Question 1

Which is not a valid purpose of budgets?

Accepted Answer

Budgets are not used to determine the value of a company; they are primarily used for planning, controlling, and evaluating financial performance.

Question 2

Which is the usual logical sequence of constructing functional budgets?

Accepted Answer

The usual sequence starts with agreeing on sales volumes and prices, then calculating production levels, setting raw material usage, and finally agreeing on raw material purchases.

Question 3

Which is not an example of a limiting factor?

Accepted Answer

Head office allocated costs are not a limiting factor as they do not directly restrict the production or sales capacity of a business. Limiting factors are constraints that directly affect the ability to produce or sell more, such as machine capacity, sales volume, and raw material quantities.

Question 4

What makes up a master budget?

Accepted Answer

The answer of What makes up a master budget?
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Question 5

Calculate the production budget from the following data: sales 35,780 units; opening inventory 3,548 units; closing inventory 4,286 units.

Accepted Answer

The production budget is calculated as: Sales + Closing Inventory - Opening Inventory = 35,780 + 4,286 - 3,548 = 36,518 units.

Question 6

A business plans to manufacture 400 watches a week, each taking 0.5 labour hours to produce. What is the total direct labour budget if the direct labour rate is £15 per hour and a pay rise of 12% is awarded three months into the year?

Accepted Answer

The answer of A business plans to manufacture 400 watches...

Question 7

What is meant by a zero-based budget?

Accepted Answer

A zero-based budget is prepared from first principles, meaning each expense must be justified for each new period, starting from a "zero base."

Question 8

Which can be considered to be an advantage of a top-down budget?

Accepted Answer

A top-down budget is cost-effective to produce because it involves fewer people in the decision-making process, reducing the time and resources spent on negotiations and consultations.

Question 9

What would be the most likely cause of a favourable material price variance together with an unfavourable material quantity variance?

Accepted Answer

The purchase and use of lower than standard quality of material would likely result in a favorable price variance because the materials were cheaper than expected. However, this could also lead to an unfavorable quantity variance because more material may be needed to meet production standards due to the lower quality.

Question 10

A firm has produced the following budget for an activity level of 5,000 units:
Materials : 45,000
Direct labour : 60,000
Salaries : 25,000
Depreciation : 12,000
What would be the total cost for a level of activity of 7,500 units?

Accepted Answer

The answer of A firm has produced the following budget...

Quiz 12: Budgeting