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.
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
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.
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
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
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
This will probably cause an
adverse sales variance.
Correct. This will probably cause a
favourable sales variance
This will cause an adverse variance in the
costs of sales budget
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
This will lead to a favourable variance.
This will lead to a favourable sales variance
Correct.
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.
Wrong.
Zero budgeting always starts with a clean sheet.
Correct
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
Correct. The answer is 2% of the budget
The budget has increased so we have an
adverse variance. The difference is 2% of Budget
Try again
The budget has increased so we have an
adverse variance. The difference is 2% of Budget
Try again
Variance Analysis is used to?
A. Improve predictions of profitability.
B. Improve management control of departments
1. Both
2. 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.
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.
The firm has no control over inflation!
Though inflation can cause variances.
Correct. Firms must be careful about how
they approach the budgeting process, otherwise
disadvantages can outweigh advantages,
The firm has no control over inflation!
Though inflation can cause variances.
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
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
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
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
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
A planned wage increase will be budgeted for!
Two are correct
but 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.