Q.1 What is the primary purpose of budgeting in management accounting?
To record past transactions
To plan and control future operations
To prepare final accounts
To determine tax liabilities
Explanation - Budgeting is primarily used as a planning tool to forecast future operations and as a control mechanism to monitor performance against planned targets.
Correct answer is: To plan and control future operations
Q.2 Which type of budget is prepared for each department or function of an organization?
Master budget
Functional budget
Cash budget
Flexible budget
Explanation - Functional budgets are prepared for individual departments such as production, sales, and administration to control and plan activities.
Correct answer is: Functional budget
Q.3 Which budget adjusts according to the level of activity?
Fixed budget
Flexible budget
Master budget
Capital budget
Explanation - A flexible budget changes in proportion to changes in the level of activity or output, making it useful for performance evaluation.
Correct answer is: Flexible budget
Q.4 The budget which combines all functional budgets is called:
Cash budget
Flexible budget
Master budget
Sales budget
Explanation - The master budget is a comprehensive budget that consolidates all functional budgets into one overall plan for the organization.
Correct answer is: Master budget
Q.5 Which budget helps in planning for short-term financing and cash management?
Sales budget
Cash budget
Production budget
Flexible budget
Explanation - A cash budget forecasts cash inflows and outflows over a period to ensure that the organization has sufficient liquidity.
Correct answer is: Cash budget
Q.6 Which type of budget is prepared for capital expenditure like machinery or building?
Operating budget
Capital budget
Flexible budget
Sales budget
Explanation - Capital budgets are long-term budgets that plan for investments in fixed assets, helping in decision-making for major expenditures.
Correct answer is: Capital budget
Q.7 What is the first step in the budgeting process?
Preparing cash budget
Setting objectives
Controlling variances
Consolidating functional budgets
Explanation - The budgeting process begins with setting organizational goals, which guide the preparation of all budgets.
Correct answer is: Setting objectives
Q.8 A variance in budgeting represents:
Difference between budgeted and actual figures
Estimated future costs
Planned revenues
Operating expenses
Explanation - A variance shows how much the actual performance deviates from the planned budget, helping management take corrective actions.
Correct answer is: Difference between budgeted and actual figures
Q.9 Which of the following is NOT a type of budget?
Sales budget
Production budget
Inventory turnover budget
Cash budget
Explanation - While sales, production, and cash budgets are common types of budgets, there is no standard budget called 'Inventory turnover budget'.
Correct answer is: Inventory turnover budget
Q.10 Zero-based budgeting requires managers to:
Start from last year’s budget
Justify every expense from scratch
Ignore fixed costs
Only focus on revenues
Explanation - Zero-based budgeting forces managers to justify all expenses each period, rather than relying on historical budgets.
Correct answer is: Justify every expense from scratch
Q.11 Which budget focuses on planned production and required materials?
Cash budget
Production budget
Sales budget
Flexible budget
Explanation - The production budget estimates the quantity of goods to be produced to meet sales requirements and inventory targets.
Correct answer is: Production budget
Q.12 Rolling budgets are also known as:
Fixed budgets
Continuous budgets
Capital budgets
Flexible budgets
Explanation - Rolling or continuous budgets are constantly updated by adding a new period as the current period is completed.
Correct answer is: Continuous budgets
Q.13 Which budget helps in controlling expenses over a specific period?
Cash budget
Expense budget
Flexible budget
Master budget
Explanation - Expense budgets allocate costs to departments or activities, making it easier to monitor and control expenditures.
Correct answer is: Expense budget
Q.14 The difference between flexible budget and actual results is called:
Static variance
Flexible variance
Master variance
Sales variance
Explanation - Flexible variance compares actual results to the flexible budget, reflecting performance adjusted for the actual level of activity.
Correct answer is: Flexible variance
Q.15 Top-down budgeting is also known as:
Participative budgeting
Authoritative budgeting
Zero-based budgeting
Incremental budgeting
Explanation - In top-down or authoritative budgeting, senior management prepares the budget and imposes it on lower levels.
Correct answer is: Authoritative budgeting
Q.16 A budget that allows for adjustment in activity levels is called:
Fixed budget
Flexible budget
Static budget
Cash budget
Explanation - Flexible budgets are designed to change in response to different levels of activity, making them more realistic for performance evaluation.
Correct answer is: Flexible budget
Q.17 Participative budgeting involves:
Only top management
All levels of management
External auditors
Shareholders
Explanation - Participative budgeting encourages input from various management levels, increasing motivation and realistic target setting.
Correct answer is: All levels of management
Q.18 A short-term financial plan showing cash inflows and outflows is:
Sales budget
Production budget
Cash budget
Master budget
Explanation - Cash budgets help an organization plan for liquidity by forecasting cash receipts and payments.
Correct answer is: Cash budget
Q.19 Incremental budgeting is based on:
Zero-based principles
Last year’s budget plus adjustments
Flexible budgeting
Capital expenditure plans
Explanation - Incremental budgeting assumes that the previous year’s budget is a base and adjusts it for the new period.
Correct answer is: Last year’s budget plus adjustments
Q.20 Which budget is concerned with forecasted sales revenue?
Sales budget
Production budget
Cash budget
Capital budget
Explanation - A sales budget predicts the expected sales for a period, forming the basis for production and other functional budgets.
Correct answer is: Sales budget
Q.21 Controllable costs are those:
Which cannot be influenced by management
Which can be influenced by a specific manager
Which are fixed in nature
Which relate to past periods
Explanation - Controllable costs are costs that a manager can influence directly, allowing for better performance evaluation.
Correct answer is: Which can be influenced by a specific manager
Q.22 Which of the following budgets is long-term in nature?
Cash budget
Capital budget
Flexible budget
Sales budget
Explanation - Capital budgets deal with long-term investments in assets like machinery, buildings, or equipment.
Correct answer is: Capital budget
Q.23 A budget prepared for different levels of activity is called:
Fixed budget
Flexible budget
Cash budget
Functional budget
Explanation - Flexible budgets provide different budgeted figures for varying levels of activity, unlike fixed budgets.
Correct answer is: Flexible budget
Q.24 Which budget serves as a benchmark to evaluate actual performance?
Master budget
Cash budget
Expense budget
Flexible budget
Explanation - The master budget integrates all functional budgets and acts as a standard for performance evaluation.
Correct answer is: Master budget
Q.25 Variance analysis is performed to:
Calculate past profits
Identify differences between actual and budgeted figures
Determine taxation
Prepare final accounts
Explanation - Variance analysis helps management identify deviations from planned budgets and take corrective action.
Correct answer is: Identify differences between actual and budgeted figures