AAT L4 Management Accounting: Budgeting & Evaluation 3

Question 1

The purpose of a cash budget is to:

Accepted Answer

Identify future cash surpluses and deficits so that appropriate financing or investment can be arranged

Answer

A cash budget forecasts all expected cash inflows and outflows over the budget period, enabling management to plan for shortfalls (arrange overdraft or loan) or invest surpluses productively.

Question 2

Capital expenditure appraisal using the payback period method primarily assesses:

Accepted Answer

How quickly the initial investment is recovered from net cash inflows

Answer

Payback measures the time required to recover the initial investment from the project's net cash inflows; it is simple to calculate and focuses on liquidity and risk (sooner = lower risk) but ignores cash flows after payback.

Question 3

Budget committee responsibilities typically include:

Accepted Answer

Coordinating budget preparation, reviewing submissions, resolving conflicts, and approving the master budget

Answer

The budget committee oversees the budget process — issuing the budget manual, coordinating submissions, resolving conflicts between departments, and approving the final master budget.

Question 4

In variance analysis, the term 'controllable variance' means:

Accepted Answer

A variance that can be influenced by the manager being held accountable for it

Answer

Controllable variances are those within the manager's sphere of influence — only these should be used for performance evaluation. Uncontrollable variances (e.g., due to economic changes) should not be used to assess managerial performance.

Question 5

The direct materials usage variance is:

Accepted Answer

(Standard quantity for actual output − Actual quantity used) × Standard price

Answer

Materials usage variance = (Standard quantity for actual output − Actual quantity used) × Standard price. A favourable variance means less material was used than standard for the actual production.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Management Accounting: Budgeting & Evaluation 3