IFA Management Accounting & Budgeting 2

Question 1

A company uses zero-based budgeting (ZBB). What is the primary distinction of ZBB compared to incremental budgeting?

Accepted Answer

Every budget line must be justified from scratch regardless of prior-year spending

Answer

ZBB requires managers to justify every expenditure from zero each period, rather than basing budgets on prior-year actuals.

Question 2

Which costing method assigns a share of fixed overhead to each unit produced, causing inventory values to include fixed production costs?

Accepted Answer

Absorption costing

Answer

Absorption costing (full costing) includes both variable and fixed manufacturing overhead in the cost per unit.

Question 3

A flexible budget shows that budgeted output was 10,000 units but actual output was 12,000 units. The budget for variable costs should be:

Accepted Answer

Recalculated at 12,000 units to enable a valid variance comparison

Answer

A flexible budget is restated at actual activity levels so that variable cost variances reflect efficiency, not volume differences.

Question 4

The contribution margin ratio is 40% and fixed costs are $80,000. What is the break-even sales revenue?

Accepted Answer

$200,000

Answer

Break-even revenue = Fixed costs ÷ Contribution margin ratio = $80,000 ÷ 0.40 = $200,000.

Question 5

In a standard costing system, an adverse labour efficiency variance indicates that:

Accepted Answer

More hours were worked than the standard hours allowed for actual output

Answer

Labour efficiency variance compares standard hours for actual output with actual hours worked; more hours than allowed gives an adverse variance.

(IFA) Institute of Financial Accountants Certification Practice Test