Budgeting MCQs

Practice and Learn through MCQs and Quizzes. W3Definitions.com have 8 Budgeting MCQs

Accounting MCQ13- A static budget

  • A. Drops the current month or quarter and adds a future month or a future quarter as the current month or quarter is completed.
  • B. Presents a statement of expectations for a period but does not present a firm commitment.
  • C. Presents the plan for only one level of activity and does not adjust to changes in the level of activity.
  • D. Presents the plan for a range of activity so that the plan can be adjusted for changes in activity.
  • Answer (C) is correct. A static budget plans for only one level of activity and does not provide for changed levels of activity.
  • Correct Answer: Option C

Accounting MCQ14- performance report for a cost center using flexible budgeting techniques

  • A. Budgeted amount in the original budget prepared before the beginning of the year.
  • B. Actual amount for the same period in the preceding year.
  • C. Budget adjusted to the actual level of activity for the period being reported.
  • D. Budget adjusted to the planned level of activity for the period being reported.
  • Answer (C) is correct. If a report is to be used for performance evaluation, the planned cost column should be based on the actual level of activity for the period. The ability to adjust amounts for varying activity levels is the primary advantage of flexible budgeting.
  • Correct Answer: Option C

Accounting MCQ15- the difference between a flexible budget and a static budget

  • A. A flexible budget primarily is prepared for planning purposes, while a static budget is prepared for performance evaluation.
  • B. A flexible budget provides cost allowances for different levels of activity, whereas a static budget provides costs for one level of activity.
  • C. A flexible budget includes only variable costs, whereas a static budget includes only fixed costs.
  • D. A flexible budget is established by operating management, while a static budget is determined by top management.
  • Answer (B) is correct. A flexible budget provides cost allowances for different levels of activity, but a static budget provides costs for only one level of activity. Both budgets show the same types of costs. In a sense, a flexible budget is a series of budgets prepared for many different levels of activity. A flexible budget allows adjustment of the budget to the actual level of activity before comparing the budgeted activity with actual results.
  • Correct Answer: Option B

Accounting MCQ16- flexible budget is appropriate for

  • A. Control of direct labor and direct materials but not fixed factory overhead.
  • B. Control of fixed factory overhead but not direct materials and direct labor.
  • C. Control of direct materials and direct labor but not selling and administrative expenses.
  • D. Any level of activity.
  • Answer (A) is correct. A flexible budget is actually a series of several budgets prepared for many levels of operating activity. A flexible budget is designed to allow adjustment of the budget to the actual level of activity before comparing the budgeted activity with actual results. This flexibility is important if costs vary with the activity level. Thus, a flexible budget is particularly appropriate for control of direct labor and direct materials (both variable costs), but is not necessary for control of fixed factory overhead. By definition, overhead costs do not change as activity levels change.
  • Correct Answer: Option A

Accounting MCQ17- Selo Imports uses flexible budgeting for the control of costs

  • A. $350 favorable
  • B. $350 unfavorable
  • C. $1,000 unfavorable
  • D. $1,000 favorable
  • Answer (C) is correct. The budget (spending) variance for fixed O/H equals actual minus budgeted fixed O/H. The $324,000 cost of supervisory salaries is fixed and is incurred at $27,000 per month. Thus, the variance is the difference between actual costs of $28,000 and the bud of $27,000, or $1,000 unfavorable.
  • Correct Answer: Option C

Accounting MCQ18- Red Rock Company uses flexible budgeting for cost control

  • A. $13,000
  • B. $13,975
  • C. $13,500
  • D. $11,700
  • Answer (C) is correct. The cost of indirect materials for 144,000 units was expected to be $180,000. Consequently, the budgeted unit cost of indirect materials is $1.25 ($180,000 � 144,000). Multiplying the $1.25 unit cost times the 10,800 units actually produced results in an expected total indirect materials cost of $13,500.
  • Correct Answer: Option C

Accounting MCQ19- Flexible budgets

  • A. Provide for external factors affecting company profitability.
  • B. Accommodate changes in activity levels.
  • C. Are budgets that project costs based on anticipated future improvements.
  • D. Are used to evaluate capacity use.
  • Answer (B) is correct. A flexible budget is actually a series of budgets prepared for various levels of activity. A flexible budget adjusts the master budget for changes in activity so that actual results can be compared with meaningful budget amounts.
  • Correct Answer: Option B

Accounting MCQ20- When compared to static budgets, flexible budgets

  • A. Offer managers a more realistic comparison of budget and actual revenue and cost items under their control.
  • B. Provide a better understanding of the capacity variances during the period being evaluated.
  • C. Encourage managers to use fewer fixed cost items and more variable cost items that are under their control.
  • D. Offer managers a more realistic comparison of budget and actual fixed cost items under their control
  • Answer (A) is correct. A flexible budget provides managers with the revenues and costs that �should� have been earned and incurred given the actual level of production achieved. This information is far more useful than the static budget prepared before the fiscal period began when the production level was uncertain.
  • Correct Answer: Option A