Deck 11: Budgeting

Question 1

The main way in which budgets provide a means of control in an organisation is by allowing:

A) senior management to control lower level managers.
B) actual performance to be compared to budget targets.
C) budget targets to be set at maximum performance.
D) management to control the budget targets.

Answer 1

B

Question 2

A master budget is best described as:

A) a budget of the cash flows predicted for a future period of time.
B) the one and only budget that is of interest to management.
C) a summary of a number of interrelated budgets.
D) a budget for a manufacturing business.

Answer 2

C

Question 3

The best description of the role of the budget committee is:

A) supervising and taking responsibility for the budget setting process.
B) predicting the budget.
C) setting goals for individual departments.
D) predicting the economic environment for the period.

Answer 3

A

Question 4

Budgets are generally regarded as having several areas of usefulness.Which of these is not one of them?

A) They can facilitate control within the business.
B) They tend to promote forward thinking.
C) They help coordinate the various sectors of the business.
D) They can be used to allocate direct expenses.

Question 5

In which order do the following steps in the budget setting process actually occur?
I)Co-ordinate the budget.
Ii)Identify the limiting factor.
Iii)Monitor performance relative to budget.

A) ii, iii, i.
B) ii, i, iii.
C) i, ii, iii.
D) iii, i, ii.

Question 6

When preparing its sales forecast,an organisation can use the 'bottom-up' approach.One of the features of this approach is that:

A) operating personnel are motivated to prepare realistic budgets and accept them as benchmarks in performance evaluation.
B) multiple levels of managers and salespersons are involved in the forecasting process.
C) it often involves negotiations between departments.
D) all of the above.

Question 7

Which statement about the uses of budgets is not true?

A) They can assist in identifying short-term problems.
B) They can provide a system of authorisation for managers to spend up to a particular limit.
C) They are mainly used to set prices.
D) None of the above, i.e., all are true statements.

Question 8

A budget can help in decision-making by:

A) identifying excesses or shortages of cash.
B) predicting purchase requirements for raw materials.
C) identifying future resource constraints.
D) all of the above.

Question 9

Coordination between budgets refers to a situation when:

A) activities of one department match and are complementary to those of other departments.
B) different parts of the organisation operate at cross-purposes.
C) more than one entity in an industry adopts similar goals.
D) a plan comes together with industry and government targets.

Question 10

There is often a limiting factor that stops a business from achieving its objectives to the maximum extent.In most instances the limiting factor is:

A) the ability of the business to advertise its products.
B) the unrealistic goals of production managers.
C) the unrealistic objectives set by management.
D) the ability of the business to sell its products.

Question 11

Budgets are said to be useful in promoting forward thinking and identification of short-term problems,because:

A) management can foresee future promotion opportunities.
B) management can react to problem areas as they occur.
C) potential problem areas can be identified early enough to allow management to explore ways of overcoming the problem.
D) all of the above.

Question 12

The master budget would typically consist of a budgeted:

A) statement of financial position and statement of cash flows.
B) statement of comprehensive income, statement of financial position and statement of cash flows.
C) statement of comprehensive income and statement of financial position.
D) statement of comprehensive income and statement of cash flows.

Question 13

One of the approaches to setting budgets is known as the 'top down' approach.This is best described as:

A) production budget set first and working from this to other budgets.
B) budget targets set at the lowest level of management.
C) setting the sales forecast and working from this to other budgets.
D) budget targets set by senior management.

Question 14

A budget system that always provides plans for a full 12 months into the future is known as:

A) advance budget.
B) yearly budget.
C) future budget.
D) rolling budget.

Question 15

If the principal objective of a firm is to enhance wealth,the most important budget target to meet is:

A) bank balance.
B) sales.
C) profit.
D) production.

Question 16

The typical overall time period for which a budget is set is:

A) two years.
B) three months.
C) twelve months.
D) five years.

Question 17

A budget is best defined as:

A) a forecast for a future period of time.
B) a prediction for a future period.
C) a non-financial plan for a future period of time.
D) a financial plan for a future period of time.

Question 18

In the budgeting process,management by exception refers to:

A) rewarding exceptional effort.
B) delegating responsibility, leaving management free for other things.
C) concentrating most of management's efforts on those who do not achieve the budget.
D) motivating staff to boost the reputation of the business.

Question 19

The group which oversees the budgeting process within an organisation is the:

A) estimates committee.
B) board of directors.
C) budget committee.
D) variance committee.

Question 20

Which statement is not correct?

A) The existence of budgets tends to provide motivation to improve performance.
B) The 'top down' approach to budgeting tends to improve motivation.
C) Setting demanding, but achievable, targets is a better motivator than setting undemanding targets.
D) Unrealistic targets have adverse effects on managers' performance.

Question 21

The Talent Agency had the following estimates for the six months ending 31 December 2015.
$$\begin{array} { l r } \text { Cash balance } 1.1 .15 \text { (Overd raft) } & ( \$ 8,150 ) \\\text { Cash receipts from commissions } & \$ 85,000 \\\text { Cash payments for expenses } & 82,300 \\\text { Proceeds from the sale of motor vehicle } & 6,500 \\\text { Borrowing } & 5,000 \\\text { Depreciation on equipment } & 2,600\end{array}$$
The estimated cash balance at 31 December 2015 is:

A) $3,450.
B) $6,050.
C) $3,950 (overdraft).
D) $2,100 (overdraft).

Question 22

The outlay which does not appear in the cash budget is:

A) monetary drawings.
B) repayment of loan.
C) interest on bank loan.
D) depreciation.

Question 23

If the opening cash balance at the beginning of the month is $27,500,total cash inflows for the month are $38,000 and total cash outflows are $78,000 the opening cash balance at the beginning of the next month is:

A) $67,500 (surplus).
B) $12,500 (surplus).
C) $12,500 (deficit).
D) cannot be calculated.

Question 24

Use the information below to answer the following questions.
Jackson Bottle Yard, a recycling glass company, has supplied the following information in relation to their actual sales in 2014 and planned sales for the first quarter of 2015.
$\begin{array}{lllll}&&\text { Cash } & \text { Credit } & \text { Total } \\&&\$ & \$ & \$\\2014 \text { Actual Sales for } & \text { Nowember } & 25,000 & 25,000 & 50,000 \\& \text { December } & 35,000 & 40,000 & 75,000\\\text { 2015 Estimated Sales for } & \text { January } & 15,000 & 20,000 & 35,000 \\& \text { February } & 18,000 & 30,000 & 48,000 \\& \text { March } & 22,000 & 40,000 & 62,000\end{array}$ Past records indicate that expected receipts collected from debtors will be:
60 per cent in the month of sale
40 per cent in the month following the sale

-Refer to the table above.What is the projected cash inflow from accounts receivable in January?

A) $43,000.
B) $15,000.
C) $20,000.
D) $28,000.

Question 25

A common feature of most cash budgets is:

A) the budget period is broken into months.
B) a columnar format.
C) a section for non-cash expenses such as doubtful debts and depreciation.
D) Both A and B.

Question 26

How many of the following items would be included in a cash budget?
∙ Dividends paid to shareholders.
∙ Doubtful debts.
∙ Purchase of fixed asset for cash.
∙ Bonus share issue.

A) 1.
B) 2.
C) 3.
D) 4.

Question 27

Use the information below to answer the following questions.
Jackson Bottle Yard, a recycling glass company, has supplied the following information in relation to their actual sales in 2014 and planned sales for the first quarter of 2015.
$\begin{array}{lllll}&&\text { Cash } & \text { Credit } & \text { Total } \\&&\$ & \$ & \$\\2014 \text { Actual Sales for } & \text { Nowember } & 25,000 & 25,000 & 50,000 \\& \text { December } & 35,000 & 40,000 & 75,000\\\text { 2015 Estimated Sales for } & \text { January } & 15,000 & 20,000 & 35,000 \\& \text { February } & 18,000 & 30,000 & 48,000 \\& \text { March } & 22,000 & 40,000 & 62,000\end{array}$ Past records indicate that expected receipts collected from debtors will be:
60 per cent in the month of sale
40 per cent in the month following the sale

-Refer to the table above.What is the projected cash inflow from accounts receivable in February?

A) $32,000.
B) $48,000.
C) $26,000.
D) $18,000.

Question 28

Xon Company is planning to purchase fixed assets at a cost of $200,000.The planned delivery date is 1st February 2015.A deposit of $10,000 is to be paid on 1/11/14.The amount that will appear in the cash budget for November 2014 is:

A) $190,000 outflow.
B) $200,000 outflow.
C) $10,000 inflow.
D) $10,000 outflow.

Question 29

Use the information below to answer the following questions.
Sales in December were $960,000. Projected sales for the first quarter of 2015 are:
$$\begin{array} { l l } \text { January } & \$ 1,080,000 \\\text { February } & \$ 1,200,000 \\\text { March } & \$ 1,280,000\end{array}$$ Sales are 20% cash and 80% on credit. Debtors pay in the month following the sale.

-Refer to the table above.What will be the balance of accounts receivable on 1 March?

A) $1,200,000.
B) $960,000.
C) $1,280,000.
D) $864,000.

Question 30

Which expense does not appear in a cash budget?

A) Rent.
B) Wages.
C) Supplies.
D) Taxation provided.

Question 31

If the opening balance of cash for one month is $20,000,cash receipts are estimated to be $389,000 and cash payments are estimated as $300,000,the opening cash balance at the beginning of the next month is:

A) $89,000.
B) $109,000.
C) $69,000.
D) cannot be calculated.

Question 32

Budget formats can best be described as:

A) the same from one business to the next.
B) conforming to accounting standards.
C) subject to management choice in style and layout.
D) none of the above.

Question 33

Use the information below to answer the following questions.
Jackson Bottle Yard, a recycling glass company, has supplied the following information in relation to their actual sales in 2014 and planned sales for the first quarter of 2015.
$\begin{array}{lllll}&&\text { Cash } & \text { Credit } & \text { Total } \\&&\$ & \$ & \$\\2014 \text { Actual Sales for } & \text { Nowember } & 25,000 & 25,000 & 50,000 \\& \text { December } & 35,000 & 40,000 & 75,000\\\text { 2015 Estimated Sales for } & \text { January } & 15,000 & 20,000 & 35,000 \\& \text { February } & 18,000 & 30,000 & 48,000 \\& \text { March } & 22,000 & 40,000 & 62,000\end{array}$ Past records indicate that expected receipts collected from debtors will be:
60 per cent in the month of sale
40 per cent in the month following the sale

-Refer to the table above.What is the total cash expected to be collected from all sales in March?

A) $50,000.
B) $58,000.
C) $62,000.
D) $36,000.

Question 34

Use the information below to answer the following questions.
Sales in December were $960,000. Projected sales for the first quarter of 2015 are:
$$\begin{array} { l l } \text { January } & \$ 1,080,000 \\\text { February } & \$ 1,200,000 \\\text { March } & \$ 1,280,000\end{array}$$ Sales are 20% cash and 80% on credit. Debtors pay in the month following the sale.

-Refer to the table above.Calculate the total cash sales for the three months,January,February and March.

A) $256,000.
B) $960,000.
C) $2,848,000.
D) $712,000.

Question 35

Use the information below to answer the following questions.
Crystal Computers owns a chain of seven shops selling computer goods. In the past the company maintained a healthy cash balance. However, this has fallen in recent months, and at the end of September 2015 it had an overdraft of $100,000. In view of this, its managing director has asked you to prepare a cash forecast for the next six months. You have collected the following information:
$\begin{array}{lrrrrrr}& \text { Oct. } & \text { Nov. } & \text { Dec. } & \text { Jan. } & \text { Feb. } & \text { March } \\& \mathbf{\$ 0 0 0} & \mathbf{\$ 0 0 0} & \mathbf{\$ 0 0 0} & \mathbf{\$ 0 0 0} & \mathbf{\$ 0 0 0} & \mathbf{\$ 0 0 0} \\\text { Cash Sales forecast } & 250 & 200 & 250 & 350 & 200 & 80\\\text { Cash Purchases } & 180 & 160 & 130 & 40 & 50 & 60 \\\text { Wages and Salaries } & 40 & 40 & 50 & 40 & 40 & 45 \\\text { Rent } & & & 80 & & &\\\text { Rates } & & & & & & 60 \\\text { Other Expenses } & 25 & 25 & 25 & 25 & 25 & 25 \\\text { Refurbishing Shops } & & & & 80 & & \\\hline &245&225&285&185&115&190\end{array}$

-Refer to the table above.The projected cash balance at the end of November is:

A) ($25,000).
B) ($120,000).
C) $25,000.
D) ($100,000).

Question 36

Which of these involve a projection of future cash receipts and cash disbursements?

A) Cash budget.
B) Statement of comprehensive income.
C) Statement of financial position.
D) None of the above.

Question 37

Use the information below to answer the following questions.
Sales in December were $960,000. Projected sales for the first quarter of 2015 are:
$$\begin{array} { l l } \text { January } & \$ 1,080,000 \\\text { February } & \$ 1,200,000 \\\text { March } & \$ 1,280,000\end{array}$$ Sales are 20% cash and 80% on credit. Debtors pay in the month following the sale.

-Refer to the table above.Calculate the cash collected from accounts receivable in the month of February.

A) $1,080,000.
B) $1,200,000.
C) $960,000.
D) $864,000.

Question 38

Use the information below to answer the following questions.
Sales in December were $960,000. Projected sales for the first quarter of 2015 are:
$$\begin{array} { l l } \text { January } & \$ 1,080,000 \\\text { February } & \$ 1,200,000 \\\text { March } & \$ 1,280,000\end{array}$$ Sales are 20% cash and 80% on credit. Debtors pay in the month following the sale.

-Refer to the table above.Calculate total cash collected from sales for the month of March.

A) $1,280,000.
B) $1,456,000.
C) $1,216,000.
D) $256,000.

Question 39

Use the information below to answer the following questions.
Crystal Computers owns a chain of seven shops selling computer goods. In the past the company maintained a healthy cash balance. However, this has fallen in recent months, and at the end of September 2015 it had an overdraft of $100,000. In view of this, its managing director has asked you to prepare a cash forecast for the next six months. You have collected the following information:
$\begin{array}{lrrrrrr}& \text { Oct. } & \text { Nov. } & \text { Dec. } & \text { Jan. } & \text { Feb. } & \text { March } \\& \mathbf{\$ 0 0 0} & \mathbf{\$ 0 0 0} & \mathbf{\$ 0 0 0} & \mathbf{\$ 0 0 0} & \mathbf{\$ 0 0 0} & \mathbf{\$ 0 0 0} \\\text { Cash Sales forecast } & 250 & 200 & 250 & 350 & 200 & 80\\\text { Cash Purchases } & 180 & 160 & 130 & 40 & 50 & 60 \\\text { Wages and Salaries } & 40 & 40 & 50 & 40 & 40 & 45 \\\text { Rent } & & & 80 & & &\\\text { Rates } & & & & & & 60 \\\text { Other Expenses } & 25 & 25 & 25 & 25 & 25 & 25 \\\text { Refurbishing Shops } & & & & 80 & & \\\hline &245&225&285&185&115&190\end{array}$

-Refer to the table above.The projected cash balance at the end of October is:

A) ($245,000).
B) $6,000.
C) ($5,000).
D) ($95,000).

Question 40

If a firm had credit sales of $1,250,000 for March and collected its sales 30% in the month of sale and 70% in the month following the sale,how much of March sales would be collected in cash in March?

A) $1,250,000.
B) $375,000.
C) $875,000.
D) $500,000.

Question 41

Use the information below to answer the following questions.
Patiomaster Products manufactures patio furniture. The estimated numbers of sets to be sold for the last three months of 2015 is:
$\begin{array}{lr}\text { Month}&\text { Sales }\\\text { October } & 10,000 \\\text { November } & 7,000 \\\text { December } & 5,000 \\\text { Tanuary } & 6,000\end{array}$ Finished goods inventory at the end of September is 2,000 units. Finished goods inventory is set at 20 percent of next month's sales.

-Refer to the table above.How many sets of patio furniture will be produced in December 2015?

A) 7,200 units.
B) 6,200 units.
C) 5,200 units.
D) 6,400 units.

Question 42

If actual income is $48,500 and budgeted income is $56,000 and actual utilities is $5,000 and budgeted utilities is $5,500,the variances are respectively: Note: F - Favourable,U - Unfavourable (adverse).

A) $7,500F; $500F.
B) $7,500F; $500U.
C) $7,500U; $500F.
D) $7,500U; $500U.

Question 43

The Gel Company,hair products wholesaler,budgeted $150,000 of credit sales and $20,000 of cash sales for June.All merchandise is marked up to sell at 125% of its invoice cost.What is the budgeted cost of sales for June?

A) $140,000.
B) $132,500.
C) $136,000.
D) $127,500.

Question 44

The change in the price of raw materials multiplied by the actual materials bought calculates which variance?

A) Materials price variance.
B) Sales price variance.
C) Materials usage variance.
D) Labour price variance.

Question 45

The reconciliation between budgeted profit and actual profit can be summarised as:

A) budgeted profit minus all favourable variances plus all adverse variances equals actual profit.
B) actual profit plus all favourable variances plus all adverse variances equals budgeted profit.
C) actual profit plus all favourable variances minus all adverse variance equals budgeted profit.
D) budgeted profit plus all favourable variances minus all adverse variance equals actual profit.

Question 46

Managements interest in variances is due to:

A) the need to gain the information that may assist them to put things back in control.
B) the desire to gain the maximum information.
C) the need to compensate employees.
D) the desire to check all details.

Question 47

The calculation of closing inventory for a finished goods inventory budget is:

A) (opening balance plus inventories manufactured) less sales of finished goods.
B) (opening balance plus sales of finished goods) less inventories manufactured.
C) (opening balance plus inventories manufactured) plus cash sales of finished goods.
D) none of the above.

Question 48

The debtor's budget shows the planned amount owing from credit sales.The closing balance of the accounts receivable account is calculated as follows:

A) (opening balance plus sales) less cash receipts.
B) (opening balance less sales) less cash receipts.
C) (opening balance less sales) plus cash receipts.
D) (opening balance plus sales) plus cash receipts.

Question 49

Use the information below to answer the following questions.
Patiomaster Products manufactures patio furniture. The estimated numbers of sets to be sold for the last three months of 2015 is:
$\begin{array}{lr}\text { Month}&\text { Sales }\\\text { October } & 10,000 \\\text { November } & 7,000 \\\text { December } & 5,000 \\\text { Tanuary } & 6,000\end{array}$ Finished goods inventory at the end of September is 2,000 units. Finished goods inventory is set at 20 percent of next month's sales.

-Refer to the table above.What will be the amount of total production for October 2015?

A) 9,400 units.
B) 7,800 units.
C) 9,600 units.
D) 8,400 units.

Question 50

Bluebird Ltd has provided the estimates below for the July-September quarter in 2014.

You are also given the following additional information:
• 35% of sales are cash sales,the remaining 65% credit sales are collected as follows:
o 30% in the month of sale
o 40% in the month after sale
o 28% 2 months after sale
o 2% lost in bad debts
• Sales in the months of May and June were $11,000 and $10,000 respectively.
• Operating expenses include depreciation each month of $900.All expenses and purchases are paid for in the same month they are incurred.
• The firm expects to sell some old machinery for $7,000 in August.New machinery worth $9,500 will be purchased in September.
• The cash balance on 1st July 2014 is $5,700.
REQUIRED:
a)Prepare a schedule of receipts from accounts receivable showing the collections in the three months July to September.
b)Prepare a cash budget for Bluebird Ltd for the three months July to September.

Question 51

Identify the adverse (unfavourable)variance.

A) Budgeted payment for rent $12,000, actual rent $11,500.
B) Budgeted payment for interest $1,000, actual interest $1,000.
C) Budgeted payment for wages $42,000, actual wages $45,000.
D) Budgeted receipts from accounts receivable $60,000, actual receipts $65,000.

Question 52

The total direct materials variance is best explained by:

A) the variance cannot be explained unless the budget is flexed to actual production.
B) better use of materials by the production manager.
C) a change in price of the raw materials.
D) the production manager failing to control the material usage.

Question 53

Leonard Company is preparing its second quarter production budget.Projected sales in units are 600 for April,680 for May,and 750 for June.Leonard's policy is to have finished goods inventory equal to 20 per cent of the next month's projected unit sales.What should be the production quota for May?

A) 830 units.
B) 694 units.
C) 680 units.
D) 666 units.

Question 54

Use the information below to answer the following questions.
$\begin{array}{llr}&\text { Flexed Budget for April }&\text { Actual for April }\\\hline\text { Output } & 40,000 \text { units } & 40,000 \text { units } \\\text { Sales } & \$ 500,000 & \$ 400,000 \\\text { Raw materials } & \$ 100,000 & \$ 88,000 \\\text { Labour } & \$ 250,000 & \$ 180,000 \\\text { Overheads } & \$ 325,000 & \$ 375,000\end{array}$

-Refer to the table above.Which of these variance calculations is correct for Raw materials,Labour and Overheads respectively? Note: F - Favourable,U - Unfavourable (adverse).

A) 12,000U; $70,000F; $50,000U.
B) $12,000F; $70,000F; $50,000U.
C) 12,000U; $70,000U; $50,000F.
D) none of the above.

Question 55

Use the information below to answer the following questions.
$\begin{array}{llr}&\text { Flexed Budget for April }&\text { Actual for April }\\\hline\text { Output } & 40,000 \text { units } & 40,000 \text { units } \\\text { Sales } & \$ 500,000 & \$ 400,000 \\\text { Raw materials } & \$ 100,000 & \$ 88,000 \\\text { Labour } & \$ 250,000 & \$ 180,000 \\\text { Overheads } & \$ 325,000 & \$ 375,000\end{array}$

-Refer to the table above.The adverse (unfavourable)sales variance of $100,000 is best explained by:

A) a decrease in price of the units sold.
B) the sales manager failing to sell the budgeted units.
C) an increase in expenses.
D) none of the above.

Question 56

An adverse variance is best described as a:

A) variance where the actual performance falls short of the budget target.
B) variance where labour efficiencies have occurred.
C) combination of variances.
D) variance where actual performance exceeds the budget target.

Question 57

Use the information below to answer the following questions.
Patiomaster Products manufactures patio furniture. The estimated numbers of sets to be sold for the last three months of 2015 is:
$\begin{array}{lr}\text { Month}&\text { Sales }\\\text { October } & 10,000 \\\text { November } & 7,000 \\\text { December } & 5,000 \\\text { Tanuary } & 6,000\end{array}$ Finished goods inventory at the end of September is 2,000 units. Finished goods inventory is set at 20 percent of next month's sales.

-Refer to the table above.If a patio set costs $100 to produce,what will be the cost of sales in the budgeted statement of comprehensive income for the period October to December 2015?

A) $1,800,000.
B) $1,900,000.
C) $2,200,000.
D) $1,500,000.

Question 58

Flexing the budget means:

A) revising the budget sales figure to match actual sales.
B) ignoring previously set targets.
C) revising the budget to reflect changes in management behaviour.
D) revising the original budget estimates to produce a budget based on the actual volume of activity.

Question 59

Records of Recycling Ltd contain the following data:

All sales are on credit.Records show that 80% of the customers pay during the month of the sale,15% pay in the month after the sale,and the remaining 5% pay in the second month after the sale.Purchases are all paid the following month at a 1% discount.Cash disbursements for operating expenses in July were $8,000.
REQUIRED:
Prepare a cash budget for July.

Question 60

$$\begin{array} { l r r r r } & \text { Jan. } & \text { Feb. } & \text { March } & \text { April } \\\text { If credit sales are } & \$ 5,000 & \$ 6,000 & \$ 5,500 & \$ 6,200 \\\text { and cash collected from } & & & & \\\text { credit sales is: } & \$ 4,800 & \$ 5,000 & \$ 6,000 & \$ 5,500\end{array}$$
When do debtors pay their accounts?

A) One month after the sale.
B) Two months after the sale.
C) In the month of sale.
D) One month before the sale.

Question 61

Use the information below to answer the following questions.
$\begin{array}{lcc}&\text { Flexed Budget for April }&\text { Actual for April }\\\hline\text { Output } & 40,000 \text { urits } & 40,000 \text { urits } \\\text { Sales } & \$ 400,000 & \$ 400,000 \\\text { Raw materials } & \$ 80,000 & \$ 88,000 \\\text { Labour } & \$ 200,000 & \$ 180,000 \\\text { Overheads } & 225,000 & 305,000\end{array}$

-Refer to the table above.The labour variance can best be described as:

A) an adverse variance resulting from excessive use of labour and/or a rise in the hourly rate of pay.
B) a favourable variance resulting from the efficient use of labour and/or a reduction in the hourly pay rate.
C) being caused by an increase in the pay rate for labour.
D) being caused by more efficient labour.

Question 62

Use the information below to answer the following questions.
$\begin{array}{lcc}&\text { Flexed Budget for April }&\text { Actual for April }\\\hline\text { Output } & 40,000 \text { urits } & 40,000 \text { urits } \\\text { Sales } & \$ 400,000 & \$ 400,000 \\\text { Raw materials } & \$ 80,000 & \$ 88,000 \\\text { Labour } & \$ 200,000 & \$ 180,000 \\\text { Overheads } & 225,000 & 305,000\end{array}$

-Refer to the table above.The raw materials variance can best be described as:

A) an adverse variance resulting from a rise in the price of raw materials.
B) an adverse variance resulting from excessive use of raw materials and/or an increase in their price.
C) an adverse variance resulting from excessive use of raw materials.
D) a favourable variance resulting from efficient use of raw materials.

Question 63

Which budget criticism can be dealt with by adapting and improving budgeting practices?

A) Budgets can make people feel undervalued.
B) Budgets can be seen as a bureaucratic exercise in cost cutting.
C) Bottom-up budgeting can lead to budget padding to make targets easier to achieve.
D) All can be dealt with by adapting and improving budgeting practices.

Question 64

Where there is a significant favourable variance management is best advised to:

A) ignore it, because it does not cause immediate concern.
B) investigate, because it may mean that targets are unrealistically low.
C) investigate it to find out why things are not going according to plan.
D) Both B and C.

Question 65

Where there is an insignificant adverse variance,management is best advised to:

A) ignore it, as the cost of investigation may outweigh the benefit.
B) investigate immediately and in full detail.
C) keep the variance under review.
D) ignore it, as it may be compensated by an insignificant favourable variance.

Question 66

If actual sales are $96,000 and budgeted sales are $87,000 and actual advertising paid is $6,100 and budgeted advertising is $7,300,the variances are respectively are: Note: F - Favourable,U - Unfavourable (adverse).

A) $9,000F; $1,200U.
B) $9,000U; $1,200U.
C) $9,000F; $1,200F.
D) $9,000U; $1,200F.

Question 67

If budgeted profit is $11,000,favourable variances are $3,100 and unfavourable variances are $7,450,actual profit (loss)is:

A) $21,550 profit.
B) $15,350 profit.
C) ($450) loss.
D) $6,650 profit.

Question 68

Which of these is not a limitation of the traditional approach to control through budgets?

A) The difficulty of separating the causes of variances into controllable or uncontrollable factors.
B) The difficulty of creating clear lines of demarcation between areas of responsibility of various managers.
C) The expense of preparing a budget is too great for the average business.
D) None of the above, i.e., all are limitations.

Question 69

Each month,which variances should management investigate?

A) Only favourable variances.
B) Only adverse (unfavourable) variances.
C) All variances.
D) All variances management deems significant.

Question 70

Where budget targets have proven to be unrealistically optimistic,management is best advised to:

A) revise budgets to match actual results.
B) revise budgets into the realm of achievability.
C) insist that junior management conform to budgets.
D) ignore budgets and allow managers to use their own initiative.

Question 71

Budget targets should be:

A) achievable.
B) easy.
C) challenging and achievable.
D) loose and achievable.

Question 72

Which of the following could be the cause of a favourable materials price variance?

A) The price of materials in the original budget was set too high.
B) A discount on the purchase of materials.
C) Well-trained production workers.
D) Both A and B.

Question 73

The original budget was set at 15,000 units and estimated variable overheads at $345,000 ($23 per unit).If actual output is 16,000 units,calculate the variable overhead total and unit cost that would be shown in a budget flexed to actual output.

A) $345,000; $23.
B) $361,000; $23.50.
C) $345,000; $22.50.
D) $368,000; $23.

Question 74

Which of these could be the cause of an adverse (unfavourable)labour efficiency variance?

A) A drop in production.
B) An increase in the hourly wage rate.
C) Machine breakdowns.
D) All of the above.

Question 75

Which of the following could not be a possible cause of an adverse (unfavourable)materials usage variance?

A) Faulty machinery.
B) Poor quality materials.
C) An increase in the price of the raw materials.
D) Inexperienced workers.

Question 76

Prepare a flexible cost budget for 8,000,9,000 and 10,000 units of output,given the following data:
Variable costs:

Budgeted fixed manufacturing overhead $90,000.

Question 77

What variance does the difference between the actual cost of the direct labour hours worked and the planned cost of the direct labour hours measure?

A) The direct labour efficiency variance.
B) The direct labour rate variance.
C) The total direct labour variance.
D) None of the above.

Question 78

Budget targets should be:

A) unachievable so that there is always an incentive to do better.
B) targets derived from experience set at reasonable levels of performance.
C) set to the highest possible standard of performance.
D) goals set by management to ensure that targets can be easily met.