Finance for Non-Finance Managers Budgeting and Variance Analysis

Question 1

What is a budget in a business context?

Accepted Answer

A quantified financial plan for a future period

Answer

A budget is a forward-looking financial plan that quantifies expected revenues and expenditures for a set period.

Question 2

What does a favorable variance mean?

Accepted Answer

Actual results were better than budgeted

Answer

A favorable variance occurs when actual performance is better than the budget (e.g., lower costs or higher revenue).

Question 3

An adverse (unfavorable) variance on expenses means:

Accepted Answer

Actual expenses were more than budgeted

Answer

An adverse expense variance means the company spent more than planned, negatively impacting profitability.

Question 4

Which type of budget adjusts for actual activity levels rather than remaining fixed?

Accepted Answer

Flexible budget

Answer

A flexible budget adjusts budget figures based on actual output or activity, making variance analysis more meaningful.

Question 5

Zero-based budgeting (ZBB) requires managers to:

Accepted Answer

Justify every line item from scratch each period

Answer

ZBB starts from a zero base each period, requiring justification for every expense rather than rolling forward prior-year figures.

Finance for Non-Finance Managers Practice Test