ACCA AK Management Accounting (MA) Budgeting 2

Question 1

What is the purpose of a flexible budget?

Accepted Answer

To adjust budgeted costs and revenues to reflect the actual level of activity achieved

Answer

A flexible budget adjusts the original budget figures to reflect the actual level of activity. This provides a more meaningful basis for comparing actual costs against what should have been spent at the actual activity level, improving cost control.

Question 2

In the context of budgeting, what is budgetary slack?

Accepted Answer

An underestimate of revenues or overestimate of costs deliberately built into a budget by managers

Answer

Budgetary slack occurs when managers deliberately underestimate revenues or overestimate costs to make targets easier to achieve. This is a behavioural problem that undermines the accuracy and usefulness of budgets.

Question 3

Which of the following is the correct sequence for preparing functional budgets?

Accepted Answer

Sales budget → Production budget → Materials and labour budgets → Cash budget

Answer

The budgeting process typically starts with the sales budget (assuming sales is the principal budget factor), then derives the production budget, followed by materials, labour, and overhead budgets. The cash budget is one of the last to be prepared as it draws on all other budgets.

Question 4

A company's budgeted sales are £500,000. 60% of customers pay in the month of sale and 40% pay in the following month. Opening trade receivables are £80,000. What are the budgeted cash receipts for the month?

Accepted Answer

£380,000

Answer

Cash receipts from current month sales = £500,000 × 60% = £300,000. Cash receipts from prior month (opening receivables) = £80,000. Total cash receipts = £300,000 + £80,000 = £380,000.

Question 5

What is a key advantage of participative (bottom-up) budgeting?

Accepted Answer

It increases motivation and ownership among managers who help set the budget

Answer

Participative budgeting involves lower-level managers in the budget-setting process. This increases their sense of ownership and commitment to achieving budget targets, improving motivation and often leading to more realistic budgets based on operational knowledge.

ACCA Applied Knowledge Practice Test

ACCA Applied Knowledge Practice Test

ACCA AK Management Accounting (MA) Budgeting 2