AAT L4 Budgeting and Forecasting 2

Question 1

A business uses zero-based budgeting (ZBB). Which statement best describes ZBB?

Accepted Answer

Every activity must be justified from scratch each budget period, regardless of past budgets

Answer

ZBB requires all activities to be justified each period as if starting from zero, eliminating the assumption that current activities will automatically continue to be funded.

Question 2

A company's sales budget shows 10,000 units. Opening finished goods inventory is 500 units and target closing inventory is 800 units. What should the production budget be?

Accepted Answer

10,300 units

Answer

Production = Sales + Closing inventory − Opening inventory = 10,000 + 800 − 500 = 10,300 units.

Question 3

In time series analysis, what does the 'trend' component represent?

Accepted Answer

The underlying long-term movement in a data series

Answer

The trend is the underlying long-term direction of movement in the data, extracted after removing seasonal, cyclical, and random variations.

Question 4

A flexed budget for 8,000 units shows variable costs of £48,000 and fixed costs of £30,000. Actual output was 8,000 units but actual variable costs were £50,000. What is the variable cost variance?

Accepted Answer

£2,000 Adverse

Answer

The flexed budget variable cost for 8,000 units is £48,000. Actual variable cost was £50,000. Variance = £50,000 − £48,000 = £2,000 Adverse (actual exceeded budget).

Question 5

Which budgeting approach involves senior management setting overall targets and then passing them down through the organisation for department heads to plan how to achieve them?

Accepted Answer

Top-down (imposed) budgeting

Answer

Top-down (imposed) budgeting involves senior management setting the targets and communicating them downwards. Department managers then plan within those constraints rather than setting their own targets.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Budgeting and Forecasting 2