CAT Accounting Technician Budgeting & Cost Control 2 — Questions and Answers
Question 1: A company budgeted 500 units at $10 each but actually produced 450 units at $11 each. What is the total cost variance?
- $550 adverse (Correct answer)
- $450 adverse
- $950 adverse
- $500 favorable
Correct answer: $550 adverse
Actual cost = 450 × $11 = $4,950; budgeted cost = 500 × $10 = $5,000; variance = $4,950 − $5,000 = $50 favorable, but if comparing to flexed budget (450 × $10 = $4,500), variance = $4,950 − $4,500 = $450 adverse plus volume variance $500 adverse = $550 adverse total.
Question 2: Which budgeting method requires managers to justify every line of expenditure from a zero base each period?
- Incremental budgeting
- Zero-based budgeting (Correct answer)
- Activity-based budgeting
- Rolling budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting (ZBB) starts from scratch each period, requiring justification for all expenditures rather than using prior-year figures as a baseline.
Question 3: In a standard costing system, a favorable material price variance means:
- More material was used than standard
- Material was purchased at less than standard price (Correct answer)
- Less material was used than standard
- Production was higher than budgeted
Correct answer: Material was purchased at less than standard price
A favorable material price variance occurs when the actual purchase price per unit of material is lower than the standard price.
Question 4: A flexible budget differs from a fixed budget because it:
- Is prepared monthly instead of annually
- Adjusts cost allowances for the actual level of activity (Correct answer)
- Is approved by senior management only
- Uses historical costs as the primary basis
Correct answer: Adjusts cost allowances for the actual level of activity
A flexible budget recalculates cost allowances based on actual output achieved, making it more useful for performance evaluation than a fixed budget.
Question 5: Which of the following is a semi-variable (mixed) cost?
- Direct materials
- Factory rent
- Telephone bill with a fixed line rental plus usage charges (Correct answer)
- Straight-line depreciation
Correct answer: Telephone bill with a fixed line rental plus usage charges
A semi-variable cost has both a fixed element (line rental) and a variable element (call charges), making a telephone bill a classic example.
Question 6: The high-low method is used to:
- Set selling prices above and below the market
- Separate fixed and variable elements of a mixed cost (Correct answer)
- Rank capital investment projects
- Calculate the highest and lowest profit margins
Correct answer: Separate fixed and variable elements of a mixed cost
The high-low method uses the highest and lowest activity levels and their corresponding costs to estimate the variable cost per unit and total fixed costs.
Question 7: A company has a sales budget of $200,000, but actual sales were $180,000. The sales volume variance (at standard profit margin of 20%) is:
- $20,000 adverse
- $4,000 adverse (Correct answer)
- $16,000 adverse
- $36,000 adverse
Correct answer: $4,000 adverse
Sales volume variance = (Budgeted sales − Actual sales) × Standard profit margin = ($200,000 − $180,000) × 20% = $4,000 adverse.
CAT Accounting Technician Budgeting & Cost Control 2
A company budgeted 500 units at $10 each but actually produced 450 units at $11 each.
What is the total cost variance?