FA Budgeting and Forecasting

Question 1

What type of budget is adjusted based on actual activity levels rather than fixed predetermined amounts?

Accepted Answer

Flexible Budget

Answer

A flexible budget adjusts revenues and variable costs to reflect actual activity levels, enabling more meaningful variance analysis.

Question 2

In zero-based budgeting, every budget cycle begins with:

Accepted Answer

A zero base where all expenses must be re-justified

Answer

Zero-based budgeting requires managers to justify all expenditures from scratch each period, regardless of prior-year spending.

Question 3

Which budgeting method allocates resources based on a company's strategic objectives and priorities?

Accepted Answer

Priority-Based Budgeting

Answer

Priority-based budgeting links resource allocation directly to strategic priorities, funding high-priority initiatives first.

Question 4

A rolling forecast typically covers:

Accepted Answer

A continuous future period that is updated regularly

Answer

A rolling forecast is continuously updated (e.g., always covering the next 12–18 months) as each period passes, keeping the outlook current.

Question 5

Which variance occurs when actual costs exceed budgeted costs?

Accepted Answer

Unfavorable Variance

Answer

An unfavorable (adverse) variance means actual costs exceeded budget, reducing profitability relative to plan.

FA - Finance Analyst Practice Test