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

ABB links resource requirements to the activities that drive costs, providing a more accurate picture of how spending relates to organizational outputs.

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

A favorable material price variance arises when the actual price paid per unit of material is lower than the standard price.

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

Zero-based budgeting (ZBB) starts from zero and requires justification for all expenses rather than using prior-year figures as a baseline.

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

A flexible budget adjusts to the actual activity level (12,000 units) but uses standard (budgeted) costs to isolate efficiency variances.

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

The margin of safety ratio measures how far actual or budgeted sales exceed breakeven sales as a percentage of budgeted sales.

(FAC) Finance and Accounting Certification Practice Test

(FAC) Finance and Accounting Certification Practice Test

FAC Finance and Accounting Budgeting & Cost Management 2