AAT L4 Management Accounting Budgeting 2 — Questions and Answers
Question 1: A company uses a rolling budget covering January to December 2026. At the end of March 2026, what period will the revised rolling budget cover?
- January 2026 to December 2026
- April 2026 to March 2027 (Correct answer)
- April 2026 to December 2026
- January 2026 to March 2027
Correct answer: April 2026 to March 2027
A rolling budget always maintains a fixed forward-looking period (typically 12 months). At the end of March 2026, the expired quarter is dropped and a new quarter (January-March 2027) is added, giving April 2026 to March 2027.
Question 2: The sales budget shows expected sales of £500,000. 60% of sales are on credit. Credit customers pay: 70% in the month of sale, 25% the following month, 5% irrecoverable. What is the budgeted cash receipt from credit sales in the month of sale?
- £350,000
- £210,000 (Correct answer)
- £300,000
- £150,000
Correct answer: £210,000
Credit sales = 60% x £500,000 = £300,000. Cash received in the month of sale = 70% x £300,000 = £210,000.
Question 3: Which of the following is a disadvantage of incremental budgeting?
- It requires excessive management time
- It perpetuates past inefficiencies into future budgets (Correct answer)
- It is too complex for most organisations
- It does not use historical data
Correct answer: It perpetuates past inefficiencies into future budgets
Incremental budgeting takes the previous period's budget as the starting point and adjusts for expected changes. Any inefficiencies or wasteful spending embedded in the prior budget are carried forward without challenge.
Question 4: A company's budget committee is responsible for:
- Preparing all departmental budgets directly
- Coordinating the budget preparation process and resolving conflicts between departmental budgets (Correct answer)
- Approving salary increases for all staff
- Conducting the year-end audit
Correct answer: Coordinating the budget preparation process and resolving conflicts between departmental budgets
The budget committee coordinates the budget process, sets guidelines, reviews departmental submissions, resolves conflicts between competing budget requests, and approves the final master budget.
Question 5: A manufacturing company has budgeted production of 5,000 units. Each unit requires 2.5 hours of direct labour at £14 per hour. What is the total labour budget?
- £175,000 (Correct answer)
- £70,000
- £140,000
- £200,000
Correct answer: £175,000
Total labour hours = 5,000 x 2.5 = 12,500 hours. Total labour cost = 12,500 x £14 = £175,000.
Question 6: An adverse sales volume variance combined with a favourable sales price variance most likely indicates that:
- The company sold more units at a lower price
- The company sold fewer units at a higher price (Correct answer)
- Both sales volume and price were below budget
- The budget was set incorrectly
Correct answer: The company sold fewer units at a higher price
An adverse volume variance means fewer units were sold than budgeted. A favourable price variance means the actual selling price exceeded the budgeted price. Together, this suggests higher prices reduced demand below budgeted levels.
AAT L4 Management Accounting Budgeting 2
A company uses a rolling budget covering January to December 2026.
At the end of March 2026, what period will the revised rolling budget cover?