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

Sensitivity analysis tests 'what-if' scenarios by varying key inputs (e.g., revenue growth rate, unit costs) to understand the impact on financial projections.

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

The payback method focuses only on how quickly the initial investment is recovered and disregards profitability or cash flows that occur after that point.

Question 3

An indirect cost rate is established to:

Accepted Answer

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

Answer

An indirect cost rate (e.g., a negotiated rate with a federal agency) provides a systematic method for distributing shared overhead costs across cost objectives.

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

Gross profit margin equals (Revenue – Cost of Goods Sold) / Revenue, showing production efficiency before accounting for operating expenses.

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

Pro forma statements present projected financial results based on stated assumptions, often used for budgeting, planning, or evaluating proposed transactions.

(OM) Organizational Management Specialty Certification Practice Test

(OM) Organizational Management Specialty Certification Practice Test

OM Financial Management & Budgeting 5