1. What is the primary purpose of a budget in an organization?
- A. To record past expenses only
- B. To plan and control future financial activities
- C. To ensure maximum profit always
- D. To comply with legal formalities
Budgets are prepared to plan, coordinate, and control the financial and operational activities of an organization.
2. Which type of budget is prepared without the help of computers or automation?
- A. Manual Budget
- B. Flexible Budget
- C. Fixed Budget
- D. Zero-based Budget
Manual budgets are prepared using traditional methods without reliance on computer systems.
3. A fixed budget is most suitable when:
- A. The organization’s activity level varies significantly
- B. Costs are unpredictable
- C. Activity levels are fairly constant
- D. Revenue is highly volatile
Fixed budgets are prepared for a specific level of activity and remain unchanged even if actual activity differs.
4. Which type of budget adjusts itself according to changes in activity levels?
- A. Fixed Budget
- B. Manual Budget
- C. Zero-based Budget
- D. Flexible Budget
Flexible budgets vary with the level of activity, making them useful for organizations with fluctuating operations.
5. Which of the following is NOT a feature of budgetary control?
- A. It eliminates the need for management decisions
- B. It provides a standard for comparison
- C. It helps in cost control
- D. It assists in planning and coordination
Budgetary control supports management decisions but does not replace the need for decision-making by managers.
6. What is a major advantage of flexible budgets over fixed budgets?
- A. Simpler to prepare
- B. Adapts to changes in activity levels
- C. Requires less monitoring
- D. Eliminates need for variance analysis
Flexible budgets are advantageous because they adjust according to actual levels of activity, allowing better control.
7. Which budget is prepared by aggregating all departmental budgets to form an overall financial plan for the organization?
- A. Flexible Budget
- B. Manual Budget
- C. Master Budget
- D. Zero-based Budget
A master budget combines all departmental budgets into one overall plan, helping in coordination and control.
8. Which of the following is a key step in monitoring budgets?
- A. Ignoring variances
- B. Comparing actual performance with budgeted figures
- C. Preparing the budget once a year only
- D. Avoiding corrective action
Monitoring involves comparing actual results against the budgeted figures to take corrective measures if needed.
9. Which type of budget allows adjustments for varying levels of activity while monitoring performance?
- A. Fixed Budget
- B. Manual Budget
- C. Zero-based Budget
- D. Flexible Budget
Flexible budgets adjust with the actual level of activity, making them useful for performance monitoring in variable environments.
10. Incremental budgeting is based on:
- A. The previous period’s budget with incremental adjustments
- B. Zero-based evaluation of all expenses
- C. Only the fixed costs
- D. Forecasting sales only
Incremental budgeting takes the previous period’s budget as a base and applies increments or adjustments for the new period.
11. Which of the following is an essential element for effective budget monitoring?
- A. Preparing budgets once and ignoring performance
- B. Regular variance analysis and corrective action
- C. Delegating budgeting entirely to subordinates
- D. Avoiding comparison with past performance
Effective budget monitoring requires analyzing variances regularly and taking corrective actions to achieve targets.
12. Zero-based budgeting differs from incremental budgeting in that it:
- A. Adds a fixed percentage to previous budgets
- B. Ignores previous expenses completely
- C. Starts from zero and justifies all expenses for the period
- D. Only focuses on variable costs
Zero-based budgeting requires starting from scratch every period, evaluating all expenses to justify their inclusion.
13. Which of the following is a major advantage of a budgetary control system?
- A. It guarantees profit for the organization
- B. It removes the need for management decisions
- C. It provides a standard for performance evaluation
- D. It eliminates risk completely
Budgetary control helps management evaluate performance by providing standards against which actual results can be compared.
14. Which of the following is a limitation of a budgetary control system?
- A. Provides a standard for comparison
- B. Facilitates planning and coordination
- C. Helps in cost control
- D. Can be rigid and inflexible in changing conditions
Budgets may become less effective if they are too rigid, as they might not adapt to changing business environments.
15. What is the first step in installing a budgetary control system in an organization?
- A. Preparing variance reports
- B. Establishing objectives and policies
- C. Allocating resources
- D. Comparing actual with budgeted figures
Installing a budgetary control system begins with defining organizational objectives and policies to guide the budgeting process.
16. Which of the following is NOT considered an advantage of budgetary control?
- A. Eliminates all risks of business
- B. Encourages efficiency
- C. Helps in coordination of activities
- D. Facilitates planning and forecasting
While budgets reduce uncertainties, they cannot completely eliminate business risks.
17. Which of the following is a limitation specific to budgetary control systems in large organizations?
- A. Cannot monitor performance
- B. Complex coordination may lead to delays and errors
- C. Ignores cost control
- D. Not useful for planning
Large organizations may face delays and errors due to the complexity of coordinating multiple budgets across departments.
18. In the context of budgetary control, what is “installation” primarily concerned with?
- A. Preparing final accounts
- B. Setting sales targets only
- C. Establishing the system, responsibilities, and procedures
- D. Eliminating all variances
Installation involves setting up the budgeting framework, assigning responsibilities, and defining procedures for effective control.
19. Which of the following helps management to take corrective action during the budget period?
- A. Historical cost records
- B. Audited annual accounts
- C. Annual reports
- D. Variance analysis reports
Variance analysis compares actual performance with budgeted targets and highlights areas needing corrective action.
20. Which of the following best describes a successful budgetary control system?
- A. One that eliminates all uncertainties in business
- B. One that aids in planning, coordination, and performance evaluation
- C. One that only focuses on cost reduction
- D. One that replaces the need for management decisions
A successful system supports planning, coordination, and evaluation but does not remove uncertainties or management decision-making.
21. What is the key feature of Zero-Based Budgeting (ZBB)?
- A. Uses last year’s budget as base
- B. Focuses only on fixed costs
- C. Starts from zero and justifies all expenses for the period
- D. Ignores cost-effectiveness
ZBB requires every expense to be justified afresh for each period, rather than basing budgets on past allocations.
22. Which type of budgeting evaluates costs in relation to the objectives achieved?
- A. Incremental Budgeting
- B. Programme and Performance Budgeting
- C. Fixed Budgeting
- D. Manual Budgeting
Programme and Performance Budgeting links expenditures to specific objectives and evaluates performance relative to cost.
23. In Zero-Based Budgeting, budgets are prepared:
- A. Only for fixed costs
- B. By applying incremental increases to last year’s budget
- C. Only for discretionary expenses
- D. From scratch for all activities and programs
ZBB requires preparing the budget from zero for all activities, justifying every expense without reference to past budgets.
24. Which of the following is a major advantage of Programme and Performance Budgeting?
- A. Eliminates the need for monitoring
- B. Facilitates evaluation of cost-effectiveness and performance
- C. Guarantees higher profits
- D. Reduces planning requirements
Programme and Performance Budgeting links budgeted resources to objectives and evaluates whether expenditures achieve desired results efficiently.
25. Which of the following is a limitation of Zero-Based Budgeting?
- A. Time-consuming and complex to implement
- B. Encourages critical evaluation of expenses
- C. Focuses on cost-effectiveness
- D. Helps in efficient allocation of resources
ZBB is detailed and requires justification of all expenses, making it time-consuming and resource-intensive.
26. In Programme and Performance Budgeting, expenditures are classified primarily according to:
- A. Past expenses
- B. Departmental heads only
- C. Functions, programs, or objectives
- D. Fixed and variable costs only
Programme and Performance Budgeting organizes expenses according to programs or objectives, linking resources to outcomes.
27. Zero-Based Budgeting is most useful when:
- A. Activity levels remain constant
- B. Past budgets are highly accurate
- C. Only fixed costs need to be controlled
- D. Cost control and justification of all expenses are required
ZBB ensures that all expenses are justified and resources are allocated efficiently, which is useful for cost control.
