OM Financial Management & Budgeting 5

Question 1

A sensitivity analysis in budgeting is used to:

Accepted Answer

Test how changes in key assumptions affect financial outcomes

Answer

Identify which employees are most sensitive to pay changes

Answer

Determine the minimum number of staff needed

Answer

Comply with external audit requirements

Question 2

The payback period method of capital budgeting is MOST criticized for:

Accepted Answer

Ignoring cash flows that occur after the payback period

Answer

Being too complex for routine projects

Answer

Requiring a discount rate to calculate

Answer

Overstating the time value of money

Question 3

An indirect cost rate is established to:

Accepted Answer

Allocate a fair share of organizational overhead to specific programs or grants

Answer

Track direct program expenses by grant

Answer

Calculate the total revenue generated per employee

Answer

Determine the depreciation schedule for equipment

Question 4

Which financial ratio indicates the percentage of each revenue dollar remaining after covering the cost of goods sold?

Accepted Answer

Gross profit margin

Answer

Net profit margin

Answer

Operating margin

Answer

Return on assets

Question 5

A manager is asked to prepare a pro forma financial statement. This document is BEST described as:

Accepted Answer

A projected or forecasted financial statement based on assumptions

Answer

A historical audit of the prior year's finances

Answer

A statement required by GAAP for annual reporting

Answer

A summary of all outstanding purchase orders

Question 6

When an organization uses fund accounting, the PRIMARY purpose is to:

Accepted Answer

Ensure resources are used in accordance with donor or regulatory restrictions

Answer

Maximize investment returns across all accounts

Answer

Consolidate all assets into a single reporting entity

Answer

Simplify tax filings by separating income sources

Question 7

The internal rate of return (IRR) on a capital project is the discount rate at which:

Accepted Answer

Net present value equals zero

Answer

Net present value equals the initial investment

Answer

Payback period equals one year

Answer

Cash inflows equal total fixed costs