Deck 11: Budgeting

Question 1

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.

Answer 1

A

Question 2

How is a budget best defined?

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

Answer 2

D

Question 3

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.

Answer 3

D

Question 4

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 5

What is the typical overall time period for which a budget is set?

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

Question 6

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 7

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 8

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 9

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 10

What is the main way in which budgets provide a means of control in an organisation?

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

Question 11

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 12

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 13

What does management by exception refer to in the budgeting process?

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 14

How can a budget help in decision making?

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

Question 15

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 16

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 17

When preparing its sales forecast, an organisation can use the 'bottom-up' approach. What is one of the features of this approach?

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 18

What is the group which oversees the budgeting process within an organisation?

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

Question 19

What is the best description of the role of the budget committee?

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.

Question 20

How is a master budget best described?

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

Question 21

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 22

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 2017 and planned sales for the first quarter of 2018 .

$\begin{array} { l l r r r } & & \text { Cash } & \text { Credit } & \text { Total } \\ 2017 \text { Actual Sales for } & \text { November } & 25,000 & 25,000 & 50,000 \\ & \text { December } & 35,000 & 40,000 & 75,000 \\ 2018 \text { Estimated Sales for } & \text { January } & 15,000 & 20,000 & 35,000 \\ & \text { February } & 18,000 & 30,000 & 48,000 \\ & \text { March } & 22,000 & 40,000 & 62,000 \end{array}$

Past records ind icate that expected receipts collected from debtors will be:
60 per cent in the month of sale
40 percent 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 23

Which outlay does not appear in the cash budget?

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

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 2017 and planned sales for the first quarter of 2018 .

$\begin{array} { l l r r r } & & \text { Cash } & \text { Credit } & \text { Total } \\ 2017 \text { Actual Sales for } & \text { November } & 25,000 & 25,000 & 50,000 \\ & \text { December } & 35,000 & 40,000 & 75,000 \\ 2018 \text { Estimated Sales for } & \text { January } & 15,000 & 20,000 & 35,000 \\ & \text { February } & 18,000 & 30,000 & 48,000 \\ & \text { March } & 22,000 & 40,000 & 62,000 \end{array}$

Past records ind icate that expected receipts collected from debtors will be:
60 per cent in the month of sale
40 percent 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 25

Use the information below to answer the following questions.
Sales in December were $960,000. Projected sales for the first quarter of 2018 are: $$\begin{array} { l l } \text { January } & \$ 1,080,000 \\\text { February } & \$ 1,300,000 \\\text { March } & \$ 1,280,000\end{array}$$ 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)$1,040,000.
C)$1,280,000.
D)$864,000.

Question 26

The Talent Agency had the following estimates for the six months ending 31 December 2018. $\begin{array}{lr}\text { Cash balance } 1.1 .15 \text { (Overd raft) } & (\$ 9,150) \\\text { Cash receipts from commissions } & \$ 85,000 \\\text { Cash payments for expenses } & 82,300 \\\text { Proceeds from the sale of motor vehicle } & 6,500 \\\text { Borrowing } & 5,000 \\\text { Depreciation on equipment } & 2,600\end{array}$ The estimated cash balance at 31 December 2018 is:

A)$3,450.
B)$5,050.
C)$3,950 (overdraft).
D)$2,100 (overdraft).

Question 27

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 2018 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: $\begin{array}{lrrrrrr}&\text { Oct. } & \text { Nov. } & \text { Dec. } & \text { Jan. } & \text { Feb. } & \text {March } \\&\$ 000 & \$ 000 & \$ 000 & \$ 000 & \$ 000 & \$ 000\\\text { Cash Sales forecast } & 250 & 200 & 250 & 350 & 200 & 80 \\\text { Cash Purchases } & 180 & 160 & 130 & 40 & 50 & 60 \\\text { Wages and Salaries } & 40 & 40 & 50 & 40 & 40 & 45 \\\text { Rent } & & & 80 & & &\\\text { Rates } & & & & & & 60 \\\text { Other Expenses } & 25 & 25 & 25 & 25 & 25 & 25\\\text { Refurbishing Shops }&&&&&&{80} \\&245 & 225 & 285 & 185 & 115 & 190\\\end{array}$

-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 28

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 2017 and planned sales for the first quarter of 2018 .

$\begin{array} { l l r r r } & & \text { Cash } & \text { Credit } & \text { Total } \\ 2017 \text { Actual Sales for } & \text { November } & 25,000 & 25,000 & 50,000 \\ & \text { December } & 35,000 & 40,000 & 75,000 \\ 2018 \text { Estimated Sales for } & \text { January } & 15,000 & 20,000 & 35,000 \\ & \text { February } & 18,000 & 30,000 & 48,000 \\ & \text { March } & 22,000 & 40,000 & 62,000 \end{array}$

Past records ind icate that expected receipts collected from debtors will be:
60 per cent in the month of sale
40 percent 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 29

Use the information below to answer the following questions.
Sales in December were $960,000. Projected sales for the first quarter of 2018 are: $$\begin{array} { l l } \text { January } & \$ 1,080,000 \\\text { February } & \$ 1,300,000 \\\text { March } & \$ 1,280,000\end{array}$$ 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)$1,296,000.
B)$1,456,000.
C)$1,216,000.
D)$256,000.

Question 30

Use the information below to answer the following questions.
Sales in December were $960,000. Projected sales for the first quarter of 2018 are: $$\begin{array} { l l } \text { January } & \$ 1,080,000 \\\text { February } & \$ 1,300,000 \\\text { March } & \$ 1,280,000\end{array}$$ 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)$732,000.

Question 31

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 2018 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: $\begin{array}{lrrrrrr}&\text { Oct. } & \text { Nov. } & \text { Dec. } & \text { Jan. } & \text { Feb. } & \text {March } \\&\$ 000 & \$ 000 & \$ 000 & \$ 000 & \$ 000 & \$ 000\\\text { Cash Sales forecast } & 250 & 200 & 250 & 350 & 200 & 80 \\\text { Cash Purchases } & 180 & 160 & 130 & 40 & 50 & 60 \\\text { Wages and Salaries } & 40 & 40 & 50 & 40 & 40 & 45 \\\text { Rent } & & & 80 & & &\\\text { Rates } & & & & & & 60 \\\text { Other Expenses } & 25 & 25 & 25 & 25 & 25 & 25\\\text { Refurbishing Shops }&&&&&&{80} \\&245 & 225 & 285 & 185 & 115 & 190\\\end{array}$

-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 32

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 2018 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: $\begin{array}{lrrrrrr}&\text { Oct. } & \text { Nov. } & \text { Dec. } & \text { Jan. } & \text { Feb. } & \text {March } \\&\$ 000 & \$ 000 & \$ 000 & \$ 000 & \$ 000 & \$ 000\\\text { Cash Sales forecast } & 250 & 200 & 250 & 350 & 200 & 80 \\\text { Cash Purchases } & 180 & 160 & 130 & 40 & 50 & 60 \\\text { Wages and Salaries } & 40 & 40 & 50 & 40 & 40 & 45 \\\text { Rent } & & & 80 & & &\\\text { Rates } & & & & & & 60 \\\text { Other Expenses } & 25 & 25 & 25 & 25 & 25 & 25\\\text { Refurbishing Shops }&&&&&&{80} \\&245 & 225 & 285 & 185 & 115 & 190\\\end{array}$

-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 33

If the opening balance of cash for one month is $20,000, cash receipts are estimated to be $398,000 and cash payments are estimated as $300,000, the opening cash balance at the beginning of the next month is:

A)$118,000.
B)$109,000.
C)$69,000.
D)cannot be calculated.

Question 34

The expense that does not appear in a cash budget is:

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

Question 35

If a firm had credit sales of $1,550,000 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)$465,000.

Question 36

Use the information below to answer the following questions.
Sales in December were $960,000. Projected sales for the first quarter of 2018 are: $$\begin{array} { l l } \text { January } & \$ 1,080,000 \\\text { February } & \$ 1,300,000 \\\text { March } & \$ 1,280,000\end{array}$$ 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 37

What is a common feature of most budgets?

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 38

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 $98,000 the opening cash balance at the beginning of the next month is:

A)$67,500 (surplus).
B)$12,500 (surplus).
C)$32,500 (deficit).
D)cannot be calculated.

Question 39

Xon Company is planning to purchase fixed assets at a cost of $200,000. The planned delivery date is 1st February 2018. A deposit of $20,000 is to be paid on 1/11/17. The amount that will appear in the cash budget for November 2017 is:

A)$190,000 outflow.
B)$200,000 outflow.
C)$20,000 outflow.
D)$20,000 inflow.

Question 40

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 41

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 42

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 43

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 44

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 45

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 46

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 2018 is: $$\begin{array} { l r } \text { Month } & \text { Sales } \\\hline \text { October } & 10,000 \\\text { November } & 7,000 \\\text { December } & 5,000 \\\text { January } & 6,000\end{array}$$ Finished goods inventory at the end of September is 2,000 units. Finished goods inventory is set at 30 percent of next month's sales.

-Refer to the table above. What will be the amount of total production for October 2018?

A)9,400 units.
B)7,800 units.
C)10,100 units.
D)8,400 units.

Question 47

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

-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 48

What does flexing the budget mean?

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 49

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 50

The adverse (unfavourable)variance is:

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 51

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 52

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 2018 is: $$\begin{array} { l r } \text { Month } & \text { Sales } \\\hline \text { October } & 10,000 \\\text { November } & 7,000 \\\text { December } & 5,000 \\\text { January } & 6,000\end{array}$$ Finished goods inventory at the end of September is 2,000 units. Finished goods inventory is set at 30 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 2018?

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

Question 53

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 54

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 55

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

-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 56

Bluebird Ltd has provided the estimates below for the July-September quarter in 2017. 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 2017 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 57

What is the calculation of closing inventory for a finished goods inventory budget?

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 58

The Gel Company, hair products wholesaler, budgeted $180,000 of credit sales and $30,000 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)$168,000.
B)$132,500.
C)$136,000.
D)$127,500.

Question 59

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 2018 is: $$\begin{array} { l r } \text { Month } & \text { Sales } \\\hline \text { October } & 10,000 \\\text { November } & 7,000 \\\text { December } & 5,000 \\\text { January } & 6,000\end{array}$$ Finished goods inventory at the end of September is 2,000 units. Finished goods inventory is set at 30 percent of next month's sales.

-Refer to the table above. How many sets of patio furniture will be produced in December 2018?

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

Question 60

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 61

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 62

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

-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

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 64

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 65

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

Question 66

An adverse (unfavourable)labour efficiency variance could be caused by:

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

Question 67

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 68

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 69

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 70

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 71

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.

Question 72

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

-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 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

The variances which management should investigate each month are:

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

Question 75

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 76

Budget targets should be:

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