AAT L4 Management Accounting Budgeting

Question 1

A company has budgeted sales of 12,000 units for Q1. Opening inventory is 2,000 units and the desired closing inventory is 3,000 units. How many units must be produced?

Accepted Answer

13,000

Answer

Production budget = Budgeted sales + Desired closing inventory - Opening inventory = 12,000 + 3,000 - 2,000 = 13,000 units.

Question 2

Which budgeting approach requires every item of expenditure to be justified from scratch each period?

Accepted Answer

Zero-based budgeting

Answer

Zero-based budgeting starts from a zero base each period, requiring all expenditure to be justified as if budgeting for the first time. Unlike incremental budgeting, it does not simply adjust the previous year's budget.

Question 3

A flexed budget adjusts the original budget for:

Accepted Answer

The actual level of activity achieved

Answer

A flexed budget recalculates budgeted revenues and variable costs based on the actual volume of activity achieved, while keeping fixed costs unchanged. This provides a like-for-like comparison with actual results.

Question 4

A company budgets fixed overheads of £180,000 and variable overheads of £6 per unit. Budgeted output is 20,000 units but actual output is 22,000 units. What is the flexed budget for total overheads?

Accepted Answer

£312,000

Answer

Flexed budget total overheads = Fixed overheads + (Variable overhead per unit x Actual output) = £180,000 + (£6 x 22,000) = £180,000 + £132,000 = £312,000.

Question 5

What is the principal budget factor?

Accepted Answer

The factor that limits the organisation's activities in a given period

Answer

The principal budget factor is the factor that constrains the organisation's output — commonly sales demand, but it could be labour, materials, or machine capacity. All other budgets are prepared based on this constraint.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Management Accounting Budgeting