FAC Finance and Accounting Budgeting & Cost Management 2

Question 1

A company uses activity-based budgeting (ABB). Which of the following best describes its primary advantage over traditional budgeting?

Accepted Answer

It links resource consumption to specific activities and cost drivers

Answer

It eliminates all fixed costs from the budget

Answer

It requires fewer inputs from department managers

Answer

It focuses exclusively on capital expenditure planning

Question 2

Under a standard cost system, a favorable material price variance occurs when:

Accepted Answer

Actual price paid is less than the standard price

Answer

Actual quantity used exceeds standard quantity allowed

Answer

Standard price exceeds actual quantity purchased

Answer

Actual usage is less than budgeted usage

Question 3

Which budgeting approach requires managers to justify every dollar of expenditure from a zero base each period?

Accepted Answer

Zero-based budgeting

Answer

Incremental budgeting

Answer

Rolling budgeting

Answer

Flexible budgeting

Question 4

A firm's static budget shows sales of 10,000 units, but actual sales were 12,000 units. When preparing a flexible budget for performance evaluation, what should the flexible budget reflect?

Accepted Answer

12,000 units at standard costs

Answer

10,000 units at actual costs

Answer

10,000 units at standard costs

Answer

12,000 units at actual costs

Question 5

In the context of cost-volume-profit analysis, the margin of safety ratio is calculated as:

Accepted Answer

(Budgeted sales − breakeven sales) ÷ budgeted sales

Answer

Fixed costs ÷ contribution margin per unit

Answer

Variable costs ÷ total revenue

Answer

Net income ÷ total fixed costs

Question 6

When a company applies overhead using a predetermined overhead rate and actual overhead incurred exceeds applied overhead, the result is:

Accepted Answer

Underapplied overhead, which is typically closed to cost of goods sold

Answer

Overapplied overhead, increasing gross profit

Answer

A favorable budget variance that reduces WIP

Answer

An unfavorable efficiency variance recorded in finished goods

Question 7

Which of the following is a characteristic of a rolling (continuous) budget?

Accepted Answer

It adds a new future period as each current period ends, maintaining a constant planning horizon

Answer

It is prepared once a year and never revised

Answer

It allocates costs only to direct cost centers

Answer

It requires approval from external auditors before implementation