1. Budgeted sales are 12,000 units. Finished goods inventory is planned to rise from 1,500 to 2,100 units. Each unit needs 2 kg of material. Raw material inventory is planned to rise from 4,000 kg to 5,500 kg. What is the material purchases budget?

A) 23,700 kg
B) 24,000 kg
C) 25,200 kg
D) 26,700 kg

Correct: D difficult Budget preparation

Production = 12,000 + 2,100 - 1,500 = 12,600 units. Material usage = 12,600 x 2 = 25,200 kg. Purchases = usage + closing inventory - opening inventory = 25,200 + 5,500 - 4,000 = 26,700 kg. If you answered 23,700 kg you reversed the inventory adjustment. If you answered 24,000 kg you used sales instead of production. If you answered 25,200 kg you gave usage and ignored the inventory change.

2. Sales are CU 80,000 in August, CU 90,000 in September and CU 100,000 in October. 30% are cash sales. The other 70% are paid in the following month, when customers deduct a 2% discount. What are the cash receipts in October?

A) CU 90,000
B) CU 91,740
C) CU 93,000
D) CU 100,000

Correct: B difficult Cash budgeting

Cash sales in October = 30% x 100,000 = CU 30,000. Credit sales of September = 70% x 90,000 = CU 63,000, less 2% = CU 61,740. Total = CU 91,740. If you answered CU 93,000 you ignored the discount. If you answered CU 90,000 you gave September's total sales. If you answered CU 100,000 you gave October's sales.

3. Credit purchases are CU 50,000 in August, CU 60,000 in September and CU 70,000 in October. 60% is paid in the month after purchase and 40% two months after purchase. What is the payment to suppliers in October?

A) CU 54,000
B) CU 60,000
C) CU 70,000
D) CU 56,000

Correct: D difficult Cash budgeting

Payments in October = 60% x September (60,000) + 40% x August (50,000) = 36,000 + 20,000 = CU 56,000. If you answered CU 54,000 you reversed the percentages (60% x 50,000 + 40% x 60,000). If you answered CU 60,000 you paid September in full. If you answered CU 70,000 you paid October's purchases in October.

4. Which of the following items would appear in a cash budget? (1) Depreciation of equipment (2) Repayment of a bank loan (3) Provision for doubtful debts (4) Corporate income tax paid

A) (1) and (3) only
B) (1), (2) and (4) only
C) (2) and (4) only
D) (2), (3) and (4) only

Correct: C difficult Cash budgeting

A cash budget shows only cash flows. Loan repayments and tax paid are cash payments. Depreciation and the provision for doubtful debts are accounting entries that do not involve cash movement.

5. The fixed budget for 10,000 units is: sales CU 200,000, variable costs CU 120,000, fixed costs CU 50,000, profit CU 30,000. Actual output and sales were 11,200 units. What is the flexed budget profit?

A) CU 30,000
B) CU 35,600
C) CU 39,600
D) CU 89,600

Correct: C difficult Budgetary control

Selling price is CU 20 and variable cost CU 12, so contribution is CU 8 per unit. Flexed profit = 11,200 x 8 - 50,000 = CU 39,600. Fixed costs are not flexed. If you answered CU 30,000 you used the fixed budget. If you answered CU 89,600 you gave contribution without deducting fixed costs. If you answered CU 35,600 you flexed the fixed costs as well.

6. Using the flexed budget for 11,200 units (price CU 20, variable cost CU 12, fixed costs CU 50,000), actual results were: sales CU 218,000, variable costs CU 140,000 and fixed costs CU 51,000. What is the total variance between the flexed budget profit and actual profit?

A) CU 12,600 adverse
B) CU 3,600 adverse
C) CU 12,600 favourable
D) CU 15,000 adverse

Correct: A difficult Budgetary control

Actual profit = 218,000 - 140,000 - 51,000 = CU 27,000. Flexed profit is CU 39,600. The difference is CU 12,600 adverse (sales 6,000 + variable costs 5,600 + fixed costs 1,000 adverse). If you answered CU 12,600 favourable you reversed the sign. If you answered CU 15,000 you compared actual profit with a budget profit of CU 42,000. If you answered CU 3,600 you compared the flexed with the fixed budget profit.

7. Monthly sales in units for months 1 to 5 are 48, 52, 56, 53 and 61. Using a three-month moving average, what is the increase in the trend from month 3 to month 4?

A) 3.67
B) 3.00
C) 4.67
D) 5.00

Correct: B difficult Forecasting

The three-month moving average for month 3 is (52 + 56 + 53) / 3 = 53.67 and for month 4 is (56 + 53 + 61) / 3 = 56.67. The increase is 3.00. If you answered 5.00 you compared the raw sales for month 4 and month 5 (61 - 56). If you answered 3.67 you used the month 2 average of 53.00. If you answered 4.00 you compared month 4 trend with the month 2 value.

8. A regression of sales on advertising spend gives a correlation coefficient r of -0.9. Which statement is correct?

A) There is a strong negative relationship, and about 81% of the variation in sales is explained by advertising spend
B) There is a strong positive relationship, and 90% of the variation in sales is explained by advertising spend
C) There is a weak relationship, because the coefficient is negative
D) There is a strong negative relationship, and 90% of the variation in sales is explained by advertising spend

Correct: A difficult Forecasting

The sign shows direction (negative) and the size (0.9) shows strength. The coefficient of determination r squared = 0.81, so 81% of the variation is explained. A negative sign does not mean the relationship is weak, and 90% would be r, not r squared.

9. The trend in quarterly sales is given by y = 100 + 8t, where t = 1 for the first quarter of Year 1. The seasonal variation for quarter 1 is -15 (additive). What is the forecast for the first quarter of Year 3 (t = 9)?

A) 129
B) 172
C) 157
D) 187

Correct: C difficult Forecasting

Trend at t = 9 is 100 + 8 x 9 = 172. Adjusted for the seasonal variation of -15 gives 157. If you answered 172 you ignored the seasonal variation. If you answered 187 you added it instead of deducting. If you answered 129 you used t = 4.

10. Which of the following statements about budgeting methods are correct? (1) Incremental budgeting can carry forward past inefficiencies. (2) Zero-based budgeting requires every activity to be justified from a zero base. (3) A rolling budget is prepared once a year and is not updated.

A) (1) and (2) only
B) (1) only
C) (2) and (3) only
D) (1), (2) and (3)

Correct: A difficult Budget approaches

Incremental budgets add to the previous year's figures, so past inefficiencies persist (1). Zero-based budgeting starts from nothing and justifies each activity (2). A rolling budget is continuously updated, usually adding a new period as each period ends, so (3) is incorrect.

11. A company prepares a 12-month rolling budget updated each quarter. At the end of the second quarter of Year 1, which periods does the budget cover?

A) The first to fourth quarters of Year 1 only
B) The third and fourth quarters of Year 1 and the first and second quarters of Year 2
C) The third and fourth quarters of Year 1 only
D) The first and second quarters of Year 2 only

Correct: B difficult Budget approaches

A rolling budget always covers the next 12 months. When the second quarter ends, that quarter is dropped and a new quarter (Q2 of Year 2) is added, so the budget covers Q3 and Q4 of Year 1 and Q1 and Q2 of Year 2.

12. A manager expects costs of CU 90,000 but submits a budget of CU 99,000. What is the budget slack as a percentage of the submitted budget?

A) 10.0%
B) 11.1%
C) 90.9%
D) 9.1%

Correct: D difficult Behavioural aspects of budgeting

Slack = 99,000 - 90,000 = CU 9,000. As a percentage of the submitted budget = 9,000 / 99,000 = 9.1%. If you answered 10.0% you used the expected cost as the base (9,000 / 90,000). If you answered 11.1% you divided by 81,000. If you answered 90.9% you gave the expected cost as a percentage of the budget.

13. Demand for a product is 15,000 units, production capacity is 12,000 units and materials are available for 14,000 units. Which is the principal budget factor and what is the maximum sales budget?

A) Production capacity, 12,000 units
B) Sales demand, 15,000 units
C) Materials, 14,000 units
D) Production capacity, 14,000 units

Correct: A difficult Budget preparation

The principal budget factor is the factor that limits the organisation's activities. Here production capacity of 12,000 units is the most restrictive, so no more than 12,000 units can be made and sold, assuming no inventory.

14. A budget is prepared by senior managers and imposed on departments with no consultation. Which is the most likely result?

A) Budget slack is created because managers set their own targets
B) Higher motivation, because targets are set by those with the most experience
C) No behavioural effects, because the figures are the same
D) Lower commitment to the budget and a risk that targets are seen as unrealistic

Correct: D difficult Behavioural aspects of budgeting

Top-down budgets can be quick and aligned to strategy, but managers who have not been consulted may not accept the targets and may see them as unachievable. Slack is created mainly when managers set their own targets in participative budgeting.

15. Production is 12,600 units and each unit takes 0.5 direct labour hours. Idle time is 10% of the hours paid. The wage rate is CU 14 per hour. What is the direct labour budget?

A) CU 79,380
B) CU 98,000
C) CU 88,200
D) CU 97,020

Correct: B difficult Budget preparation

Productive hours = 12,600 x 0.5 = 6,300. If idle time is 10% of hours paid, productive hours are 90% of paid hours, so paid hours = 6,300 / 0.9 = 7,000. Cost = 7,000 x 14 = CU 98,000. If you answered CU 88,200 you ignored idle time. If you answered CU 97,020 you added 10% to the productive hours (6,930 hours). If you answered CU 79,380 you reduced productive hours by 10%.

16. Credit sales are: January CU 100,000, February CU 120,000, March CU 140,000. Customers pay 60% in the month of sale (taking a 2% discount), 30% in the following month and 10% in the second month after sale. What are cash receipts from customers in March?

A) CU 130,000
B) CU 127,400
C) CU 118,320
D) CU 128,320

Correct: D difficult Cash budget

March receipts = 140,000 x 60% x 98% + 120,000 x 30% + 100,000 x 10% = 82,320 + 36,000 + 10,000 = CU 128,320. If you answered CU 130,000 you ignored the discount. If you answered CU 127,400 you applied the discount to all receipts. If you answered CU 118,320 you omitted the 10% received from January sales.

17. Cost of sales is 60% of sales. Closing inventory is 50% of the next month's cost of sales. Sales are: March CU 140,000 and April CU 130,000 (March opening inventory equals half of March cost of sales). What are purchases in March?

A) CU 84,000
B) CU 81,000
C) CU 123,000
D) CU 126,000

Correct: B difficult Cash budget

March cost of sales = 84,000. Closing inventory = 50% x (130,000 x 60%) = 39,000; opening = 50% x 84,000 = 42,000. Purchases = 84,000 + 39,000 - 42,000 = CU 81,000. If you answered CU 84,000 you ignored the inventory movement. If you answered CU 123,000 you added closing inventory but did not deduct opening. If you answered CU 126,000 you added opening instead of deducting it.

18. The budget for 10,000 units shows selling price CU 20, variable cost CU 10 and fixed costs CU 60,000 (profit CU 40,000). Actual output and sales are 11,500 units. What is the flexed budget profit?

A) CU 40,000
B) CU 46,000
C) CU 55,000
D) CU 115,000

Correct: C difficult Flexible budgeting

Flexed contribution = 11,500 x 10 = CU 115,000. Fixed costs are not flexed: profit = 115,000 - 60,000 = CU 55,000. If you answered CU 40,000 you used the original budget. If you answered CU 46,000 you flexed the fixed costs by 15%. If you answered CU 115,000 you gave contribution.

19. Original budget profit is CU 40,000, flexed budget profit CU 55,000 and actual profit CU 50,000. Which analysis is correct?

A) Volume effect CU 10,000 favourable; spending effect CU 5,000 favourable
B) Volume effect CU 5,000 adverse; spending effect CU 15,000 favourable
C) Volume effect CU 15,000 favourable; spending effect CU 5,000 adverse
D) Total variance CU 10,000 favourable, all due to volume

Correct: C difficult Flexible budgeting

Original to flexed = +15,000 (activity). Flexed to actual = -5,000 (costs and prices). Total = +10,000 favourable. The first option reverses the sign of the spending effect, the second swaps the two figures, the third ignores the spending effect.

20. A regression of cost (y, CU'000) on activity (x, thousand units) over 6 observations gives: sum x = 21, sum y = 150, sum xy = 620, sum x-squared = 91. What is the forecast cost at x = 8?

A) CU 43.4 thousand
B) CU 44.0 thousand
C) CU 54.9 thousand
D) CU 49.4 thousand

Correct: D difficult Forecasting

b = (6 x 620 - 21 x 150) / (6 x 91 - 21^2) = 570 / 105 = 5.43. a = (150 - 5.43 x 21) / 6 = 6.0. y = 6.0 + 5.43 x 8 = 49.4. If you answered 43.4 you omitted the fixed element a. If you answered 44.0 you used x = 7. If you answered 54.9 you used x = 9.

21. The trend in quarterly sales is CU 500 in Q4 of Year 3 and rises by CU 12 per quarter. The seasonal variation for Q3 is -CU 24 (additive model). What is the forecast for Q3 of Year 4?

A) CU 536
B) CU 512
C) CU 560
D) CU 488

Correct: B difficult Forecasting

Q3 is three quarters ahead: trend = 500 + 3 x 12 = 536. Adding the seasonal variation: 536 - 24 = CU 512. If you answered CU 536 you left out seasonality. If you answered CU 560 you added the seasonal figure instead of deducting. If you answered CU 488 you projected the trend one quarter ahead only.

22. Quarterly sales are: Q1 120, Q2 130, Q3 150, Q4 125, Q1 140 (CU'000). A four-point moving average is centred on Q3. What is the additive seasonal variation for Q3?

A) +16.25
B) +18.75
C) +13.75
D) -16.25

Correct: A difficult Forecasting

Centred moving average at Q3 = (120/2 + 130 + 150 + 125 + 140/2) / 4 = 133.75. Variation = 150 - 133.75 = +16.25. If you answered +18.75 you used an uncentred average of the first four quarters. If you answered +13.75 you used the uncentred average of the next four. If you answered -16.25 you subtracted in the wrong direction.

23. Which TWO of the following statements are correct? (1) Zero-based budgeting requires every cost to be justified from a nil base. (2) Incremental budgeting bases the budget on the previous period's actual or budget with adjustments. (3) A rolling budget is prepared once a year and is not updated.

A) (1) and (3)
B) (2) and (3)
C) (1) and (2)
D) (1) only

Correct: C difficult Budgeting methods

Zero-based and incremental budgeting are as described. A rolling budget is updated regularly by adding a new period as each period ends.

24. Sales are 5,000 units. Finished goods inventory moves from 800 to 1,000 units. Each unit needs 3 kg of material. Raw materials inventory moves from 1,500 kg to 2,000 kg. What are material purchases in kg?

A) 15,100 kg
B) 16,100 kg
C) 15,600 kg
D) 16,600 kg

Correct: B difficult Operating budgets

Production = 5,000 + 1,000 - 800 = 5,200 units. Usage = 15,600 kg. Purchases = 15,600 + 2,000 - 1,500 = 16,100 kg. If you answered 15,100 you reversed the inventory movement. If you answered 15,600 you gave usage. If you answered 16,600 you added the opening inventory.

25. Production is 5,200 units needing 2.5 standard hours each. Workers are paid for all hours but are only 80% efficient (productive). The wage rate is CU 12 per hour. What is the labour cost budget?

A) CU 195,000
B) CU 156,000
C) CU 39,000
D) CU 187,200

Correct: A difficult Operating budgets

Standard hours = 13,000. Hours paid = 13,000 / 0.8 = 16,250. Cost = 16,250 x 12 = CU 195,000. If you answered CU 156,000 you ignored the inefficiency. If you answered CU 39,000 you gave only the cost of the non-productive hours. If you answered CU 187,200 you multiplied hours by 1.2 (13,000 x 1.2 x 12).