Unit 6: Budgetary Control - Practice Quiz

1 What is a primary objective of budgetary control?

2 Which of the following is an advantage of budgetary control?

3 Which of the following is a limitation of budgetary control?

4 Under budgetary control, actual performance is generally compared with:

5 What is a budget?

6 Which budget summarizes all functional budgets of an organization?

7 Which budget estimates the number of units to be produced during a period?

8 What does a cash budget primarily estimate?

9 A business has an opening cash balance of , expected cash receipts of , and expected cash payments of . What is its closing cash balance?

10 Which transaction is normally included as a cash receipt in a cash budget?

11 Which item is excluded from cash payments when preparing a cash budget?

12 A flexible budget is designed to:

13 Which cost generally changes in total when the activity level changes?

14 If variable cost is per unit, what is the total variable cost for units?

15 What is the main objective of a cash flow statement?

16 Under AS-3 (Revised), cash flows are classified into:

17 Which component of the cash flow statement relates mainly to the principal revenue-producing activities of an enterprise?

18 Cash paid to purchase machinery is generally classified as:

19 Cash received from issuing shares is generally classified as:

20 Under the indirect method, the calculation of cash flow from operating activities usually begins with:

21 A production department had a budgeted cost of and an actual cost of . Which budgetary control activity should be performed first?

22 Which situation represents a limitation of budgetary control?

23 A company prepares separate budgets for production, materials, labour, and selling expenses, which are then combined into one overall plan. What is the resulting budget called?

24 Which budget is most appropriate when management wants to evaluate performance at different levels of activity?

25 The opening cash balance is , expected cash receipts are , and expected cash payments are . What is the closing cash balance?

26 A company receives 30% of sales immediately and the remaining 70% in the following month. February sales were and March sales were . What cash collection is expected from sales in March?

27 Which item should generally be excluded from a cash budget because it does not involve a cash movement?

28 A company has variable costs of per unit and fixed costs of . What is the flexible budget cost for an output of units?

29 Which cost classification is essential when preparing a flexible budget?

30 A department budgeted production of units with total costs of , including fixed costs of . If actual production is units, what is the appropriate flexible budget cost?

31 What is the primary purpose of a cash flow statement?

32 Under AS-3, the purchase of machinery for cash is normally classified as which type of cash flow for a non-financial enterprise?

33 Which combination correctly represents the three major categories of cash flows under AS-3?

34 A company reports cash flow from operating activities of , cash flow used in investing activities of , and cash flow used in financing activities of . If opening cash is , what is closing cash?

35 A business purchases land by issuing equity shares directly to the seller. How should this transaction be treated in the cash flow statement?

36 Under the indirect method, net profit is , depreciation is , gain on sale of equipment is , increase in receivables is , decrease in inventory is , and increase in payables is . What is cash flow from operating activities?

37 Under the indirect method, an increase in trade receivables is generally:

38 Profit after tax is , depreciation is , profit on sale of an asset is , increase in debtors is , decrease in creditors is , and increase in inventory is . What is cash flow from operating activities?

39 For a non-financial enterprise under AS-3, interest paid is generally classified as:

40 Which adjustment is made to net profit under the indirect method when depreciation expense has been charged?

41 A division reports a large adverse production-cost variance because actual sales demand was 25% below the volume assumed in its fixed budget. The production manager cannot influence sales volume. Which response best preserves the control objective of budgeting?

42 A company prepares a 12-month budget every January. At the end of each month, it removes the completed month and adds one new month, while revising the intervening estimates. What type of budget is this?

43 Sales for November, December, January and February are ₹400,000, ₹500,000, ₹600,000 and ₹700,000 respectively. Twenty percent of sales are for cash. Of credit sales, 60% is collected in the following month, 35% in the second month and 5% is irrecoverable. What amount should appear as cash receipts from customers in the January cash budget?

44 A company begins April with ₹80,000 cash. April receipts are expected to be ₹520,000 and payments before financing ₹650,000. It must maintain a minimum closing cash balance of ₹50,000. Borrowings are available only in multiples of ₹10,000 and are assumed to occur at month-end. How much must be borrowed?

45 A cost consists of variable expenditure of ₹12 per unit, fixed expenditure of ₹180,000, and a semi-variable element that is ₹90,000 at 10,000 units and ₹114,000 at 14,000 units. Assuming linearity within this range, what is the total flexible-budget cost at 12,500 units?

46 A plant has a normal capacity of 20,000 units. Maintenance cost is ₹9 per unit plus fixed cost of ₹120,000 up to 80% capacity. Operating above 80% requires an additional supervisor costing ₹30,000 for the period. What maintenance cost should be budgeted at 90% capacity?

47 A company acquires machinery worth ₹4 million by issuing equity shares directly to the supplier. How should the transaction be treated in a cash flow statement prepared under AS-3 (Revised)?

48 For an enterprise other than a financial enterprise, which classification is consistent with AS-3 (Revised)?

49 Profit before tax is ₹420,000 after charging depreciation ₹70,000 and finance cost ₹18,000, and after crediting gain on sale of equipment ₹20,000 and interest income ₹12,000. Inventory increased by ₹35,000, receivables decreased by ₹25,000, payables decreased by ₹15,000, and income tax paid was ₹80,000. Interest paid and received are classified outside operating activities. What is net cash from operating activities under the indirect method?

50 During the year, inventory decreased by ₹40,000, trade receivables increased by ₹55,000, trade payables increased by ₹30,000, and outstanding wages decreased by ₹10,000. What is the net working-capital adjustment to profit under the indirect method?

51 Equipment with a carrying amount of ₹150,000 is sold for ₹180,000. New equipment costing ₹500,000 is acquired by paying ₹350,000 cash and issuing shares worth ₹150,000. What is the net cash flow from investing activities arising from these transactions?

52 Income taxes paid during the year total ₹90,000. Of this amount, ₹20,000 is specifically attributable to a gain on disposal of a long-term investment; the remainder cannot be specifically associated with investing or financing activities. How should the tax payment be classified under AS-3 (Revised)?

53 Cash and cash equivalents translated into the reporting currency were ₹100,000 at the beginning of the year. Operating, investing and financing cash flows were ₹50,000, and ₹10,000 respectively. Closing cash and cash equivalents were ₹147,000. What exchange-rate effect should be shown in the reconciliation?

54 A rapidly growing company reports a substantial accounting profit but negative operating cash flow because receivables and inventory have increased sharply. Which conclusion is most defensible?

55 Each month's material purchases equal 50% of the following month's production, at ₹8 per unit. Production is 10,000 units in March, 12,000 in April and 14,000 in May. Suppliers are paid 30% in the month of purchase and 70% in the following month. What is the material cash payment in April?

56 At 10,000 units, the budget shows revenue of ₹1,000,000, variable cost of ₹600,000 and fixed cost of ₹250,000. Actual output is 9,000 units, actual revenue is ₹918,000, actual variable cost is ₹558,000 and actual fixed cost is ₹260,000. Compared with the flexible-budget profit at actual output, what is the actual profit variance?

57 A maintenance manager postpones necessary preventive work to remain within the current-period budget, causing higher breakdown costs next year. Which limitation of budgetary control does this most directly illustrate?

58 A manufacturer can sell 15,000 units, but a shortage of a specialised material restricts production to 11,000 units. No substitute material is available during the budget period. How should the specialised material constraint be treated?

59 Equipment with a carrying amount of ₹120,000 is sold for ₹150,000, creating a gain of ₹30,000 included in profit before tax. Under the indirect method, how is this disposal reflected?

60 Opening cash and cash equivalents are ₹60,000. Expected net cash from operating activities is ₹240,000, investing cash outflow is ₹310,000, and dividends paid are ₹40,000. The company will issue shares for ₹50,000 and wants closing cash of ₹90,000. Assuming no other cash flows, what additional borrowing is required?