IAB Management Accounting & Analysis 4

Question 1

What is the primary purpose of a cash budget?

Accepted Answer

To forecast cash inflows and outflows and identify potential shortfalls

Answer

A cash budget projects timing of receipts and payments, ensuring the business maintains adequate liquidity.

Question 2

The payback period method of capital budgeting is criticized mainly because it:

Accepted Answer

Ignores cash flows beyond the payback cutoff and the time value of money

Answer

Payback ignores profitability after the payback date and does not account for the time value of money, making it incomplete as a sole criterion.

Question 3

In segment reporting, a direct fixed cost is best described as:

Accepted Answer

A cost that disappears if the segment is eliminated

Answer

Direct (traceable) fixed costs are specifically identified with a segment and are avoidable if that segment is dropped.

Question 4

A company reports a contribution margin of $200,000 and operating income of $50,000. What is the degree of operating leverage (DOL)?

Accepted Answer

4

Answer

DOL = Contribution margin ÷ Operating income = $200,000 ÷ $50,000 = 4.

Question 5

Which cost behavior pattern remains constant in total regardless of activity level within a relevant range?

Accepted Answer

Fixed cost

Answer

Fixed costs (e.g., rent) do not change in total as production volume rises or falls within the relevant range.

(IAB) International Association of Bookkeepers Certification Practice Test