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

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MCQs on BUDGET AND BUDGETARY CONTROL

MULTIPLE CHOICE QUESTIONS AND ANSERS (MCQs)

Hey guys, welcome back. In this post you will get more 135+ MCQs on budget and budgetary control. Also you will get here Sales Budgets MCQs, Production Budget MCQs, Flexible Budget MCQ and cash budget mcqs.

You can also go through various links given below in the article for Chapter wise Management Accounting MCQs.

Introduction to Budget and Budgetary Control

Budget: A budget is the monetary and / or quantitative expression of business plans and policies to be pursued in the future period of time. Budgeting is preparing budgets and other procedures for planning, coordination and control or business enterprises.

Budgeting refers to the process of preparing the budgets. It involves a detailed study of business environment clearly grasping the management objectives, the available resources of the enterprise and capacity of the enterprise.

Budgetary control is the process of preparation of budgets for various activities and comparing the budgeted figures for arriving at deviations if any, which are to be eliminated in future. Thus budget is a means and budgetary control is the end result. Budgetary control is a continuous process which helps in planning and coordination. It also provides a method of control.

According to Brown and Howard “Budgetary control is a system of coordinating costs which includes the preparation of budgets, coordinating the work of departments and establishing responsibilities, comparing the actual performance with the budgeted and acting upon results to achieve maximum profitability”.

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.

d) None of the above

Ans: 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

d) None of the above

Ans: b) Fixed, Semi-variable and variable expenses

3) Which one of the following is a financial budget?

a) Cash Budget

b) Working Capital Budget

c) Capital budget

d) All of the above

Ans: d) All of the above

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4) Which one of the following is not a financial budget?

a) Cash budget

b) Capital budget

c) Budgeted funds flow statement

d) Sales budget

Ans: d) Sales budget

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

Ans: d) All of the above

6) Which one of the following is not a functional budget?

a) Sales budget

b) Purchasing budget

c) Production budget

d) Budgeted balance sheet

Ans: d) Budgeted balance sheet

7) 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

Ans: d) Loan centre

8) Which from the options below is not a step from budgetary control?

a) Establishing a plan or target of performance

b) Recording of actual performance

c) Comparing the actual with budgeted figures to find out variances.

d) None of the above

Ans: d) None of the above

9) Long term budgets are prepared for:

a) Capital Expenditure

b) Research and Development

c) Long Term Finances

d) All of the above

Ans: d) All of the above

10) Short term budget is prepared for:

a) Liquidity

b) Working Capital Management

c) To exercise control over day to day expenditure

d) All of the above

Ans: d) All of the above

11) Which of the following is not a part (component) of master budget?

a) Sales budget

b) Production budget

c) Cash budget

d) All of the above

Ans: d) All of the above

12) Cash budget is based on:

a) Sales forecasts

b) Expenses budgets

c) Capital expenditure budget

d) All of the above

Ans: d) All of the above

13) Budgetary control helps in implementation of:

a) Standard Costing

b) Marginal Costing

c) Ratio Analysis

d) Technical Analysis

Ans: a) Standard Costing

14) Budgetary control system facilitates centralized control with:

a) Decentralized activity

b) Centralized activity

c) Both a) and b)

d) None of the above

Ans: c) Both a) and b)

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

a) Management

b) Shareholders

c) Creditors

d) Employees

Ans: a) Management

16) The process of budgeting helps in the control of:

a) Cost of Production

b) Short term liquidity position

c) Capital Expenditure

d) All of the above

Ans: d) All of the above

17) The main objective of budgetary control is:

a) To define the goals of the organisation

b) To co-ordinate different department or sub-units

c) To establish a system of planning and control

d) All of the above

Ans: d) All of the above

18) Summary budget may be regarded as:

a) Functional budgets

b) Performance budget

c) Master budget

d) Sales budget

Ans: c) Master Budget

19) The budgets are classified on the basis of:

a) Capacity

b) Time

c) Functions

d) All of the above

Ans: d) All of the above

20) Which budget is the first step of budgetary system and all other budgets depends on it?

a) Cash Budget

b) Production Budget

c) Sales Budget

d) Master Budget

Ans: c) Sales Budget

21) Which of the following is not an advantage of budgeting?

a) It defines the objective of the organisation

b) It indicates the efficiency of the organisation

c) It helps in measuring productive efficiency

d) It creates coordination between various levels of management

Ans: d) It creates coordination between various levels of management

22) Which of the following is not objective of budgetary control process?

a) To define the goals of the organisation

b) To co-ordinate different department or sub-units

c) To establish a system of planning and control

d) To help in fixation of selling price

Ans: d) To help in fixation of selling price

23. Which one of the following is not part of the budgetary control process?

a) Preparation and Presentation of budgets.

b) Approval and execution of budgets

c) Control of budgets

d) None of the above

Ans: d) None of the above

24) Which of the following statements about budgeting is incorrect?

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

b) Flexible budgets change with the level of activity.       

c) Budgeting may be said to be an act of determining costing standards.          

d) A budget centre is that part of the organization for which the budget is prepared.    

Ans: c) Budgeting may be said to be an act of determining costing standards. 

25) Select the correct statement about the master budget.

a) Master budget incorporate all functional budgets.  

b) Master budget is prepared by budget committee.

c) Preparation of master budget starts with sales budget.

d) All of the above

Ans: d) All of the above

26) Which of the following statements about budgeting is false?

a) Budgetary control and standard costing are same.   

b) Budgetary control does not facilitate introduction of ‘Management by Exception’.   

c) Budgeting may be said to be the art of building a budget.

d) A key factor or principal factor does not influence the preparation of all other budgets.

Ans: b) Budgetary control does not facilitate introduction of ‘Management by Exception’.   

Sales budget MCQs

27) Sales budget is a:

a) Functional budget

b) Financial budget

c) Master budget

d) None of the above

Ans: a) Functional budget

28) Sales budget shows the sales details as:

a) Product wise

b) Area wise

c) Region wise

d) All of the above

Ans: d) All of the above

29) Sales budget shows the sales details by:

a) Channel of distribution

b) Salesman

c) Month wise

d) All of the above

Ans: d) All of the above

30) Usually the sales budget is stated in terms of:

a) Value

b) Quantity

c) Both of the above

d) None of the above

Ans: c) Both of the above

31) Sales budget is prepared by whom?

a) Production Manager

b) Sales Manager

c) Managing Director

d) None of the above

Ans: b) Sales Manager

32) Regarding the sales budget, which of the following statements is incorrect?

a) Sales budget is a functional budget.

b) Usually the sales budget is stated in terms of quantity and value.

c) Starting point of the development of master budget is preparation of sales budget.

d) Sales budget is based on production budget.

Ans:  d) Sales budget is based on production budget.

Production budget MCQs

33) Production budget is dependent on:

a) Purchase budget

b) Sales budget

c) Cash budget

d) Overhead budgets

Ans: b) Sales Budget

34)  Which of the following are subsidiary of production budget?

a) Raw material budget

b) Labour cost budget

c) Manufacturing overheads budget

d) All of the above

Ans: d) All of the above

35) Usually the production budget is stated in terms of:

a) Value

b) Quantity

c) Both of the above

d) None of the above

Ans: c) Both of the above

36) A purchases budget is used instead of a production budget by

a) Manufacturing companies

b) Not for profit entities

c) Service Companies

d) Merchandising Companies

Ans: d) Merchandising Companies

37) which one of the following is not needed in preparing a production budget?

a) Opening stock

b) Sales

c) Closing stock

d) None of the above

Ans: d) None of the above

MCQs on BUDGET AND BUDGETARY CONTROL
MULTIPLE CHOICE QUESTIONS AND ANSERS (MCQs)

Fill up the blanks:

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.        The starting point in developing the master budget is the preparation of the sales budget.

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

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

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

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

10.    Budgeting can be applied in parts.

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

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

13.    Budgetary control is a system of controlling costs.

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

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

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

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

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

19.    Budget period may be different for different industries.

20.    Master budget incorporate all functional budgets.

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

22.    Zero base budgets starts with zero.

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

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

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

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

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

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

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

30.    Cash budget is a part of financial budget.

31.    Functional budgets are subsidiary to master budget.

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

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

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

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

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

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

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

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

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

41.    The approach in performance budgeting is prospective.

42.    The approach in traditional budgeting is retrospective.

43.    The process of budgeting helps in the control of Cost.

44.    Budgetary control system is based on the support of Top management.

45.    Budget is prepared for a budget period.

46.    Budget period depends upon type of business.

47.    A budget is an effective tool for planning and control.

48.    Sales budget is a functional budget.

49.    Material budget is a part of Production budget.

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

51.    Sales budget is prepared by Sales manager.                              

MCQs on BUDGET AND BUDGETARY CONTROL
MULTIPLE CHOICE QUESTIONS AND ANSERS (MCQs)

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. True

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

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

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

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

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

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

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

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

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

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

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

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

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

34.    Responsibility centers are usually classified into four classes.              False

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

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

37.    A budget is a planning tool.                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 utilized.   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

43.    Summary budget is a master budget.                            True

Flexible Budget MCQs

44. Fixed budget is useless for comparison when the level of activity is constant.

45. Flexible budget are more useful in actual practice because it is more reliable and has great practical utility in the business.

46. A flexible budget is one which permits the changes in accordance with the changes in the level of activity. True

47. Flexible budgeting is more suitable for which Industry?

a) Hotel and Restaurants

b) Manufacturing Industries

c) Seasonal Industries

d) All of the above

48. A flexible budget requires careful study and classification of expenses into fixed, variable and semi-variable.               True

49. flexible budget is also known as variable budget.

50. In fixed budget costs are not classified according to variability e.g. into fixed, variable and semi-variable.