Budgeting TestBudgeting Test

This test consists of 10 questions This test consists of 10 questions designed to test your understanding designed to test your understanding of methods of budgetingof methods of budgeting

The links provide you with a choice of The links provide you with a choice of answer, along with explanations answer, along with explanations and solutions.and solutions.

You will need a calculator to complete You will need a calculator to complete this test.this test.

Question 1.Question 1.

A firms Budget for raw materials is £45,000, A firms Budget for raw materials is £45,000, actual spending is £49,300. What is the actual spending is £49,300. What is the variance?variance?

a. £4,300Aa. £4,300A

b. £94,300Ab. £94,300A

c. £4,300Fc. £4,300F

Correct.

In an expenditure budget, an overspend is always an Adverse (A) Variance and you take budgeted figure from actual spend. Try again.

In an expenditure budget, an overspend is always an Adverse (A) Variance and you take budgeted figure from actual spend. Try again.

Question 2.Question 2.

A firms variances from budget are; Revenue A firms variances from budget are; Revenue £4,700A, raw materials £5,100F, labour £4,700A, raw materials £5,100F, labour £2,100A. What is the total variance?£2,100A. What is the total variance?

A. £11,900FA. £11,900F

B. £1,700FB. £1,700F

C. £1,700AC. £1,700A

Add together each Adverse variance, then each Favourable variance and take one from the other. A minus figure will be a Favourable variance

Add together each Adverse variance, then each Favourable variance and take one total from the other. A minus figure will be a Favourable variance

Correct

Question 3.Question 3.

Which of the following is likely to lead to a Which of the following is likely to lead to a favourable budget variance?favourable budget variance?

A. Increased competitionA. Increased competition

B. A major competitor going bustB. A major competitor going bust

C. An increase in the cost of raw materialsC. An increase in the cost of raw materials

This will probably cause an adverse sales variance.

Correct. This will probably cause a favourable sales variance

This will cause an adverse variance in thecosts of sales budget

Question 4.Question 4.

Which of the following is likely to lead to an Which of the following is likely to lead to an adverse budget variance?adverse budget variance?

A. A fall in wage inflationA. A fall in wage inflation

B. An increase in consumer spendingB. An increase in consumer spending

C. An increase in raw material pricesC. An increase in raw material prices

This will lead to a favourable variance.

This will lead to a favourable sales variance

Correct.

Question 5.Question 5.

Which of the following most closely describes Which of the following most closely describes Zero Budgeting?Zero Budgeting?

A. Management increasing budgets in line A. Management increasing budgets in line with inflationwith inflation

B. Managers having to justify every penny of B. Managers having to justify every penny of their budget.their budget.

Wrong.Zero budgeting always starts with a clean sheet.

Correct

Question 6.Question 6.

Inflation leads to an increase in raw material Inflation leads to an increase in raw material prices of 7%, when the budgeted increase prices of 7%, when the budgeted increase was 5%. Last years cost of raw materials was was 5%. Last years cost of raw materials was £49.000. What will be the budget variance?£49.000. What will be the budget variance?

A. £980AA. £980A

B. £2450FB. £2450F

C. £3430AC. £3430A

Correct. The answer is 2% of the budget

The budget has increased so we have anadverse variance. The difference is 2% of BudgetTry again

The budget has increased so we have anadverse variance. The difference is 2% of BudgetTry again

Question 7.Question 7.

Variance Analysis is used to?Variance Analysis is used to?

A. Improve predictions of profitability.A. Improve predictions of profitability.

B. Improve management control of B. Improve management control of departmentsdepartments

1. Both1. Both

2. B only2. B only

Wrong. There are many advantages to budgeting, these are 2 examples of these advantages

Correct. There are many advantages to budgeting, these are 2 examples of these advantages.

Question 8.Question 8.

Which of the following can result from a poorly Which of the following can result from a poorly managed budgeting process?managed budgeting process?

A. Higher inflationA. Higher inflation

B. Demotivated staffB. Demotivated staff

C. Increased variancesC. Increased variances

1. A and B1. A and B

2. B and C2. B and C

3. All of the above.3. All of the above.

The firm has no control over inflation! Though inflation can cause variances.

Correct. Firms must be careful about howthey approach the budgeting process, otherwise disadvantages can outweigh advantages,

The firm has no control over inflation! Though inflation can cause variances.

Question 9.Question 9.A revenue budget is set which allows for A revenue budget is set which allows for

predicted price increases of 3% over the current predicted price increases of 3% over the current year, with no increase in sales volume. Sales for year, with no increase in sales volume. Sales for the previous year were £56,000. Actual sales the previous year were £56,000. Actual sales achieved were £59,000. What is the variance?achieved were £59,000. What is the variance?

A. £3,000FA. £3,000F

B. £2,100AB. £2,100A

C. £1320FC. £1320F

Calculate 3% of £56,000, and takethis from the difference between £56,000and £59,000. As this is a revenue budget a positive answer is a Favourable variance

Calculate 3% of £56,000, and takethis from the difference between £56,000and £59,000. As this is a revenue budget a positive answer is a Favourable variance

Correct You have calculated 3% of £56,000, and taken this from the difference between £56,000and £59,000. As this is a revenue budget a positive answer is a Favourable variance

Question 10.Question 10.A budget variance of £14,000A occurs on a A budget variance of £14,000A occurs on a

labour budget. Which of the following could labour budget. Which of the following could have caused this.have caused this.

A. A planned 5% wage increaseA. A planned 5% wage increase

B. Increase in overtime workedB. Increase in overtime worked

C. Sales 10% above budgetC. Sales 10% above budget

1. A and C1. A and C

2. All of the above2. All of the above

3. B and C3. B and C

A planned wage increase will be budgeted for!

Two are correctbut a planned wage increase will be budgeted for!

Correct. A planned wage increase will be budgeted for! Whilst the other 2 will not be built into the budget.

You have now completed the test. For further

more detailed revision please use the case studies on the ALoA web site.

www.aloa.co.uk