Finance for Non-Finance Managers Budgeting and Variance Analysis 2

Question 1

Sales volume variance measures the impact of:

Accepted Answer

Selling a different quantity than budgeted

Answer

Sales volume variance isolates the effect of selling more or fewer units than budgeted, at the standard margin.

Question 2

Price variance in a budget context refers to:

Accepted Answer

Difference between standard and actual cost per unit

Answer

Price (or rate) variance measures the difference between what was paid per unit and what the budget assumed.

Question 3

Which of the following is a fixed cost?

Accepted Answer

Monthly building lease payment

Answer

A fixed cost like rent does not change with production volume, unlike variable costs that vary per unit.

Question 4

Incremental budgeting is based on:

Accepted Answer

Adding a percentage increase to the previous period's budget

Answer

Incremental budgeting adjusts the prior year's budget by a set increment, making it quick but potentially perpetuating inefficiencies.

Question 5

A department manager reports a $10,000 favorable cost variance. The MOST likely explanation is:

Accepted Answer

The department spent $10,000 less than budgeted

Answer

A favorable cost variance means actual costs were lower than the budget, saving $10,000.

Finance for Non-Finance Managers Practice Test