FA Budgeting and Forecasting 2

Question 1

What is the purpose of a sales forecast in the budgeting process?

Accepted Answer

To serve as the foundation for all other operational budgets

Answer

To determine fixed overhead allocation

Answer

To calculate depreciation schedules

Answer

To set employee compensation levels

Question 2

Which method uses historical data patterns plus adjustments for expected changes to create a budget?

Accepted Answer

Incremental Budgeting

Answer

Zero-Based Budgeting

Answer

Activity-Based Budgeting

Answer

Performance Budgeting

Question 3

In forecasting, what does a 'bottom-up' approach involve?

Accepted Answer

Individual departments building their own estimates that roll up to the company total

Answer

Senior executives setting targets for each department

Answer

Using industry benchmarks to set targets

Answer

Starting from desired profit and working backwards

Question 4

Which of the following is a key limitation of incremental budgeting?

Accepted Answer

It can perpetuate inefficiencies by carrying forward prior-year waste

Answer

It requires too much management time

Answer

It is too accurate to allow for variance

Answer

It ignores variable costs entirely

Question 5

What is the primary benefit of driver-based forecasting?

Accepted Answer

It links financial forecasts directly to key business activity drivers

Answer

It eliminates the need for a finance team

Answer

It guarantees forecast accuracy

Answer

It replaces the annual budget entirely

Question 6

A budget that projects cash receipts and payments for a future period is called a:

Accepted Answer

Cash Budget

Answer

Capital Budget

Answer

Operating Budget

Answer

Pro Forma Income Statement