Budgeting, break-even and overhead absorption

Topic 26: Budgeting and Budgetary Control — 50 Hard MCQs

1. A business expects to sell 18 000 units in May and 22 000 units in June. Closing inventory of finished goods should equal 20% of the next month’s sales. Opening inventory on 1 May is 3600 units.

What is the production budget for May?

A 17 600 units
B 18 000 units
C 18 400 units
D 22 400 units

2. A business expects sales of 30 000 units in July and 36 000 units in August. Finished goods inventory at the end of each month should equal 25% of the following month’s sales. Opening inventory on 1 July is 8000 units.

What is budgeted production for July?

A 29 000 units
B 30 000 units
C 31 000 units
D 39 000 units

3. A product requires 4 kg of material per unit. Budgeted production is 12 000 units. Closing material inventory should be 6000 kg. Opening material inventory is 9000 kg.

What quantity of material should be purchased?

A 39 000 kg
B 45 000 kg
C 48 000 kg
D 51 000 kg

4. A product requires 3 kg of material per unit. Budgeted production is 20 000 units. Opening raw material inventory is 12 000 kg and closing raw material inventory is required to be 15 000 kg.

What is the material purchases budget?

A 57 000 kg
B 60 000 kg
C 63 000 kg
D 75 000 kg

5. A business plans to produce 8000 units. Each unit requires 2.5 labour hours. Labour is paid $9 per hour.

What is the direct labour cost budget?

A $72 000
B $144 000
C $180 000
D $288 000

6. Budgeted production is 15 000 units. Each unit takes 0.4 machine hours. Machine running cost is $6 per machine hour. Fixed factory overhead is $42 000.

What is total factory overhead budget?

A $36 000
B $42 000
C $78 000
D $132 000

7. Budgeted sales are 25 000 units at $16 each. Variable selling cost is $2 per unit. Fixed selling cost is $38 000.

What is the selling cost budget?

A $50 000
B $88 000
C $400 000
D $438 000

8. A business budgets credit sales of $120 000 in March and $150 000 in April. Customers pay 60% in the month of sale and 40% in the following month.

What cash receipts from customers are budgeted for April?

A $90 000
B $138 000
C $150 000
D $198 000

9. Credit sales are budgeted as follows.

Month	Credit sales
January	$80 000
February	$90 000
March	$110 000

Customers pay 50% in the month of sale, 30% in the next month and 20% two months after sale.

What are cash receipts in March?

A $90 000
B $94 000
C $102 000
D $110 000

10. Credit purchases are budgeted as $70 000 in June and $84 000 in July. Suppliers are paid 25% in the month of purchase and 75% in the following month.

What cash payment to suppliers is budgeted for July?

A $21 000
B $73 500
C $84 000
D $136 500

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. Purchases are budgeted as follows.

Month	Purchases
April	$60 000
May	$75 000
June	$90 000

Suppliers are paid 40% in the month of purchase and 60% in the following month.

What is the budgeted payment to suppliers in June?

A $75 000
B $81 000
C $90 000
D $126 000

12. A cash budget shows opening bank overdraft $12 000. Budgeted cash receipts are $85 000. Budgeted cash payments are $72 000.

What is the closing bank balance?

A $1000 debit
B $1000 credit
C $25 000 debit
D $25 000 credit

13. A cash budget shows opening bank balance $9000. Receipts are $64 000. Payments are $81 000.

What is the closing balance?

A $8000 overdraft
B $8000 bank balance
C $26 000 overdraft
D $154 000 bank balance

14. A business has a minimum required cash balance of $5000. Opening bank balance is $3000. Receipts are $40 000 and payments are $46 000.

What short-term finance is required?

A $3000
B $5000
C $8000
D $13 000

15. A business wants to end the month with minimum cash balance $10 000. Opening cash balance is $18 000. Cash receipts are $92 000 and cash payments before loan repayment are $80 000. A loan repayment of $15 000 is due.

How much surplus cash remains above the minimum balance after all payments?

A $5000
B $15 000
C $25 000
D $30 000

16. A business budgets sales of 40 000 units. Selling price is $12. Variable cost is $7 per unit. Fixed costs are $150 000.

What is budgeted profit?

A $50 000
B $150 000
C $200 000
D $330 000

17. A business budgets sales of $600 000. Contribution to sales ratio is 35%. Fixed costs are $160 000.

What is budgeted profit?

A $50 000
B $210 000
C $390 000
D $440 000

18. A business has budgeted sales of 50 000 units but actual sales are 44 000 units. Budgeted variable cost is $6 per unit and fixed cost is $90 000.

What is the flexed budget total cost for actual activity?

A $264 000
B $354 000
C $390 000
D $564 000

19. Budgeted production is 20 000 units. Budgeted costs are variable cost $5 per unit and fixed cost $70 000. Actual production is 23 000 units.

What is the flexed budget cost?

A $100 000
B $115 000
C $170 000
D $185 000

20. A fixed budget was prepared for 12 000 units. Actual output was 15 000 units.

Which statement is correct?

A the fixed budget should be used unchanged for cost control
B the budget should be flexed to 15 000 units for meaningful comparison
C actual costs should be changed to 12 000 units
D fixed costs must always increase with output

21. Which budget is usually prepared first?

A cash budget
B sales budget
C production cost budget
D budgeted statement of financial position

22. Which budget cannot normally be prepared accurately until the sales budget is known?

A production budget
B opening bank balance
C opening capital account
D opening inventory from last period

23. Which budget shows expected cash receipts and payments?

A production budget
B cash budget
C sales budget
D purchases budget only

24. Which budget helps identify a future cash shortage?

A cash budget
B inventory budget only
C trade receivables ledger
D depreciation schedule only

25. Which item appears in a cash budget?

A depreciation expense
B credit sales not yet received in cash
C cash paid to suppliers
D closing inventory valuation only

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

26. Which item is excluded from a cash budget?

A loan received
B wages paid
C depreciation
D cash drawings

27. A business budgets sales of 10 000 units. Actual sales are 12 000 units. Budgeted variable selling cost is $3 per unit. Actual variable selling cost is $37 000.

Compared with the flexed budget, variable selling cost is:

A $1000 favourable
B $1000 adverse
C $7000 favourable
D $7000 adverse

28. Budgeted fixed overhead is $60 000. Actual fixed overhead is $64 500. Actual output is higher than budget.

What is the fixed overhead cost variance?

A $4500 favourable
B $4500 adverse
C cannot be calculated because output changed
D $64 500 favourable

29. Budgeted selling price is $18 per unit. Actual selling price is $17.40 per unit. Actual sales are 20 000 units.

What is the sales price variance?

A $12 000 adverse
B $12 000 favourable
C $348 000 adverse
D $360 000 favourable

30. Budgeted variable material cost is $4 per unit. Actual output is 18 000 units. Actual material cost is $77 000.

What is the material cost variance compared with flexed budget?

A $5000 adverse
B $5000 favourable
C $72 000 adverse
D $77 000 favourable

31. Budgeted labour time is 0.5 hours per unit at $12 per hour. Actual output is 9000 units. Actual labour cost is $52 500.

What is the labour cost variance compared with flexed budget?

A $1500 favourable
B $1500 adverse
C $4500 favourable
D $4500 adverse

32. A business budgets revenue of $250 000 and variable costs of $150 000 for 10 000 units. Actual output and sales are 12 000 units. Actual revenue is $306 000 and actual variable costs are $174 000.

What is actual contribution?

A $100 000
B $120 000
C $132 000
D $156 000

33. Using the information in Question 32, what is budgeted contribution flexed for actual output?

A $100 000
B $120 000
C $132 000
D $156 000

34. Using the information in Question 32, what is the contribution variance?

A $12 000 favourable
B $12 000 adverse
C $32 000 favourable
D $32 000 adverse

35. A business budgets sales of 8000 units and actual sales are 7400 units. Budgeted contribution is $6 per unit.

What is the sales volume contribution variance?

A $3600 adverse
B $3600 favourable
C $44 400 adverse
D $48 000 favourable

36. A budget is described as participative.

What does this mean?

A it is imposed only by senior management
B managers responsible for budgets help prepare them
C it ignores the opinions of department managers
D it is prepared after the year ends

37. Which disadvantage may arise from an imposed budget?

A lower motivation among managers
B too much involvement from junior managers
C actual results are never compared with budget
D cash shortages cannot be forecast

38. Which benefit is most associated with budgeting?

A it removes all business risk
B it helps planning, coordination and control
C it guarantees profit
D it removes the need for accounting records

39. Which problem is most likely if budget targets are too easy?

A managers may not be challenged to improve performance
B all variances become adverse
C no cash budget can be prepared
D fixed costs become variable costs

40. Which problem is most likely if budget targets are impossible?

A motivation may fall
B profit is guaranteed
C cash receipts become certain
D inventory cannot be valued

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. A business has budgeted sales revenue of $400 000. Actual sales revenue is $430 000. Actual sales volume is higher than budget, but selling price per unit is lower than budget.

Which statement is most likely correct?

A total revenue is favourable, but sales price may be adverse
B total revenue is adverse, but sales price must be favourable
C all variances must be favourable
D no variance can be calculated

42. A business has budgeted fixed costs of $90 000. Actual fixed costs are $88 000.

What variance is this?

A $2000 favourable
B $2000 adverse
C $88 000 adverse
D $90 000 favourable

43. A business budgets material use of 3 kg per unit at $5 per kg. Actual output is 8000 units. Actual material used is 25 000 kg costing $130 000.

What is the flexed budget material cost?

A $120 000
B $125 000
C $130 000
D $150 000

44. Using the information in Question 43, what is the total material cost variance?

A $5000 adverse
B $5000 favourable
C $10 000 adverse
D $10 000 favourable

45. A business prepares a budgeted statement of financial position.

Which budget is needed to estimate closing trade receivables?

A sales receipts schedule
B depreciation policy only
C fixed asset register only
D purchases returns budget only

46. Which budget is needed to estimate closing trade payables?

A purchases payment schedule
B sales collection schedule
C cash sales budget only
D retained earnings statement only

47. A business has budgeted sales of $300 000. 70% is collected in the month of sale and 30% one month later. Sales in December are $50 000.

What trade receivables balance is expected at 31 December?

A $15 000
B $35 000
C $50 000
D $90 000

48. A business has budgeted purchases of $180 000. 40% is paid in the month of purchase and 60% one month later. Purchases in December are $30 000.

What trade payables balance is expected at 31 December?

A $12 000
B $18 000
C $30 000
D $108 000

49. A business budgets to sell 25 000 units. It wants closing finished goods inventory of 6000 units and opening finished goods inventory is 4500 units.

What is budgeted production?

A 23 500 units
B 25 000 units
C 26 500 units
D 35 500 units

50. Which statement about budgetary control is correct?

A it compares actual results with budgeted results and investigates differences
B it records only non-cash expenses
C it is used only after a business closes down
D it replaces financial statements completely

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.