FMP Financial Management 2 — Questions and Answers
Question 1: What is the primary benefit of activity-based costing in facility management?
- It simplifies accounting with a single overhead rate
- It allocates costs more accurately by linking expenses to specific activities and services (Correct answer)
- It eliminates the need for budgeting
- It only applies to manufacturing
Correct answer: It allocates costs more accurately by linking expenses to specific activities and services
ABC traces costs to specific facility activities, providing more accurate allocation than traditional methods.
ABC enables informed make-versus-buy decisions, accurate charge-back to departments, and more precise forecasting based on actual cost drivers.
Question 2: How should a facility manager present a business case for an energy retrofit project?
- Focus only on environmental benefits
- Present financial return through energy savings, utility rebates, and lifecycle cost analysis alongside non-financial benefits (Correct answer)
- Request funding without financial analysis
- Compare only initial cost to the current energy bill
Correct answer: Present financial return through energy savings, utility rebates, and lifecycle cost analysis alongside non-financial benefits
A compelling business case combines financial analysis with non-financial benefits.
Non-financial benefits include reduced carbon footprint, improved reliability, enhanced occupant comfort, and certification eligibility.
Question 3: What is chargeback in facility financial management?
- Returning defective products to vendors
- Allocating facility costs to individual departments or tenants based on their usage (Correct answer)
- Charging back overtime to employees
- Reversing incorrect financial transactions
Correct answer: Allocating facility costs to individual departments or tenants based on their usage
Chargeback allocates facility costs to users based on proportional use of space and services.
Effective chargeback creates cost awareness, encourages conservation, and provides transparency in cost allocation.
Question 4: What financial tool helps evaluate whether to outsource a service or keep it in-house?
- A simple price comparison of hourly rates
- A total cost comparison including direct costs, overhead, quality impact, and risk assessment (Correct answer)
- The vendor marketing materials
- The current year budget surplus
Correct answer: A total cost comparison including direct costs, overhead, quality impact, and risk assessment
The decision requires comprehensive analysis of all costs, quality implications, and risks.
Apparent savings from outsourcing may be offset by hidden costs, or outsourcing may provide genuine value beyond cost.
Question 5: What is the purpose of a financial audit of facility operations?
- To find reasons to reduce the budget
- To verify that financial practices are accurate, compliant, and aligned with organizational policies (Correct answer)
- To evaluate employee performance
- To compare costs with other departments
Correct answer: To verify that financial practices are accurate, compliant, and aligned with organizational policies
Audits verify accuracy and compliance, identify control weaknesses, and provide assurance of responsible management.
Common findings include unauthorized expenditures, non-competitive procurement, poor documentation, and inaccurate cost allocations.
Question 6: How does depreciation affect facility financial planning?
- Depreciation only affects tax returns
- Depreciation systematically allocates asset costs over their useful life, affecting financial statements and replacement planning (Correct answer)
- Depreciation increases the value of assets
- It only applies to building structures
Correct answer: Depreciation systematically allocates asset costs over their useful life, affecting financial statements and replacement planning
Depreciation allocates capital costs over asset useful life, affecting statements, taxes, and replacement timing.
Depreciation schedules indicate when assets are fully depreciated, a signal for replacement planning. Understanding this helps with capital budgets and lease-versus-buy decisions.
FMP Financial Management 2
What is the primary benefit of activity-based costing in facility management?