Do You Know Budgetary Control? Play This Quiz

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  • 1/18 Questions

    A quantitative expression of management objectives is a(n)

    • Organizational chart
    • Management chart
    • Budget
    • Procedural chart
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About This Quiz

Budgetary control is a system in which actual income and spending are compared with planned income and spending so a planner can see if they should change some things on the budget to make a profit. How much do you know about budgetary control? Take the quiz and test your understanding.

Do You Know Budgetary Control? Play This Quiz - Quiz

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  • 2. 

    Operations budget normally cover a period of

    • One year or less

    • One to two years

    • One to five years

    • One to ten years

    Correct Answer
    A. One year or less
    Explanation
    The correct answer is one year or less. An operations budget typically covers a shorter time frame, usually one year or less. This is because operational expenses and financial projections can change rapidly, so it is more practical to plan and allocate resources for a shorter period. Additionally, a shorter budget period allows for more flexibility in adjusting financial plans and adapting to any unforeseen circumstances or changes in the business environment.

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  • 3. 

    A budgeting process wherein middle and lower level managers plan either in general or specific terms what they believe to be realistic expectation of what their performance should be is called a(n)

    • Authoritative budget

    • Participative budget

    • Master budget

    • Organization budget.

    Correct Answer
    A. Participative budget
    Explanation
    A participative budget is a budgeting process where middle and lower level managers are involved in the planning and decision-making process. They have the opportunity to provide input and contribute their ideas and expertise to create a realistic expectation of their performance. This approach fosters collaboration and empowers managers by giving them a sense of ownership and responsibility in the budgeting process. It also helps in improving communication and coordination among different levels of management within the organization.

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  • 4. 

    Which of the following is a correct definition of the principal budget factor

    • The factor which limits the activities of undertaking.

    • That factor which maximize sales.

    • The factor which most members feel is important.

    • The amount of cash available during the budget period.

    Correct Answer
    A. The factor which limits the activities of undertaking.
    Explanation
    The principal budget factor refers to the factor that restricts or constrains the activities of an undertaking. It sets the boundaries or limitations within which the budgeting process must operate. This factor determines the maximum level of resources that can be allocated to various activities and helps in making decisions regarding resource allocation and prioritization. It is crucial for effective budget planning and ensures that the organization stays within its financial constraints while achieving its objectives.

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  • 5. 

     A common reason why a person may fail to attain a target set for him by his superior is because he

    • Did not know he had a target.

    • Felt the target was to difficult

    • Has no respect for his superior

    • Was not given enough time for the job.

    Correct Answer
    A. Felt the target was to difficult
    Explanation
    One possible explanation for the given correct answer is that the person may have felt that the target set for him by his superior was too difficult to achieve. This could have led to a lack of motivation or confidence in his ability to meet the target, resulting in failure to attain it.

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  • 6. 

    The level of attainment in the budget refer to

    • The extent to which actual cost differ from that budgeted.

    • The performance of employees and management.

    • The level of operating standard at which the budget is set

    • The volume of output achieved

    Correct Answer
    A. The level of operating standard at which the budget is set
    Explanation
    The level of attainment in the budget refers to the standard or benchmark at which the budget is set. It indicates the expected level of performance or achievement that the budget is based on. This means that the budget is created with a specific operating standard in mind, and the level of attainment measures how closely the actual performance aligns with this standard. It does not refer to the extent of cost differences or employee performance, but rather focuses on the target or goal that the budget aims to achieve.

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  • 7. 

     A cost item varies in proportion to man-hours. The basic budget is set as Rs 1,000 when 100 man-hours are planned. What variance is reported when actual expenditure is Rs. 1,050 and 100 man- hours are worked, when a fixed budgeting system is in operation?

    • Rs. 50(f)

    • Rs. 10(a)

    • Rs. 155(a)

    • Rs. 50(a)

    Correct Answer
    A. Rs. 50(a)
    Explanation
    The variance reported when actual expenditure is Rs. 1,050 and 100 man-hours are worked in a fixed budgeting system is Rs. 50(a). This means that the actual expenditure exceeded the budgeted amount by Rs. 50. The "(a)" indicates that it is an adverse variance, meaning that the actual expenditure is higher than the budgeted amount.

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  • 8. 

     A budget for direct material cost is set at Rs. 5,000 for 1,000 kg. of  product. Actual cost is Rs. 5,400. A flexible budgeting system is in operation. What variance is reported where actual production is 1,200 kg and it is budgeted that all material will be obtained at a 5% discount where total production is in excess of 1,100 kg?

    • Rs.400 (a)

    • Rs.300 (f)

    • Rs. 100(f)

    • Rs.900(f)

    Correct Answer
    A. Rs.300 (f)
    Explanation
    The correct answer is Rs.300 (f). This means that there is a favorable variance of Rs.300. The budget for direct material cost is set at Rs.5,000 for 1,000 kg of product. However, the actual cost is Rs.5,400, which is Rs.400 higher than the budgeted amount. Since the actual production is 1,200 kg and it is budgeted that all material will be obtained at a 5% discount for production in excess of 1,100 kg, this results in a favorable variance of Rs.300.

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  • 9. 

    A budgeting process wherein each and every line of master budget is specified by upper level management is called a(n)

    • Authoritative budget

    • Participative budget

    • Master budget

    • Organization budget

    Correct Answer
    A. Authoritative budget
    Explanation
    An authoritative budget is a budgeting process where upper level management specifies each and every line of the master budget. This means that the budget is created and imposed by those in positions of authority and there is little to no input or involvement from lower level employees or departments. This type of budgeting approach is often used in top-down management structures where decision-making power is concentrated at the top of the organizational hierarchy.

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  • 10. 

    Product unit are produced at the rate of 3 units per useful direct labour hour. Direct labour idle time is 10% of hour paid for. Sales of 500 units are planned and finished goods stock is budget to rise by 40 units. Which of the following is direct labour budget (hours)

    • 1,620 hours

    • 162 hours

    • 200 hours

    • 180 hours

    Correct Answer
    A. 200 hours
    Explanation
    The direct labor budget is calculated by dividing the planned production (500 units + 40 units) by the production rate (3 units per hour). This gives us a total of 180 hours. However, since there is a 10% direct labor idle time, we need to add an additional 10% to the total, resulting in a final direct labor budget of 200 hours.

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  • 11. 

    The question of raw material in the purchases budget may be higher than the quantity of raw material in the production budget because:

    • Stock level are being reduced

    • Raw material prices are falling

    • The company obtains discount for bulk purchases

    • Units sold will be higher than units sold.

    Correct Answer
    A. The company obtains discount for bulk purchases
    Explanation
    The correct answer is that the company obtains a discount for bulk purchases. This means that when the company purchases raw materials in large quantities, they receive a discount on the cost per unit. As a result, the cost of raw materials in the purchases budget may be higher than the quantity of raw materials in the production budget, as the company is able to acquire more raw materials for a lower overall cost.

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  • 12. 

    Negative feedback may defined as

    • Providing misleading information to the management

    • Seeking to dampen the effect of any fluctuation from budget

    • Reporting only negative or adverse variances from budget.

    • Information which will reduce the level of expenditure.

    Correct Answer
    A. Seeking to dampen the effect of any fluctuation from budget
    Explanation
    Negative feedback may be defined as seeking to dampen the effect of any fluctuation from budget. This means that negative feedback is aimed at minimizing or downplaying any deviations or changes from the budgeted plan. It is not about providing misleading information, reporting only negative variances, or reducing expenditure. Instead, it focuses on mitigating the impact of any budget fluctuations, potentially by highlighting areas where the budget may have been exceeded or not met.

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  • 13. 

    A budget in which a responsibility centre manager must justify each planned activity and its estimated total cost is called a

    • Conventional budget

    • Master budget

    • Programme planning and budget system

    • Zero-based budget

    Correct Answer
    A. Zero-based budget
    Explanation
    A zero-based budget is a type of budget where a responsibility centre manager must justify each planned activity and its estimated total cost. Unlike conventional budgets where previous budgets are used as a baseline, a zero-based budget starts from scratch and requires managers to justify all expenses. This approach helps ensure that all activities and costs are thoroughly evaluated and prioritized based on their value and necessity.

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  • 14. 

    The direct material usage budget and direct material purchases budget differ because of which of the following?

    • The level of material scrap forecast occur.

    • The level of efficiency of men or machines.

    • A change in the level of finished goods stock

    • A planned change in the level of material stock

    Correct Answer
    A. A planned change in the level of material stock
    Explanation
    The direct material usage budget and direct material purchases budget differ because of a planned change in the level of material stock. This means that the company has made a deliberate decision to increase or decrease their inventory of materials. The direct material usage budget focuses on the amount of materials that will be used in production, while the direct material purchases budget focuses on the amount of materials that need to be purchased to maintain the desired level of inventory. Therefore, if there is a planned change in the level of material stock, it will impact the direct material purchases budget.

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  • 15. 

    Lack of goal congruence will usually result in:

    • Individual managers not attempting to profit maximize in their own departments

    • Coordination of effort between department.

    • Significant inflation of budgets through budget padding

    • The company’s profitability being lower than anticipated.

    Correct Answer
    A. The company’s profitability being lower than anticipated.
    Explanation
    Lack of goal congruence means that individual managers are not aligned with the overall goal of profit maximization for the company. Instead, they focus on maximizing profits in their own departments, which can lead to a lack of coordination and inefficiency. This lack of coordination can result in significant budget inflation as managers pad their budgets to protect their own interests. Ultimately, this can negatively impact the company's profitability, causing it to be lower than anticipated.

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  • 16. 

    Which of the following objectives is not a primary purpose of preparing a budget?

    • To provide a basis for comparison of actual performance.

    • To communicate the company’s plans throughout the organization

    • To control income and expenditure in a given period

    • To ensure that the company expends its operation.

    Correct Answer
    A. To ensure that the company expends its operation.
    Explanation
    The primary purpose of preparing a budget is to control income and expenditure in a given period. This involves setting financial goals, allocating resources, and monitoring actual performance against the budgeted targets. The budget also serves as a basis for comparison of actual performance, allowing the company to identify any variances and take corrective actions. Additionally, the budget helps in communicating the company's plans throughout the organization, ensuring that everyone is aligned and working towards the same goals. However, ensuring that the company expends its operation is not a primary purpose of preparing a budget.

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  • 17. 

    Which of the following operations would normally be carried out first when preparing a master budget ?

    • Calculating overhead absorption rates.

    • Determining the budget period

    • Identifying the principal budget factor.

    • Preparing a forecast profit and loss account.

    Correct Answer
    A. Determining the budget period
    Explanation
    Determining the budget period would normally be carried out first when preparing a master budget. This is because the budget period determines the time frame for which the budget will be prepared. It sets the duration for which the budget will be effective and helps in planning and organizing the budgeting process. Once the budget period is determined, the other operations such as calculating overhead absorption rates, identifying the principal budget factor, and preparing a forecast profit and loss account can be carried out accordingly.

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  • 18. 

    What type of budget is designed to take into account forecast changes in costs, prices, etc.?

    • Rolling budget

    • Functional budget

    • Flexible budget

    • Master budget

    Correct Answer
    A. Rolling budget
    Explanation
    A rolling budget is designed to take into account forecast changes in costs, prices, etc. It is a continuous budgeting process where future periods are added to the budget as current periods are completed. This allows for adjustments and revisions to be made based on changing circumstances and new information. This type of budget is flexible and adaptable, making it suitable for situations where there is uncertainty or volatility in costs and prices.

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  • Current Version
  • Mar 18, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Aug 14, 2011
    Quiz Created by
    OnlineSmartClass
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