Budgeting and Standard Costing MCQs 2026

The main advantage of a flexible budget over a fixed budget is that it

1. A is simpler to ignore ✓
2. B needs no data ✓
3. C never changes ✓
4. D allows meaningful comparison of actual results with the budget for the actual activity level ✓

A budget is

1. A a financial and quantitative plan prepared in advance for a future period ✓
2. B a record of past cash only ✓
3. C a tax return ✓
4. D an audit report ✓

The main purpose of budgeting is to

1. A increase taxes ✓
2. B plan, coordinate and control the activities of an organization ✓
3. C prepare the balance sheet ✓
4. D count staff ✓

The period for which a budget is prepared is called the

1. A accounting cycle ✓
2. B fiscal audit ✓
3. C budget period ✓
4. D trial period ✓

A master budget is

1. A the sales budget only ✓
2. B the cash budget only ✓
3. C a single ratio ✓
4. D the summarized overall budget consolidating all functional budgets ✓

The budget usually prepared first and acting as the basis for the others is the

1. A cash budget ✓
2. B sales budget ✓
3. C capital budget ✓
4. D master budget ✓

The factor that limits an organization's activities and is considered first in budgeting is the

1. A master budget ✓
2. B cash balance ✓
3. C principal (key/limiting) budget factor ✓
4. D standard cost ✓

A fixed budget is one that

1. A changes with the activity level ✓
2. B is prepared monthly ✓
3. C contains no figures ✓
4. D is prepared for a single level of activity and does not change ✓

A flexible budget is one that

1. A is adjusted to different levels of activity ✓
2. B never changes ✓
3. C covers only cash ✓
4. D is fixed for a decade ✓

Zero-based budgeting (ZBB) requires that

1. A last year's figures are simply increased ✓
2. B no budget is prepared ✓
3. C only cash is budgeted ✓
4. D every item of expenditure be justified afresh from a zero base ✓

Incremental budgeting prepares the budget by

1. A adjusting the previous period's figures for expected changes ✓
2. B starting entirely from zero ✓
3. C ignoring the past ✓
4. D using only standard costs ✓

A rolling (continuous) budget is one that is

1. A never updated ✓
2. B continuously updated by adding a new period as the earlier one expires ✓
3. C prepared once for ten years ✓
4. D only for cash ✓

The cash budget shows the expected

1. A profit ✓
2. B production units ✓
3. C cash receipts and payments and the resulting cash balance ✓
4. D standard cost ✓

Budgetary control is the process of comparing

1. A two companies ✓
2. B prices only ✓
3. C actual results with budgeted figures and taking corrective action ✓
4. D assets with liabilities ✓

The document that sets out the procedures and responsibilities for preparing budgets is the

1. A prospectus ✓
2. B memorandum ✓
3. C cost sheet ✓
4. D budget manual ✓

The committee responsible for the overall preparation and coordination of budgets is the

1. A budget committee ✓
2. B audit committee ✓
3. C works council ✓
4. D board of creditors ✓

A standard cost is

1. A the actual cost incurred ✓
2. B a predetermined estimate of what a cost should be under efficient conditions ✓
3. C the selling price ✓
4. D the highest cost ✓

Standard costing is a technique used mainly for

1. A cost control through comparison of actual and standard costs ✓
2. B preparing tax returns ✓
3. C external auditing ✓
4. D recording cash ✓

Participative (bottom-up) budgeting involves

1. A participation of lower-level managers in setting their budgets ✓
2. B top managers acting alone ✓
3. C no managers at all ✓
4. D external auditors only ✓

A variance in standard costing is the difference between

1. A two budgets ✓
2. B sales and purchases ✓
3. C the standard (budgeted) cost and the actual cost ✓
4. D assets and liabilities ✓

A variance is said to be favourable when

1. A actual cost exceeds standard ✓
2. B sales fall ✓
3. C production stops ✓
4. D actual cost is less than standard (or actual revenue exceeds standard) ✓

A variance is adverse (unfavourable) when

1. A actual cost is below standard ✓
2. B actual cost exceeds the standard cost ✓
3. C there is no difference ✓
4. D sales rise ✓

The material price variance measures the effect of

1. A using more material ✓
2. B paying a different price from the standard for materials ✓
3. C labour rates ✓
4. D overhead absorption ✓

The material usage (quantity) variance measures the effect of

1. A a change in selling price ✓
2. B labour efficiency ✓
3. C overhead absorption ✓
4. D using more or less material than the standard quantity ✓

The labour rate variance arises from

1. A paying a wage rate different from the standard rate ✓
2. B using more material ✓
3. C machine breakdown only ✓
4. D higher sales ✓

The labour efficiency variance arises from

1. A a change in the wage rate ✓
2. B material prices ✓
3. C taking more or fewer hours than the standard time ✓
4. D the selling price ✓

Management by exception, supported by variance analysis, means managers focus attention on

1. A every transaction ✓
2. B only sales ✓
3. C routine items ✓
4. D significant deviations from plan ✓

An ideal standard assumes

1. A normal working conditions ✓
2. B perfect conditions with no wastage, idle time or breakdowns ✓
3. C high wastage ✓
4. D no production ✓

An attainable (expected) standard is set at a level that is

1. A impossible to reach ✓
2. B far too easy ✓
3. C challenging but achievable under efficient operating conditions ✓
4. D equal to actual cost ✓

The sales budget is generally based on a

1. A sales forecast ✓
2. B cash forecast ✓
3. C production plan only ✓
4. D standard cost card ✓

The production budget is prepared after the sales budget and takes into account

1. A tax rates ✓
2. B share prices ✓
3. C required output plus desired closing stock less opening stock ✓
4. D audit fees ✓

The standard cost card shows the

1. A actual costs incurred ✓
2. B standard quantities and prices of materials, labour and overhead for one unit ✓
3. C cash flows ✓
4. D tax due ✓

A budget that classifies expenditure by programmes and links it to objectives and outputs is a

1. A cash budget ✓
2. B fixed budget ✓
3. C sales budget ✓
4. D performance (programme) budget ✓

The total cost variance is the difference between

1. A the standard cost of actual output and the actual cost ✓
2. B sales and cost ✓
3. C two years' profits ✓
4. D budget and forecast ✓

The capital expenditure budget deals with

1. A day-to-day cash ✓
2. B planned spending on fixed (long-term) assets ✓
3. C wages only ✓
4. D raw material only ✓

Budgeting improves coordination because it

1. A requires different departments to plan together toward common goals ✓
2. B isolates departments ✓
3. C ignores planning ✓
4. D stops communication ✓

A favourable labour efficiency variance means workers

1. A took longer than the standard time ✓
2. B took fewer hours than the standard time ✓
3. C were paid a higher rate ✓
4. D produced defects ✓

The principal budget factor is often the

1. A cash balance in all cases ✓
2. B number of directors ✓
3. C sales demand, though it can be material, labour or capacity ✓
4. D tax rate ✓

The first step in the budgetary control process is to

1. A establish budgets/plans for each function ✓
2. B dismiss employees ✓
3. C audit the accounts ✓
4. D pay dividends ✓

Which of the following is a functional budget

1. A the master budget ✓
2. B the balance sheet ✓
3. C the trial balance ✓
4. D the direct materials purchase budget ✓

Budget slack refers to

1. A a lack of any budgets ✓
2. B a perfectly accurate budget ✓
3. C a legal document ✓
4. D deliberately overstating costs or understating revenues to make targets easier ✓

A cash deficit in a cash budget indicates that

1. A there is surplus cash ✓
2. B profits are high ✓
3. C planned payments exceed planned receipts, requiring financing ✓
4. D sales are certain ✓

The key objective of standard costing and budgetary control together is

1. A effective cost control and performance evaluation ✓
2. B higher taxes ✓
3. C more paperwork only ✓
4. D increasing costs ✓

Overhead variance analysis compares

1. A sales and purchases ✓
2. B absorbed overhead with actual overhead ✓
3. C two companies ✓
4. D assets and equity ✓

If actual material used is greater than standard for the output achieved, the usage variance is

1. A favourable ✓
2. B nil ✓
3. C adverse (unfavourable) ✓
4. D a profit ✓