Chapter 11 Budgeting.pdf

F5 acca performance management practice questions F5 acca performance management practice questions F5 acca performance management practice questions

Prepared for Educational Purposes

August 16, 2025

Contents

2 Part 2: Answers with Detailed Explanations 9

1

1 Part 1: List of Questions

This section contains 50 multiple-choice questions based on Budgeting, focusing on budget types, processes, and aims Numbers are left-aligned from 1 to 50

1 Which of the following statements is/are correct?

1 Rolling budgets are always prepared for the following twelve-month period

2 Rolling budgets are always prepared using a zero-base approach

a Statement 1 only is correct

b Statement 2 only is correct

c Neither statement is correct

d Both statements are correct

2 Which of the following are likely to be included in the master budget?

A budgeted Statement of profit or loss

A cash flow budget

A capital expenditure budget

A budgeted Statement of financial position

a 1 and 4 only

b All of them

c 1, 2 and 4 only

d 1, 3 and 4 only

3 Which of the following is the name given to a method of budgeting where the budgets are prepared centrally and then imposed on the managers?

a Top-down budgeting

b Zero-based budgeting

c Bottom-up budgeting

d Incremental budgeting

4 As one step in the budgeting process of a business, a company has prepared a produc-tion budget, detailing the number of units budgeted on being produced each month during the coming year What name is given to this budget?

a Incremental budget

b Rolling budget

c Functional budget

d Flexible budget

5 Which of the following is not one of the aims of the budget process?

a Forecasting

b Motivating

c Controlling

d Planning

6 Which of the following statements is/are true?

1 Zero-based budgeting requires justifying all expenses from scratch

2 Incremental budgeting ignores past performance

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

7 A company prepares a budget for raw material purchases based on production needs What type of budget is this?

a Master budget

b Functional budget

c Rolling budget

d Flexible budget

8 Which budgeting approach involves managers at all levels contributing to the budget?

a Top-down budgeting

b Zero-based budgeting

c Bottom-up budgeting

d Incremental budgeting

9 Which of the following is a key benefit of rolling budgets?

a Reduced need for planning

b Continuous updating

c Simplified calculations

d Fixed cost allocation

10 Which of the following statements is/are true?

1 Flexible budgets adjust for changes in activity levels

2 Master budgets are prepared for a single department

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

11 A companys sales budget projects 10,000 units sold at $50 each What type of budget

is this?

a Incremental budget

b Functional budget

c Rolling budget

d Flexible budget

12 Which budgeting method is most likely to perpetuate inefficiencies?

a Zero-based budgeting

b Incremental budgeting

c Top-down budgeting

d Bottom-up budgeting

13 Which of the following is included in a cash flow budget?

a Projected sales revenue

b Capital expenditure

c Cash receipts and payments

d Budgeted profit

14 Which of the following statements is/are true?

1 Budgets help in coordinating activities across departments

2 Budgets are only used for financial planning

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

15 A budget that adjusts costs based on actual production levels is called:

a Rolling budget

b Functional budget

c Flexible budget

d Master budget

16 Which budgeting approach requires detailed justification of all costs?

a Incremental budgeting

b Zero-based budgeting

c Top-down budgeting

d Bottom-up budgeting

17 Which of the following is a primary aim of budgeting?

a Forecasting market trends

b Setting performance targets

c Reducing competition

d Auditing financial statements

18 Which of the following statements is/are true?

1 Bottom-up budgeting increases manager involvement

2 Top-down budgeting ensures alignment with strategic goals

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

19 A company prepares a budget for its marketing department What type of budget is this?

a Master budget

b Functional budget

c Rolling budget

d Flexible budget

20 Which budgeting method is most suitable for a rapidly changing environment?

a Incremental budgeting

b Zero-based budgeting

c Rolling budgeting

d Top-down budgeting

21 Which of the following is included in the master budget?

a Production budget

b Sales forecast

c Market analysis

d Employee performance reviews

22 Which of the following statements is/are true?

1 Budgets can motivate employees by setting achievable targets

2 Rolling budgets are fixed for a single period

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

23 A budget that projects cash inflows and outflows is called:

a Functional budget

b Cash flow budget

c Capital budget

d Flexible budget

24 Which budgeting approach is least likely to involve lower-level managers?

a Bottom-up budgeting

b Top-down budgeting

c Zero-based budgeting

d Rolling budgeting

25 Which of the following is a disadvantage of incremental budgeting?

a High preparation time

b Perpetuates past inefficiencies

c Requires detailed justification

d Lack of strategic alignment

26 Which of the following statements is/are true?

1 Flexible budgets are used for performance evaluation

2 Master budgets include only financial budgets

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

27 A company prepares a budget for purchasing equipment What type of budget is this?

a Functional budget

b Capital expenditure budget

c Cash flow budget

d Flexible budget

28 Which budgeting method starts with the previous periods budget?

a Zero-based budgeting

b Incremental budgeting

c Rolling budgeting

d Bottom-up budgeting

29 Which of the following is a key aim of budgeting?

a Market expansion

b Cost control

c Product development

d Employee recruitment

30 Which of the following statements is/are true?

1 Rolling budgets reduce the need for frequent revisions

2 Zero-based budgeting is time-consuming

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

31 A budget that details expected sales revenue is called:

a Cash flow budget

b Sales budget

c Production budget

d Flexible budget

32 Which budgeting approach aligns best with strategic planning?

a Incremental budgeting

b Top-down budgeting

c Bottom-up budgeting

d Rolling budgeting

33 Which of the following is included in the master budget?

a Budgeted income statement

b Market research report

c Employee training plan

d Customer satisfaction survey

34 Which of the following statements is/are true?

1 Budgets help in performance evaluation

2 Flexible budgets are fixed for a single activity level

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

35 A budget that projects the financial position at year-end is called:

a Cash flow budget

b Functional budget

c Budgeted Statement of financial position

d Capital expenditure budget

36 Which budgeting method is most likely to encourage innovation?

a Incremental budgeting

b Zero-based budgeting

c Top-down budgeting

d Rolling budgeting

37 Which of the following is a benefit of bottom-up budgeting?

a Faster preparation

b Greater manager involvement

c Simplified coordination

d Reduced accountability

38 Which of the following statements is/are true?

1 Master budgets integrate all functional budgets

2 Incremental budgets are always accurate

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

39 A budget that details labor costs for production is called:

a Cash flow budget

b Functional budget

c Capital budget

d Flexible budget

40 Which budgeting approach is most suitable for stable environments?

a Rolling budgeting

b Zero-based budgeting

c Incremental budgeting

d Bottom-up budgeting

41 Which of the following is included in a capital expenditure budget?

a Salaries

b Equipment purchases

c Raw material costs

d Marketing expenses

42 Which of the following statements is/are true?

1 Budgets improve resource allocation

2 Rolling budgets are prepared annually

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

43 A budget that adjusts for different sales volumes is called:

a Rolling budget

b Functional budget

c Flexible budget

d Master budget

44 Which budgeting method requires the least justification of costs?

a Zero-based budgeting

b Incremental budgeting

c Top-down budgeting

d Bottom-up budgeting

45 Which of the following is a key aim of budgeting?

a Product pricing

b Performance evaluation

c Market analysis

d Customer retention

46 Which of the following statements is/are true?

1 Top-down budgeting may reduce manager motivation

2 Flexible budgets are used for planning only

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

47 A budget that projects cash available for operations is called:

a Functional budget

b Cash flow budget

c Capital budget

d Flexible budget

48 Which budgeting approach is most likely to align with employee goals?

a Top-down budgeting

b Bottom-up budgeting

c Incremental budgeting

d Zero-based budgeting

49 Which of the following is a disadvantage of top-down budgeting?

a Lack of manager involvement

b High preparation time

c Inaccurate forecasts

d Complex calculations

50 Which of the following statements is/are true?

1 Budgets help in setting strategic objectives.

2 Zero-based budgeting is suitable for stable environments

a Both statements

b Neither statement

c Statement 1 only

d Statement 2 only

51 A budget that details expected production costs is called:

a Cash flow budget

b Functional budget

c Capital budget

d Flexible budget

2 Part 2: Answers with Detailed Explanations

1 a Statement 1 only is correct Explanation: Statement 1: True, rolling budgets

typically cover a twelve-month period Statement 2: False, rolling budgets do not always use zero-based budgeting

2 b All of them Explanation: The master budget includes the budgeted statement of

profit or loss, cash flow budget, capital expenditure budget, and budgeted statement

of financial position

3 a Top-down budgeting Explanation: Top-down budgeting involves central

prepa-ration and imposition on managers

4 c Functional budget Explanation: A production budget, detailing units produced,

is a functional budget

5 a Forecasting Explanation: Forecasting is an input to budgeting, not a primary

aim Budgeting aims include planning, motivating, and controlling

6 c Statement 1 only Explanation: Statement 1: True, zero-based budgeting justifies

all expenses Statement 2: False, incremental budgeting builds on past performance

7 b Functional budget Explanation: A raw material purchases budget is a functional

budget, specific to purchasing

8 c Bottom-up budgeting Explanation: Bottom-up budgeting involves managers at

all levels contributing to the budget

9 b Continuous updating Explanation: Rolling budgets are continuously updated,

adding new periods as current ones end

10 c Statement 1 only Explanation: Statement 1: True, flexible budgets adjust for

activity levels Statement 2: False, master budgets cover all departments

11 b Functional budget Explanation: A sales budget is a functional budget, detailing

sales projections

12 b Incremental budgeting Explanation: Incremental budgeting perpetuates

ineffi-ciencies by adjusting past budgets without scrutiny

13 c Cash receipts and payments Explanation: A cash flow budget details cash inflows

and outflows

14 c Statement 1 only Explanation: Statement 1: True, budgets coordinate activities.

Statement 2: False, budgets also aid control and motivation

15 c Flexible budget Explanation: Flexible budgets adjust costs based on actual

activity levels

16 b Zero-based budgeting Explanation: Zero-based budgeting requires detailed

jus-tification of all costs

17 b Setting performance targets Explanation: Budgeting aims to set performance

targets, not forecast market trends

18 a Both statements Explanation: Statement 1: True, bottom-up budgeting increases

manager involvement Statement 2: True, top-down budgeting aligns with strategic goals

19 b Functional budget Explanation: A marketing department budget is a functional

budget

20 c Rolling budgeting Explanation: Rolling budgets are suitable for dynamic

envi-ronments due to continuous updates

21 a Production budget Explanation: The master budget includes the production

budget, not forecasts or reviews

22 c Statement 1 only Explanation: Statement 1: True, budgets motivate through

targets Statement 2: False, rolling budgets are continuous

23 b Cash flow budget Explanation: A cash flow budget projects cash inflows and

outflows

24 b Top-down budgeting Explanation: Top-down budgeting involves minimal input

from lower-level managers

25 b Perpetuates past inefficiencies Explanation: Incremental budgeting carries

for-ward past inefficiencies

26 c Statement 1 only Explanation: Statement 1: True, flexible budgets aid

perfor-mance evaluation Statement 2: False, master budgets include operating budgets

27 b Capital expenditure budget Explanation: A budget for equipment purchases is

a capital expenditure budget

28 b Incremental budgeting Explanation: Incremental budgeting starts with the

pre-vious periods budget

29 b Cost control Explanation: Cost control is a key aim of budgeting.

30 d Statement 2 only Explanation: Statement 1: False, rolling budgets require

frequent revisions Statement 2: True, zero-based budgeting is time-consuming

31 b Sales budget Explanation: A sales budget projects expected sales revenue.

32 b Top-down budgeting Explanation: Top-down budgeting aligns with strategic

planning

33 a Budgeted income statement Explanation: The master budget includes the

bud-geted income statement.

34 c Statement 1 only Explanation: Statement 1: True, budgets aid performance

evaluation Statement 2: False, flexible budgets are used for control, not just planning

35 c Budgeted Statement of financial position Explanation: This budget projects the

financial position at year-end

36 b Zero-based budgeting Explanation: Zero-based budgeting encourages innovation

by justifying all costs

37 b Greater manager involvement Explanation: Bottom-up budgeting increases

man-ager involvement

38 c Statement 1 only Explanation: Statement 1: True, master budgets integrate

functional budgets Statement 2: False, incremental budgets may not be accurate

39 b Functional budget Explanation: A labor cost budget for production is a

func-tional budget

40 c Incremental budgeting Explanation: Incremental budgeting is suitable for stable

environments

41 b Equipment purchases Explanation: A capital expenditure budget includes

equip-ment purchases

42 c Statement 1 only Explanation: Statement 1: True, budgets improve resource

allocation Statement 2: False, rolling budgets are continuous

43 c Flexible budget Explanation: Flexible budgets adjust for different sales volumes.

44 b Incremental budgeting Explanation: Incremental budgeting requires the least

cost justification

45 b Performance evaluation Explanation: Performance evaluation is a key aim of

budgeting

46 c Statement 1 only Explanation: Statement 1: True, top-down budgeting may

reduce motivation Statement 2: False, flexible budgets are used for control

47 b Cash flow budget Explanation: A cash flow budget projects cash available for

operations

48 b Bottom-up budgeting Explanation: Bottom-up budgeting aligns with employee

goals through involvement

49 a Lack of manager involvement Explanation: Top-down budgetings disadvantage

is reduced manager involvement

50 c Statement 1 only Explanation: Statement 1: True, budgets set strategic

objec-tives Statement 2: False, zero-based budgeting suits dynamic environments

51 b Functional budget Explanation: A production cost budget is a functional budget.