Correct answer: Transition plan barrier removal before other capital improvements
ADA transition plans require agencies to systematically remove barriers, and this obligation should guide capital funding prioritization.
Question 6: A parks agency's fund balance policy requires maintaining reserves equal to two months of operating expenditures. This policy primarily addresses:
- Long-term capital needs
- Cash flow and emergency financial risk (Correct answer)
- Annual deficit financing
- Debt service requirements
Correct answer: Cash flow and emergency financial risk
Fund balance reserves provide liquidity to cover operating expenses during revenue gaps or unexpected emergencies.
Question 7: Which pricing strategy sets fees based on what competitors charge for similar recreation programs?
- Cost-recovery pricing
- Competitive pricing (Correct answer)
- Value-based pricing
- Marginal cost pricing
Correct answer: Competitive pricing
Competitive pricing benchmarks fees against what the market charges for similar services rather than calculating from internal costs.
CPRP Administration & Finance 3
Which budgeting approach requires managers to justify every expenditure from zero each budget cycle?