MCQ On Budget and Budgetary Control | Multiple Choice Questions and Answers

[MCQ on Budget and Budgetary Control, MCQ on Budget and Budgetary Control, MCQ on Budgets, Management Accounting MCQ]


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1.         A budget is a detailed plan of operations for future periods.

2.         A factor which influences all other budgets is called key factor.

3.         Forecasting leads to budgeting and budgeting leads to budgetary control.

4.         A budget is an aid to management.

5.         A budget is a projected plan of action in Physical units & monetary terms.

6.         Budget relating to key factor should be prepared first.

7.         A budget is essentially a quantitative statement of some future period of time.

8.         Budgeting refers to the process of preparing the budgets.

9.         Budgeting can be applied in parts.

10.     Budgetary control starts with budgeting and ends with control.

11.     Budgetary control is a continuous process which helps in planning, coordination and control.

12.     Budgetary control is a system of controlling costs.

13.     Budget is a means and budgetary control is the end result.

14.     A budget manual spells out duties and responsibilities of various executives concerned with budgets.

15.     The chief executive who is at the top of the organization appoints budget officer who scrutinizes and changes various budgets.

16.     Budget committee is formed with the heads of all departments which is made responsible for preparation and implementation of budgets.

17.     Budget period is the length of time for which a budget is prepared.

18.     Budget period may be different for different industries.

19.     Master budget incorporate all functional budgets.

20.     Zero base budgeting was first used by Jimmy Carter.

21.     Zero base budgets starts with zero.

22.     The first step in ZBB is the definition of the objectives of budgeting.

23.     Zero base budgeting over comes the weakness of conventional budgeting.

24.     A cash budget is an estimated projection of the company's cash position in the future.

25.     Cash flow method of cash budget is suitable for preparing the long term estimates of cash inflows and outflows.

26.     Classification of budget on the basis of capacity – Fixed and Flexible budget.

27.     Classification of budget on the basis of functions – Master and subsidiary budgets.

28.     Classification of budgets on the basis of time – Long term budgets, short term budgets and current budgets.

29.     3. Cash budget is a part of Financial budget.

30.     Functional budgets are subsidiary to master budget.

31.     Performance budget is a programme of action for a given period.

32.     Performance budgeting is also known as planning, programming and budgeting decisions.

33.     Performance budget is based on accomplishment of the past.

34.     A forecast is the statement of events likely to occur.

35.     Efficiency ratio shows the level of efficiency attained during the budget period.

36.     Calendar ratio = (Number of actual working days in a period/ Budgeted working days for the period) × 100

37.     Capacity Ratio = (Actual hours worked production/Budget hours) × 100

38.     The flow of decision is upward in performance budgeting.

39.     The flow of decision is downward in traditional budgeting.

40.     The approach in performance budgeting is prospective.

41.     The approach in traditional budgeting is retrospective.

State whether the following statements are True or False:

1.         Budget relating to key factor should be prepared last.  False

2.         Budgeting may be said to be the art of building a budget.        True

3.         Efficiency ratio determines the capacity used by the factory.   False

4.         Calendar ratio calculates the ratio between actual and budgeted days.          True

5.         Zero base budgeting will be appropriate in areas where output is not related to production.                    True

6.         Flexible budgets change with the level of activity.                     True

7.         Budgeting may be said to be an act of determining costing standards.            False

8.         A budget centre is that part of the organization for which the budget is prepared.     True

9.         A budget centre may be a department, section of a department or any other part of the department.                    True

10.     A budget manual clearly defines the objectives of budgetary control system. True

11.     In small scale concerns, the accountant is made responsible for preparation and implementation of budgets. True

12.     In large scale concerns budget committee is formed with the heads of all departments which is made responsible for preparation and implementation of budgets.           True

13.     Budget period may be same in same industry or business.       False

14.     Zero base budget starts with previous year balance.     False

15.     In Zero Based budgeting no reference is made to previous level expenditure.            True

16.     In ZBB, Cost benefit analysis is undertaken for each activity of the decision unit.        True

17.     Zero base budgeting will be appropriate in areas where output is not related to production.                    True

18.     Cash Budget is short term in nature.      True

19.     A key factor or principal factor does not influence the preparation of all other budgets.        True

20.     Receipts and Payment method of cash budget is the most commonly used method in forecasting the short term cash position. 

21.     Master budget is the summary of all functional budgets.      True       

22.     The production budget is prepared by the chief executives of the production department. True

23.     A sales Budget is not prepared on the basis of production budget.       True

24.     A production budget is prepared on the basis of sales budget. True

25.     Rolling budget is also known as continuous budget.      True

26.     Sales presented in sales budget is only an estimate not the final figure.          True

27.     Budgetary control does not facilitate introduction of ‘Management by Exception’.                 False

28.     A flexible budget is one, which changes from year to year.      False

29.     A flexible budget recognises the difference between fixed, semi-fixed and variable cost and is designed to change in relation to the change in level of activity.        True

30.     Sales budget, normally, is the most important budget among all budgets.      True

31.     Flexible budgets change with the level of activity.         True

32.     Responsibility accounting is a very old technique of control.    False

33.     Responsibility accounting is also known as profitability accounting.     True

34.     Responsibility accounting is used as a control device.   True

35.     Responsibility centres are usually classified into four classes.              False

36.     Responsibility accounting is not only a control device but it is helpful in cost planning and decision making.       True

37.     In efficiency ratio, standard hours are compared with actual hours.    True

38.     Calendar ratio is used to measure the proportion of actual working days to budgeted working days in a budget period.                 True

39.     Capacity ratio indicates the extent to which budgeted hours of activity is actually utilised.   True

40.     Budgetary control and standard costing are same.                  True

41.     Budgeted balance sheet is not a financial budget.   False

42.     Statement of retained earnings budget is a financial budget.             True

Choose the correct options (MCQs):

1. The basic difference between a flexible budget and fixed budget is that a fixed budget:

a) Is concerned with fixed expenses whereas flexible budget is on different activity levels.

b) Cannot be changed whereas flexible budget can be easily changed.

c) Is a budget for single measure of activity whereas flexible budget is on different activity levels.

2) A flexible budget requires careful study and classification of expenses into:

a) Past and current expenses

b) Fixed, Semi-variable and variable expenses

c) Administrative, selling and factory expenses

3) Which one of the following is not a financial budgets?

a) Cash Budget

b) Working Capital Budget

c) Capital Expenditure budget

d) All of the above

4) Responsibility areas are divided into three broad categories. Which one of the following is not included in it:

a) Cost/Expense centre

b) Profit Centre

c) Investment Centre

d) Loan centre

5) Which one the following are functional budget?

a) Production and sales budget

b) Raw material budget

c) Labour budget

d) All of the above

6) Production budget is dependent on:

a) Purchase budget

b) Sales budget

c) Cash budget

d) Overhead budgets

7) Long term budgets are prepared for:

a) Capital Expenditure

b) Research and Development

c) Long Term Finances

d) All of the above

8) Budgetary control helps in implementation of:

a) Standard Costing

b) Marginal Costing

c) Ratio Analysis

9) Budgetary control system facilitates centralized control with:

a) Decentralized activity

b) Centralized activity

c) Both a) and b)

d) None of the above

10) Budgetary control system acts as a friend, philosopher and guide to the:

a) Management

b) Shareholders

c) Creditors

d) Employees

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