Budgeting Test

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Budgeting Test

• This test consists of 10 questions designed to
  test your understanding of methods of budgeting
• The links provide you with a choice of answer,
  along with explanations and solutions.
• You will need a calculator to complete this test.

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Question 1.

• A firms Budget for raw materials is 45,000,
  actual spending is 49,300. What is the variance?
• a. 4,300A
• b. 94,300A
• c. 4,300F

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Correct.
4
In an expenditure budget, an overspend is always
an Adverse (A) Variance and you take budgeted
figure from actual spend. Try again.
5
In an expenditure budget, an overspend is always
an Adverse (A) Variance and you take budgeted
figure from actual spend. Try again.
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Question 2.

• A firms variances from budget are Revenue
  4,700A, raw materials 5,100F, labour 2,100A.
  What is the total variance?
• A. 11,900F
• B. 1,700F
• C. 1,700A

7
Add together each Adverse variance, then each
Favourable variance and take one from the other.
A minus figure will be a Favourable variance
8
Add together each Adverse variance, then each
Favourable variance and take one total from the
other. A minus figure will be a Favourable
variance
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Correct
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Question 3.

• Which of the following is likely to lead to a
  favourable budget variance?
• A. Increased competition
• B. A major competitor going bust
• C. An increase in the cost of raw materials

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This will probably cause an adverse sales
variance.
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Correct. This will probably cause a favourable
sales variance
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This will cause an adverse variance in the costs
of sales budget
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Question 4.

• Which of the following is likely to lead to an
  adverse budget variance?
• A. A fall in wage inflation
• B. An increase in consumer spending
• C. An increase in raw material prices

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This will lead to a favourable variance.
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This will lead to a favourable sales variance
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Correct.
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Question 5.

• Which of the following most closely describes
  Zero Budgeting?
• A. Management increasing budgets in line with
  inflation
• B. Managers having to justify every penny of
  their budget.

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Wrong. Zero budgeting always starts with a clean
sheet.
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Correct
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Question 6.

• Inflation leads to an increase in raw material
  prices of 7, when the budgeted increase was 5.
  Last years cost of raw materials was 49,000.
  What will be the budget variance?
• A. 980A
• B. 2450F
• C. 3430A

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Correct. The answer is 2 of the budget
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The budget has increased so we have an adverse
variance. The difference is 2 of Budget Try again
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The budget has increased so we have an adverse
variance. The difference is 2 of Budget Try again
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Question 7.

• Variance Analysis is used to?
• A. Improve predictions of profitability.
• B. Improve management control of departments
• 1. Both
• 2. B only

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Wrong. There are many advantages to budgeting,
these are 2 examples of these advantages
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Correct. There are many advantages to budgeting,
these are 2 examples of these advantages.
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Question 8.

• Which of the following can result from a poorly
  managed budgeting process?
• A. Higher inflation
• B. Demotivated staff
• C. Increased variances
• 1. A and B
• 2. B and C
• 3. All of the above.

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The firm has no control over inflation! Though
inflation can cause variances.
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Correct. Firms must be careful about how they
approach the budgeting process, otherwise
disadvantages can outweigh advantages,
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The firm has no control over inflation! Though
inflation can cause variances.
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Question 9.

• A revenue budget is set which allows for
  predicted price increases of 3 over the current
  year, with no increase in sales volume. Sales for
  the previous year were 56,000. Actual sales
  achieved were 59,000. What is the variance?
• A. 3,000F
• B. 2,100A
• C. 1320F

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Calculate 3 of 56,000, and take this from the
difference between 56,000 and 59,000. As this
is a revenue budget a positive answer is a
Favourable variance
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Calculate 3 of 56,000, and take this from the
difference between 56,000 and 59,000. As this
is a revenue budget a positive answer is a
Favourable variance
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Correct You have calculated 3 of 56,000, and
taken this from the difference between
56,000 and 59,000. As this is a revenue budget
a positive answer is a Favourable variance
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Question 10.

• A budget variance of 14,000A occurs on a labour
  budget. Which of the following could have caused
  this.
• A. A planned 5 wage increase
• B. Increase in overtime worked
• C. Sales 10 above budget
• 1. A and C
• 2. All of the above
• 3. B and C

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A planned wage increase will be budgeted for!
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Two are correct but a planned wage increase will
be budgeted for!
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Correct. A planned wage increase will be
budgeted for! Whilst the other 2 will not be
built into the budget.
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You have now completed the test.