Question 1

At the end of 2019, Dubai Mission prepared its master budget for 2020. Selected amounts from that budget, along with actual results for 2020, are presented below: $$\begin{array} { l r r } 
& \underline { \text { Budgeted } } & \underline { \text { Actual } } \
\text { Sales } & \$ 180,000 & \$ 210,000 \
\text { Research and development cost } & 25,000 & 20,000 \
\text { Interest revenue } & 7,600 & 7,000 \
\text { Cost of goods sold } & 60,000 & 65,000 \
\text { Marketing costs } & 45,000 & 45,000
\end{array}$$ Dubai Mission's total budget variance for the data provided is:
A) $40,600 favourable
B) $40,600 unfavourable
C) $29,400 favourable
D) $29,400 unfavourable

Accepted Answer

The total budget variance is calculated by comparing the actual results to the budgeted amounts. A favorable variance occurs when actual revenue is higher than budgeted or when actual expenses are lower than budgeted. An unfavorable variance occurs in the opposite scenarios. Here's the breakdown:- Sales: Actual sales ($210,000) were $30,000 higher than budgeted ($180,000), which is favorable.- Research and development cost: Actual costs ($20,000) were $5,000 lower than budgeted ($25,000), which is favorable.- Interest revenue: Actual revenue ($7,000) was $600 lower than budgeted ($7,600), which is unfavorable.- Cost of goods sold: Actual costs ($65,000) were $5,000 higher than budgeted ($60,000), which is unfavorable.- Marketing costs: Actual costs ($45,000) were equal to the budgeted costs ($45,000), so there's no variance.Adding these variances together: $30,000 (favorable) + $5,000 (favorable) - $600 (unfavorable) - $5,000 (unfavorable) = $29,400 favorable.

Question 2

At the end of 2019, Dubai Mission prepared its master budget for 2020. Selected amounts from that budget, along with actual results for 2020, are presented below: $$\begin{array} { l r r } 
& \underline { \text { Budgeted } } & \underline { \text { Actual } } \
\text { Sales } & \$ 180,000 & \$ 210,000 \
\text { Research and development cost } & 25,000 & 20,000 \
\text { Interest revenue } & 7,600 & 7,000 \
\text { Cost of goods sold } & 60,000 & 65,000 \
\text { Marketing costs } & 45,000 & 45,000
\end{array}$$ Which items in the table have unfavourable variances?
A) Marketing expense and cost of goods sold
B) Cost of goods sold and sales
C) Sales and research and development expense
D) Interest revenue and cost of goods sold

Accepted Answer

Unfavourable variances occur when actual results are worse than budgeted figures. Here, Cost of goods sold increased from $60,000 to $65,000, and Interest revenue decreased from $7,600 to $7,000, both indicating unfavourable variances.

Question 3

Poster Artist Ltd, a retail store selling classic and rare marketing materials, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: $$\begin{array} { l l } 
\text { Begirring irventory } & \$ 20,000 \
\text { Budgeted purchases } & 50,000 \
\text { Expected reverue } & 150,000 \
\text { Irflows of cash } & 120,000 \
\text { Support departments costs } & 30,000 \
\text { Total cash outflows } & 80,000
\end{array}$$ Which of the following amounts will be subtracted from gross profit on Poster Artist Ltd's budgeted income statement?
A) $30,000
B) $80,000
C) $14,000
D) $110,000

Accepted Answer

Support department costs of $30,000 will be subtracted from gross profit on the budgeted income statement as these are operating expenses.

Question 4

Poster Artist Ltd, a retail store selling classic and rare marketing materials, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: $$\begin{array} { l l } 
\text { Begirring irventory } & \$ 20,000 \
\text { Budgeted purchases } & 50,000 \
\text { Expected reverue } & 150,000 \
\text { Irflows of cash } & 120,000 \
\text { Support departments costs } & 30,000 \
\text { Total cash outflows } & 80,000
\end{array}$$ Poster Artist Ltd's budgeted gross profit for the next fiscal year will be:
A) $136,000
B) $106,000
C) $64,000
D) $94,000

Accepted Answer

To calculate the budgeted gross profit, we first need to determine the cost of goods sold (COGS). The beginning inventory is $20,000, and the budgeted purchases are $50,000, making the cost of goods available for sale $70,000 (20,000 + 50,000). The ending inventory is budgeted at 20% of the cost of goods available for sale, which is $14,000 (20% of $70,000). Thus, the COGS is $56,000 ($70,000 - $14,000). The expected revenue is $150,000, so the budgeted gross profit is $94,000 ($150,000 - $56,000).

Question 5

Poster Artist Ltd, a retail store selling classic and rare marketing materials, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: $$\begin{array} { l l } 
\text { Begirring irventory } & \$ 20,000 \
\text { Budgeted purchases } & 50,000 \
\text { Expected reverue } & 150,000 \
\text { Irflows of cash } & 120,000 \
\text { Support departments costs } & 30,000 \
\text { Total cash outflows } & 80,000
\end{array}$$ Poster Artist Ltd's budgeted cost of goods sold for the next fiscal year will be:
A) $56,000
B) $64,000
C) $70,000
D) $28,000

Accepted Answer

The cost of goods available for sale is the beginning inventory ($20,000) plus budgeted purchases ($50,000), totaling $70,000. Ending inventory is 20% of this, which is $14,000. Therefore, the cost of goods sold is $70,000 - $14,000 = $56,000.

Question 6

Poster Artist Ltd, a retail store selling classic and rare marketing materials, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: $$\begin{array} { l l } 
\text { Begirring irventory } & \$ 20,000 \
\text { Budgeted purchases } & 50,000 \
\text { Expected reverue } & 150,000 \
\text { Irflows of cash } & 120,000 \
\text { Support departments costs } & 30,000 \
\text { Total cash outflows } & 80,000
\end{array}$$ Which of the following amounts is irrelevant in the preparation of Poster Artist Ltd's budgeted income statement?
A) Beginning inventory of $20,000
B) Expected inflows of cash of $120,000
C) Expected revenue of $150,000
D) Budgeted support department costs of $30,000

Accepted Answer

The expected inflows of cash of $120,000 are irrelevant for the preparation of the budgeted income statement because the income statement focuses on revenues, expenses, and profits rather than cash flows. Cash inflows are more relevant to the cash flow statement or budget.

Question 7

On a budgeted statement of profit or loss, the gross profit is determined by:
A) Revenue + cost of goods sold
B) Revenue - (Cost of goods sold + operating costs)
C) Revenue - operating costs
D) Revenue - cost of goods sold

Accepted Answer

Gross profit is calculated by subtracting the cost of goods sold (COGS) from the total revenue.

Question 8

At the end of 2019, Dubai Mission prepared its master budget for 2020. Selected amounts from that budget, along with actual results for 2020, are presented below: $$\begin{array} { l r r } 
& \underline { \text { Budgeted } } & \underline { \text { Actual } } \
\text { Sales } & \$ 180,000 & \$ 210,000 \
\text { Research and development cost } & 25,000 & 20,000 \
\text { Interest revenue } & 7,600 & 7,000 \
\text { Cost of goods sold } & 60,000 & 65,000 \
\text { Marketing costs } & 45,000 & 45,000
\end{array}$$ The variance for cost of goods sold could be explained by:
A) Increased rent on their building
B) Actual sales being less than the budget
C) Price increases in raw materials
D) Decreased labour costs

Accepted Answer

The variance for cost of goods sold, which was higher than budgeted, could be explained by price increases in raw materials, as this would directly affect the cost of producing goods.

Question 9

An advantage of a flexible budget is that it:
A) Considers only variable costs
B) Incorporates adjustments caused by volume changes
C) Allows management freedom in meeting goals
D) Allows comparison of actual costs to master budget costs

Accepted Answer

Flexible budgets incorporate adjustments for changes in volume, making them more useful for analyzing performance by comparing budgeted costs at the actual level of activity to the actual costs incurred.

Question 10

Which of the following is a simple version of a flexible budget?
A) A budgeted income statement
B) Cost-volume-profit analysis
C) A variance analysis
D) An activity-based costing analysis

Accepted Answer

Cost-volume-profit (CVP) analysis is a simpler form of a flexible budget as it allows for changes in volume of activity and shows how these changes affect costs and profits.

Question 11

In 2018, Flowers Ltd budgeted its sales volume at 10,000 units. Actual volume was 9,800 units. If Flowers Ltd uses the static budget to calculate variances and assuming that inventory levels are insignificant, which of the following statements is true?
A) Budgeted variable costs will be overstated compared to actual variable costs
B) Profits will be less than expected
C) Profits will be more than expected due to favourable cost variances
D) Sales managers will not receive a bonus

Accepted Answer

Budgeted variable costs are based on the budgeted sales volume, which is higher than the actual sales volume. Therefore, budgeted variable costs will be overstated compared to actual variable costs.

Question 12

Which of the following must managers develop prior to preparing a budgeted income statement?
A) Capital budget
B) Budgeted statement financial position
C) Support department budgets
D) Support department cost allocations

Accepted Answer

Support department budgets must be developed first as they provide necessary cost information that impacts the budgeted income statement.

Question 13

Gulland Rock Ltd uses the following flexible budget formula for monthly repair cost: total cost = $1,500 + $0.40 per machine hour. The annual operating budget calls for 25,000 hours of planned machine time. Budgeted repair cost is:
A) $11,500
B) $14,700
C) $22,400
D) $22,000

Accepted Answer

Total repair cost = $1,500 + ($0.40 x 25,000 hours) = $11,500

Question 14

Olympic Duel Ltd budgeted annual indirect labour cost is: $7,200 + $1.50 per direct labour hour. Operating budgets for the current month are based on 15,000 hours of budgeted direct labour hours. Budgeted indirect labour cost is:
A) $22,500
B) $22,200
C) $22,000
D) $29,700

Accepted Answer

The budgeted indirect labour cost is calculated by adding the fixed cost ($7,200) to the variable cost, which is $1.50 per direct labour hour for 15,000 hours ($1.50 * 15,000 = $22,500). Therefore, the total budgeted indirect labour cost is $7,200 + $22,500 = $29,700.

Question 15

One objective of budgeting is to motivate managers to:
A) Eliminate all variances.
B) Use resources efficiently.
C) Lessen the need for communication.
D) Establish prices for external sales of goods and services.

Accepted Answer

Budgeting aims to encourage managers to use resources efficiently by setting financial targets and performance benchmarks, thereby promoting cost-effective operations and optimal resource allocation.

Question 16

To overcome possible problems with budgets that are developed only by top level managers, an alternative is to use:
A) Activity based budgets
B) Authoritative budgets
C) Flexible budgets
D) Participative budgets

Accepted Answer

Participative budgets involve employees at all levels in the budgeting process, which can help overcome problems associated with budgets developed solely by top management by ensuring the budget is realistic and has the buy-in of those who will be working with it.

Question 17

When allocated support department costs are higher than expected due to poor management in the support department a challenge that may result is:
A) Employee Turnover
B) Resentment
C) Delays in the hiring process.
D) All of the above

Accepted Answer

The answer of When allocated support department costs are higher...

Question 18

At the end of 2019, Dubai Mission prepared its master budget for 2020. Selected amounts from that budget, along with actual results for 2020, are presented below: $$\begin{array} { l r r } 
& \underline { \text { Budgeted } } & \underline { \text { Actual } } \
\text { Sales } & \$ 180,000 & \$ 210,000 \
\text { Research and development cost } & 25,000 & 20,000 \
\text { Interest revenue } & 7,600 & 7,000 \
\text { Cost of goods sold } & 60,000 & 65,000 \
\text { Marketing costs } & 45,000 & 45,000
\end{array}$$ Which items in the table have favourable variances?
A) Sales and marketing expense
B) Cost of goods sold and sales
C) Sales and research and development expense
D) Sales and interest revenue

Accepted Answer

Favourable variances occur when actual revenues are higher than budgeted or when actual expenses are lower than budgeted. In this case, Sales exceeded the budget, and Research and Development costs were lower than budgeted, both of which are favourable variances.

Question 19

Carpe Diem Ltd expects to operate at a loss in its next fiscal year. Which statement about its budgeted income statement is true?
A) Operating expenses are expected to be greater than gross profit
B) Operating income is expected to be greater than net profit
C) Net profit is expected to be greater than operating income
D) Actual gross profit less operating expenses will equal expected net profit

Accepted Answer

Operating expenses being greater than gross profit would result in a loss, which aligns with Carpe Diem Ltd's expectation to operate at a loss in its next fiscal year.

Question 20

At the end of 2019, Dubai Mission prepared its master budget for 2020. Selected amounts from that budget, along with actual results for 2020, are presented below: $$\begin{array} { l r r } 
& \underline { \text { Budgeted } } & \underline { \text { Actual } } \
\text { Sales } & \$ 180,000 & \$ 210,000 \
\text { Research and development cost } & 25,000 & 20,000 \
\text { Interest revenue } & 7,600 & 7,000 \
\text { Cost of goods sold } & 60,000 & 65,000 \
\text { Marketing costs } & 45,000 & 45,000
\end{array}$$ The research and development cost variance could be explained by:
A) Starting too many projects
B) Cost increases due to new information technologies
C) Efficient cost management
D) Higher salaries

Accepted Answer

The research and development cost variance is favorable since the actual costs ($20,000) are lower than the budgeted costs ($25,000), which could be explained by efficient cost management.

Quiz 6: Operational Budgets

On a budgeted statement of profit or loss, the gross profit is determined by:

An advantage of a flexible budget is that it:

Which of the following is a simple version of a flexible budget?

In 2018, Flowers Ltd budgeted its sales volume at 10,000 units. Actual volume was 9,800 units. If Flowers Ltd uses the static budget to calculate variances and assuming that inventory levels are insignificant, which of the following statements is true?

Which of the following must managers develop prior to preparing a budgeted income statement?

Gulland Rock Ltd uses the following flexible budget formula for monthly repair cost: total cost = $1,500 + $0.40 per machine hour. The annual operating budget calls for 25,000 hours of planned machine time. Budgeted repair cost is:

Olympic Duel Ltd budgeted annual indirect labour cost is: $7,200 + $1.50 per direct labour hour. Operating budgets for the current month are based on 15,000 hours of budgeted direct labour hours. Budgeted indirect labour cost is:

One objective of budgeting is to motivate managers to:

To overcome possible problems with budgets that are developed only by top level managers, an alternative is to use:

When allocated support department costs are higher than expected due to poor management in the support department a challenge that may result is:

Carpe Diem Ltd expects to operate at a loss in its next fiscal year. Which statement about its budgeted income statement is true?