Q.1 What is the primary objective of budgetary control?
To plan future sales only
To establish cost standards and control costs
To prepare financial statements
To calculate profit after tax
Explanation - Budgetary control involves setting cost and revenue targets and comparing actual performance to control costs effectively.
Correct answer is: To establish cost standards and control costs
Q.2 Which of the following is NOT a type of budget?
Fixed Budget
Flexible Budget
Master Budget
Profit and Loss Budgeting
Explanation - Profit and Loss Budgeting is not a recognized type of budget; common budgets include fixed, flexible, and master budgets.
Correct answer is: Profit and Loss Budgeting
Q.3 A budget which does not change with the level of activity is called:
Flexible Budget
Fixed Budget
Master Budget
Capital Budget
Explanation - A fixed budget remains unchanged regardless of the level of activity or output.
Correct answer is: Fixed Budget
Q.4 Which budget is designed to change according to changes in activity levels?
Fixed Budget
Flexible Budget
Sales Budget
Cash Budget
Explanation - A flexible budget adjusts expenses according to changes in activity levels, providing more realistic control over costs.
Correct answer is: Flexible Budget
Q.5 The process of comparing actual results with budgeted figures is called:
Budgeting
Budgetary Control
Variance Analysis
Cost Accounting
Explanation - Variance analysis identifies the differences between actual and budgeted performance, highlighting areas of concern.
Correct answer is: Variance Analysis
Q.6 Which budget integrates all other budgets and gives a comprehensive view of operations?
Sales Budget
Cash Budget
Master Budget
Production Budget
Explanation - A master budget combines all individual budgets (sales, production, cash, etc.) to provide an overall financial plan.
Correct answer is: Master Budget
Q.7 Which type of budget is prepared for a specific department or function within an organization?
Functional Budget
Master Budget
Flexible Budget
Cash Budget
Explanation - Functional budgets are prepared for specific departments like production, sales, or administration to control departmental activities.
Correct answer is: Functional Budget
Q.8 The difference between actual cost and budgeted cost is called:
Budgetary Control
Variance
Fixed Cost
Break-even
Explanation - Variance represents the difference between actual and budgeted figures, used to analyze performance.
Correct answer is: Variance
Q.9 Which budget focuses on estimating cash inflows and outflows over a period?
Sales Budget
Production Budget
Cash Budget
Master Budget
Explanation - Cash budgets are prepared to estimate the expected receipts and payments of cash to ensure liquidity.
Correct answer is: Cash Budget
Q.10 A budget prepared for a future period based on estimated costs and revenues is called:
Historical Budget
Forecast Budget
Fixed Budget
Flexible Budget
Explanation - Forecast budgets are prepared for future periods using estimated data rather than actual past data.
Correct answer is: Forecast Budget
Q.11 Which of the following is an advantage of budgetary control?
Eliminates all business risks
Helps in planning and coordination
Guarantees higher profits
Reduces the need for accounting
Explanation - Budgetary control aids in planning, coordinating, and controlling operations, but it cannot eliminate all risks or guarantee profits.
Correct answer is: Helps in planning and coordination
Q.12 Zero-based budgeting is based on the principle that:
All past expenses are continued
Every expense must be justified for each period
Only capital expenses are considered
All budgets are fixed
Explanation - In zero-based budgeting, each budgeted item must be justified from scratch, unlike traditional budgeting which often carries forward past budgets.
Correct answer is: Every expense must be justified for each period
Q.13 Which of the following budgets is primarily concerned with production levels?
Sales Budget
Production Budget
Cash Budget
Capital Budget
Explanation - Production budgets determine the number of units to be produced, based on expected sales and inventory levels.
Correct answer is: Production Budget
Q.14 Which type of budget is prepared for a long-term period, usually more than one year?
Short-term Budget
Long-term Budget
Master Budget
Functional Budget
Explanation - Long-term budgets focus on planning for periods beyond one year and involve strategic decisions.
Correct answer is: Long-term Budget
Q.15 Which of the following statements about flexible budgets is correct?
They are prepared before the period starts
They remain fixed regardless of activity
They adjust according to actual activity
They replace master budgets
Explanation - Flexible budgets are adaptable and provide realistic comparisons with actual performance at different levels of activity.
Correct answer is: They adjust according to actual activity
Q.16 Which of the following is a limitation of budgetary control?
Helps in coordination
Depends on accurate forecasts
Promotes planning
Controls costs
Explanation - Budgetary control is only as effective as the accuracy of the data and forecasts used; inaccurate estimates can mislead decisions.
Correct answer is: Depends on accurate forecasts
Q.17 In budgetary control, the term 'controllable cost' refers to:
Costs that can be influenced by a manager
Costs that are fixed
Costs that cannot be changed
Historical costs
Explanation - Controllable costs are those which a manager can influence through decision-making within a given period.
Correct answer is: Costs that can be influenced by a manager
Q.18 A budget which combines both financial and operating budgets is called:
Cash Budget
Master Budget
Flexible Budget
Functional Budget
Explanation - The master budget aggregates all individual operating and financial budgets to give a complete financial plan.
Correct answer is: Master Budget
Q.19 What is a 'sales budget' primarily used for?
Estimating production costs
Planning cash flows
Forecasting expected sales revenue
Preparing balance sheets
Explanation - A sales budget predicts the revenue from sales and acts as a basis for other budgets like production and cash budgets.
Correct answer is: Forecasting expected sales revenue
Q.20 Responsibility accounting is closely related to:
Budgetary Control
Financial Accounting
Cost Accounting
Tax Accounting
Explanation - Responsibility accounting involves assigning accountability to managers for revenues and costs, which is integral to budgetary control.
Correct answer is: Budgetary Control
Q.21 Variance analysis is useful for:
Identifying deviations from budgets
Preparing master budgets
Estimating cash needs
Calculating depreciation
Explanation - Variance analysis helps managers identify differences between actual and budgeted results to take corrective action.
Correct answer is: Identifying deviations from budgets
Q.22 The main purpose of a capital budget is to:
Control day-to-day expenses
Plan long-term investments in assets
Forecast sales for a period
Prepare monthly cash statements
Explanation - Capital budgets deal with investment in fixed assets and long-term projects rather than operational expenses.
Correct answer is: Plan long-term investments in assets
Q.23 Which of the following budgets is generally considered the starting point in the budgeting process?
Cash Budget
Sales Budget
Production Budget
Master Budget
Explanation - The sales budget is prepared first as it determines the production needs, cash flows, and other related budgets.
Correct answer is: Sales Budget
Q.24 The term 'budget manual' refers to:
A document showing actual costs
A guide explaining budgeting procedures
A historical report of past budgets
A list of variances
Explanation - A budget manual provides instructions, guidelines, and policies for preparing and controlling budgets within an organization.
Correct answer is: A guide explaining budgeting procedures