Financial Analysis Flashcards

Which budgeting approach requires every expense to be justified from scratch each period instead of being based on last year's figures?

Answer: Zero-based budgeting

Zero-based budgeting starts at zero, so each cost has to earn its place in the new budget.

A department budgeted $80,000 for training but spent $72,000 while meeting all of its goals. How is this $8,000 difference classified?

Answer: Favorable variance

Spending less than budget on a cost is a favorable variance because it improves the bottom line.

Which of the following is typically a fixed cost for a coaching practice?

Answer: Monthly office lease

Rent stays the same no matter how many clients are served, so it is a fixed cost.

A product sells for $50, has variable costs of $30 per unit, and the business has $100,000 in fixed costs. What is the break-even point in units?

Answer: 5,000 units

Break-even units = fixed costs ÷ (price − variable cost) = $100,000 ÷ $20 = 5,000 units.

Using a $50 price and $30 variable cost per unit, what is the contribution margin ratio?

Answer: 40%

Contribution margin ratio = ($50 − $30) ÷ $50 = 40%.

What is the main advantage of a flexible budget for evaluating a manager's performance?

Answer: It adjusts budgeted costs to the actual level of activity

A flexible budget compares actual costs with what they should have been at the actual activity level, which makes evaluation fairer.

A leader wants to buy $250,000 of manufacturing equipment expected to last 10 years. How is this expense typically classified?

Answer: Capital expenditure (CapEx)

Long-lived assets are capitalized and depreciated over their useful life instead of being expensed right away.