Finance for Non-Finance Managers Budgeting and Variance Analysis 3

Question 1

What is contribution margin?

Accepted Answer

Revenue minus variable costs

Answer

Contribution margin = Revenue − Variable Costs; it shows how much each sale contributes toward covering fixed costs and profit.

Question 2

Break-even point is the level of sales at which:

Accepted Answer

Total revenue equals total costs, resulting in zero profit

Answer

At break-even, total revenue exactly covers total costs, leaving neither profit nor loss.

Question 3

If fixed costs are $60,000 and contribution margin per unit is $20, what is the break-even quantity?

Accepted Answer

3,000 units

Answer

Break-even units = Fixed Costs ÷ Contribution Margin per unit = $60,000 ÷ $20 = 3,000 units.

Question 4

Sensitivity analysis in budgeting is used to:

Accepted Answer

Assess how budget outcomes change when key assumptions vary

Answer

Sensitivity analysis tests how sensitive the budget outcome is to changes in key variables like price, volume, or cost.

Question 5

Overhead absorption rate is used to:

Accepted Answer

Allocate indirect (overhead) costs to products or cost centers

Answer

The overhead absorption rate spreads indirect costs across products or activities based on a chosen driver like labor hours.

Finance for Non-Finance Managers Practice Test