CVE Financial Management & Budgeting 5 — Questions and Answers
Question 1: A venue's actual food costs for Q3 were $78,000 against a budget of $65,000. How should the CVE classify this variance?
- Favorable cost variance
- Unfavorable cost variance (Correct answer)
- Neutral cost variance
- Revenue variance
Correct answer: Unfavorable cost variance
When actual costs exceed the budget, it is an unfavorable variance because the venue spent more than planned.
Question 2: Which depreciation method allocates a larger expense in earlier years of an asset's useful life, reducing taxable income faster?
- Straight-line depreciation
- Units-of-production depreciation
- Double declining balance depreciation (Correct answer)
- Sum-of-years-digits depreciation
Correct answer: Double declining balance depreciation
Double declining balance applies twice the straight-line rate to the remaining book value, front-loading depreciation expense.
Question 3: A venue executive reviews its RevPAF (Revenue Per Available Function space). This KPI is calculated as:
- Total revenue ÷ number of events
- Total F&B revenue ÷ total guests
- Total revenue ÷ total available function space square footage × time period (Correct answer)
- Net profit ÷ total floor space
Correct answer: Total revenue ÷ total available function space square footage × time period
RevPAF measures how effectively a venue monetizes its available function space per unit of time and area.
Question 4: When a venue receives a government grant for accessibility renovations, how is it typically recognized under GAAP?
- Recorded immediately as extraordinary income
- Deferred and recognized as the related expenses are incurred (Correct answer)
- Added to shareholders' equity directly
- Reported as a reduction in the renovation asset cost only
Correct answer: Deferred and recognized as the related expenses are incurred
Under GAAP, government grants related to assets or expenses are recognized in income over the periods in which the related costs are incurred.
Question 5: A venue manager uses sensitivity analysis in budgeting. What is the primary purpose of this technique?
- To eliminate all budget uncertainties
- To assess how changes in key assumptions affect financial outcomes (Correct answer)
- To allocate fixed costs to departments
- To calculate payroll taxes automatically
Correct answer: To assess how changes in key assumptions affect financial outcomes
Sensitivity analysis tests how variations in assumptions like attendance or pricing affect profitability, helping managers plan for uncertainty.
Question 6: A venue's current ratio is 0.6. What does this suggest about its short-term financial health?
- The venue is highly liquid
- Current liabilities exceed current assets, indicating liquidity risk (Correct answer)
- The venue has 60 cents of debt per dollar of equity
- Operating cash flow covers 60% of capital expenditures
Correct answer: Current liabilities exceed current assets, indicating liquidity risk
A current ratio below 1.0 means current liabilities exceed current assets, signaling potential difficulty meeting short-term obligations.
Question 7: Under IAVM guidelines, which financial reserve is recommended to fund unexpected major repairs at a venue without disrupting operations?
- Petty cash fund
- Capital replacement reserve (Correct answer)
- Payroll contingency fund
- Accounts receivable reserve
Correct answer: Capital replacement reserve
A capital replacement reserve accumulates funds over time specifically for major equipment or infrastructure repairs, preventing budget disruption.
CVE Financial Management & Budgeting 5
A venue's actual food costs for Q3 were $78,000 against a budget of $65,000.
How should the CVE classify this variance?