Management Accounting: Budgeting & Evaluation Flashcards
6 cards from real AAT L4 practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Management Accounting: Budgeting & Evaluation flashcards as text
The purpose of a cash budget is to:
Answer: Identify future cash surpluses and deficits so that appropriate financing or investment can be arranged
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.
Capital expenditure appraisal using the payback period method primarily assesses:
Answer: How quickly the initial investment is recovered from net cash inflows
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.
Budget committee responsibilities typically include:
Answer: Coordinating budget preparation, reviewing submissions, resolving conflicts, and approving the master budget
The budget committee oversees the budget process — issuing the budget manual, coordinating submissions, resolving conflicts between departments, and approving the final master budget.
In variance analysis, the term 'controllable variance' means:
Answer: A variance that can be influenced by the manager being held accountable for it
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.
The direct materials usage variance is:
Answer: (Standard quantity for actual output − Actual quantity used) × Standard price
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.
Operating statements reconciling standard and actual profit typically present variances in which order?
Answer: Sales variances, then cost variances (materials, labour, overheads), to reconcile standard profit to actual profit
An operating statement starts with standard profit for actual sales, then lists all variances — sales price, sales volume, materials (price, usage), labour (rate, efficiency), and overhead variances — to reconcile to actual profit.