CPRP Financial Management and Budgeting 4 — Questions and Answers
Question 1: A park district receives an unexpected $50,000 donation restricted to playground equipment. How should this be classified in the budget?
- General fund revenue
- Restricted fund revenue (Correct answer)
- Capital improvement transfer
- Deferred liability
Correct answer: Restricted fund revenue
Donations with donor-imposed restrictions must be classified as restricted fund revenue and spent only for the designated purpose.
Question 2: Which budgeting approach requires each department to justify every expenditure from zero rather than using the prior year as a baseline?
- Incremental budgeting
- Program budgeting
- Zero-based budgeting (Correct answer)
- Performance budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting starts from a 'zero base' and requires justification for all expenses regardless of prior year spending.
Question 3: A recreation center's cost recovery ratio is 65%. What does this mean?
- The program loses 65 cents per dollar spent
- 65% of program costs are covered by direct program revenues (Correct answer)
- The program operates at a 65% profit margin
- Only 35% of patrons are paying full price
Correct answer: 65% of program costs are covered by direct program revenues
A cost recovery ratio of 65% means that 65% of the program's direct costs are offset by revenues generated from that program.
Question 4: Which of the following is an example of a variable cost in parks and recreation operations?
- Annual lease payment for a facility
- Salary of a full-time recreation director
- Supply costs per program participant (Correct answer)
- Monthly utility base fee
Correct answer: Supply costs per program participant
Variable costs change in proportion to activity levels; supply costs per participant increase as enrollment increases.
Question 5: What is the purpose of an encumbrance in government accounting?
- To record completed expenditures in the general ledger
- To reserve funds for an anticipated purchase before payment is made (Correct answer)
- To transfer funds between budget line items
- To document audit findings
Correct answer: To reserve funds for an anticipated purchase before payment is made
An encumbrance reserves budget authority when a purchase order is issued, preventing those funds from being committed elsewhere.
Question 6: A parks agency uses an enterprise fund for its golf course. What distinguishes an enterprise fund from the general fund?
- Enterprise funds are managed by private contractors
- Enterprise funds are intended to be self-supporting through user fees (Correct answer)
- Enterprise funds require annual voter approval
- Enterprise funds cannot carry a fund balance
Correct answer: Enterprise funds are intended to be self-supporting through user fees
Enterprise funds operate like a business, designed to recover costs through charges to users rather than relying on tax revenue.
Question 7: When conducting a fees and charges study, the first step is typically to:
- Survey competitor pricing in the region
- Identify the full cost of delivering each service (Correct answer)
- Set target cost recovery levels by program tier
- Determine the subsidy level the tax base can support
Correct answer: Identify the full cost of delivering each service
You must know the true full cost of a service before you can make informed decisions about how much to charge or subsidize.
CPRP Financial Management and Budgeting 4
A park district receives an unexpected $50,000 donation restricted to playground equipment.
How should this be classified in the budget?