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Detail GFMC Explanation - GFMC Related Exams

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AGA Examination 3: Governmental Financial Management and Control (GFMC) Sample Questions (Q116-Q121):

NEW QUESTION # 116
Efficient inventory management will result in

A. high total asset turnover.
B. high write-offs of obsolete inventory.
C. fewer instances of work stoppage.
D. a low inventory turnover ratio.

Answer: C

Explanation:
What Is Efficient Inventory Management?
* Efficient inventory management ensures that an organization has the right amount of inventory at the right time to meet operational needs without overstocking or understocking.
* Proper inventory management minimizes disruptions to operations, including work stoppages due to lack of necessary materials or supplies.
Why Is Fewer Instances of Work Stoppage the Correct Answer?
* Efficient inventory management ensures that required inventory is available when needed, reducing the risk of work delays or stoppages caused by inventory shortages.
Why Other Options Are Incorrect:
* A. A low inventory turnover ratio:A low turnover ratio often indicates overstocking or slow-moving inventory, which is not a sign of efficiency.
* B. High write-offs of obsolete inventory:Efficient management reduces obsolete inventory, leading to fewer write-offs, not more.
* D. High total asset turnover:While efficient inventory management may contribute to overall asset efficiency, it does not directly result in a high total asset turnover ratio.
References and Documents:
* GAO Guide on Inventory Management:Emphasizes the role of inventory management in avoiding operational disruptions.
* Best Practices for Inventory Management (AGA):Highlights reduced work stoppages as a key benefit of effective inventory control.

NEW QUESTION # 117
If a state treasurer wants to evaluate a variety of alternative long-term investments, which financial analysis should be used?

A. ratio analysis
B. regression analysis
C. net present value analysis
D. horizontal analysis

Answer: C

Explanation:
What Is Net Present Value (NPV)?
* NPV analysisevaluates the profitability of long-term investments by calculating the present value of expected cash inflows and outflows over time, discounted at a specified rate (e.g., the opportunity cost of capital).
* It helps decision-makers compare investment options by quantifying their value in today's dollars.
Why NPV Is Appropriate for Long-Term Investments:
* It considers thetime value of money(a dollar today is worth more than a dollar in the future).
* NPV helps the treasurer evaluate and prioritize investments based on their overall profitability and financial impact over the long term.
Why Other Options Are Incorrect:
* B. Regression Analysis:This statistical method analyzes relationships between variables but is not commonly used for evaluating long-term investments.
* C. Horizontal Analysis:Focuses on financial data changes over time (e.g., year-to-year comparisons), not investment decisions.
* D. Ratio Analysis:Measures financial performance but does not evaluate the profitability of long-term investment alternatives.
References and Documents:
* GAO Guide on Investment Decision-Making:Recommends using NPV for evaluating long-term projects and investments.
* OMB Circular A-94:Provides guidelines for using NPV in benefit-cost analysis of federal investments.

NEW QUESTION # 118
A city decides to invest in a new piece of equipment and wants to know how long it will take to recover the amount invested by using the payback analysis technique. The city uses the following assumptions in its analysis:
* The cost of the equipment is $500,000.
* The equipment will generate $200,000 in revenue per year.
* The variable costs of operating the equipment will be $100,000 per year.
* The depreciation on the equipment will be $20,000 per year.
How long will it take the city to recover the amount invested in the new equipment?

A. 6 years and 3 months
B. Syears
C. 2 years and 6 months
D. 2 years and 9 months

Answer: B

NEW QUESTION # 119
The Parking Fund for a government entity has the following information in its Statement of Net Position.
Calculate the current ratio.
Total current assets$1,320
Total non-current assets$8,100
Total assets$9,420
Total current liabilities$ 810
Total non-current liabilities$ 360
Total liabilities$1,170
Total net position$8,250

A. 0.98
B. 1.63
C. 1.14
D. 0.61

Answer: B

Explanation:
What Is the Current Ratio?
* Thecurrent ratiomeasures an entity's ability to cover its short-term liabilities with its short-term assets.
The formula is: Current Ratio=Total Current AssetsTotal Current Liabilities ext{Current Ratio} = rac
{ ext{Total Current Assets}}{ ext{Total Current Liabilities}}
Current Ratio=Total Current LiabilitiesTotal Current Assets
Calculation:
* Total Current Assets = $1,320
* Total Current Liabilities = $810
Current Ratio=1,320810 ext{Current Ratio} = rac{1,320}{810}Current Ratio=8101,320 Current Ratio#1.
63 ext{Current Ratio} # 1.63Current Ratio#1.63
Why the Current Ratio Matters:
* A current ratio above 1 indicates that the entity has more current assets than current liabilities, suggesting good short-term liquidity.
Why Other Options Are Incorrect:
* A. 0.61, B. 0.98, C. 1.14:These values result from incorrect calculations or misinterpretations of the formula.
References and Documents:
* GAO Financial Analysis Guide:Provides guidance on using the current ratio to assess liquidity.
* GASB Financial Reporting Requirements:Highlights the importance of liquidity measures in government financial statements.

NEW QUESTION # 120
The National Performance Management Advisory Commission established a comprehensive framework that incorporates performance measurement into the

A. budget process.
B. audit procedures.
C. internal control plan.
D. financial statements.

Answer: A

Explanation:
National Performance Management Advisory Commission Framework:
* TheNational Performance Management Advisory Commissiondeveloped a comprehensive framework to integrateperformance measurementinto government operations.
* One of its primary goals was to incorporate performance metrics into thebudget processto align resource allocation with program outcomes.
* This ensures that budgeting decisions are informed by program performance, improving efficiency and accountability.
Why the Budget Process?
* By linking performance to budgeting, governments can prioritize funding for programs that demonstrate effectiveness and reduce funding for underperforming initiatives.
Why Other Options Are Incorrect:
* A. Internal control plan:Internal controls focus on risk management, not incorporating performance measurement.
* B. Financial statements:Performance metrics are not reported in financial statements, which focus on financial position and results.
* C. Audit procedures:Audits verify financial accuracy and compliance but do not incorporate performance measurement.
References and Documents:
* National Performance Management Advisory Commission Report (2010):Recommends integrating performance measurement into the budget process.
* GAO Guide on Performance Budgeting:Explains how performance metrics inform budget decisions.

NEW QUESTION # 121
......

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