OM Financial Management & Budgeting 2

Question 1

A manager discovers mid-year that actual expenses are running 15% above the approved budget. What is the MOST appropriate first step?

Accepted Answer

Conduct a variance analysis to identify root causes

Answer

Variance analysis identifies whether overruns stem from controllable issues, price changes, or scope increases before any corrective action is taken.

Question 2

Which budgeting approach requires managers to justify every expenditure from a zero base each period?

Accepted Answer

Zero-based budgeting

Answer

Zero-based budgeting starts from zero each cycle, requiring justification for all costs rather than simply adjusting prior-year figures.

Question 3

The current ratio is calculated as current assets divided by current liabilities. A ratio of 0.8 indicates:

Accepted Answer

The organization cannot cover short-term obligations with current assets

Answer

A current ratio below 1.0 means current liabilities exceed current assets, signaling potential difficulty meeting short-term obligations.

Question 4

An organization uses a flexible budget. When actual production volume exceeds the budgeted volume, the flexible budget will:

Accepted Answer

Show higher allowable variable costs

Answer

A flexible budget adjusts variable cost allowances proportionally to actual activity levels, so higher volume yields higher allowable variable costs.

Question 5

Which financial statement shows the organization's revenues, expenses, and net income over a specific period?

Accepted Answer

Income statement

Answer

The income statement (also called the profit and loss statement) summarizes revenues and expenses to show net income or loss for a given period.

(OM) Organizational Management Specialty Certification Practice Test