This test consists of 10 questions designed to test your understanding of methods of budgeting The links provide you with a choice of answer, along with explanations and solutions. You will need a calculator to complete this test.

A firms Budget for raw materials is £45,000, actual spending is £49,300. What is the variance? a. £4,300A b. £94,300A c. £4,300F

Correct.

In an expenditure budget, an overspend is always an Adverse (A) Variance and you take budgeted figure from actual spend. Try again.

A firms variances from budget are; Revenue £4,700A, raw materials £5,100F, labour £2,100A. What is the total variance? A. £11,900F B. £1,700F C. £1,700A

Add together each Adverse variance, then each Favourable variance and take one from the other. A minus figure will be a Favourable variance

Add together each Adverse variance, then each Favourable variance and take one total from the other. A minus figure will be a Favourable variance

Correct

Which of the following is likely to lead to a favourable budget variance? A. Increased competition B. A major competitor going bust C. An increase in the cost of raw materials

This will probably cause an adverse sales variance.

Correct. This will probably cause a favourable sales variance

This will cause an adverse variance in the costs of sales budget

Which of the following is likely to lead to an adverse budget variance? A. A fall in wage inflation B. An increase in consumer spending C. An increase in raw material prices

This will lead to a favourable variance.

This will lead to a favourable sales variance

Correct.

Which of the following most closely describes Zero Budgeting? A. Management increasing budgets in line with inflation B. Managers having to justify every penny of their budget.

Wrong. Zero budgeting always starts with a clean sheet.

Correct

Inflation leads to an increase in raw material prices of 7%, when the budgeted increase was 5%. Last years cost of raw materials was £49,000. What will be the budget variance? A. £980A B. £2450F C. £3430A

Correct. The answer is 2% of the budget

The budget has increased so we have an adverse variance. The difference is 2% of Budget Try again

The budget has increased so we have an adverse variance. The difference is 2% of Budget Try again

Variance Analysis is used to? A. Improve predictions of profitability. B. Improve management control of departments 1. Both 2. B only

Wrong. There are many advantages to budgeting, these are 2 examples of these advantages

Correct. There are many advantages to budgeting, these are 2 examples of these advantages.

Which of the following can result from a poorly managed budgeting process? A. Higher inflation B. Demotivated staff C. Increased variances 1. A and B 2. B and C 3. All of the above.

The firm has no control over inflation! Though inflation can cause variances.

Correct. Firms must be careful about how they approach the budgeting process, otherwise disadvantages can outweigh advantages,

The firm has no control over inflation! Though inflation can cause variances.

A revenue budget is set which allows for predicted price increases of 3% over the current year, with no increase in sales volume. Sales for the previous year were £56,000. Actual sales achieved were £59,000. What is the variance? A. £3,000F B. £2,100A C. £1320F

Calculate 3% of £56,000, and take this from the difference between £56,000 and £59,000. As this is a revenue budget a positive answer is a Favourable variance

Calculate 3% of £56,000, and take this from the difference between £56,000 and £59,000. As this is a revenue budget a positive answer is a Favourable variance

Correct You have calculated 3% of £56,000, and taken this from the difference between £56,000 and £59,000. As this is a revenue budget a positive answer is a Favourable variance

A budget variance of £14,000A occurs on a labour budget. Which of the following could have caused this. A. A planned 5% wage increase B. Increase in overtime worked C. Sales 10% above budget 1. A and C 2. All of the above 3. B and C

A planned wage increase will be budgeted for!

Two are correct but a planned wage increase will be budgeted for!

Correct. A planned wage increase will be budgeted for! Whilst the other 2 will not be built into the budget.

You have now completed the test.