Budget

Correct answer: B. Ignoring interdependence of related budgets

Sales budget affects other budgets such as production and material budgets. Remember interdependence of budgets in exams.

Correct answer: A. Integrated plan will become unreliable

Common and clear assumptions are necessary to make a master budget reliable. Link common assumptions with master budget in exams.

Correct answer: B. Variance should be analyzed with quality impact

A favourable expense variance can be harmful if quality is affected. In exams examine cost saving with outcomes.

Correct answer: A. When usefulness of old expenses is doubtful

Zero based budgeting demands fresh justification for every expense. Link it with waste removal and review in exams.

Correct answer: A. Budget slack

The direct answer is A: budget slack. Budget slack occurs when a person deliberately makes a target easier to achieve, often by understating expected sales or overstating expected costs. The manager in this situation lowers the sales target not because the market requires it, but to make performance look better and obtain a bonus with less effort. The reasoning is: target is intentionally reduced, expected achievement becomes easier, reported performance may appear superior, and the incentive becomes unfair. Option A is correct because this deliberate cushioning of a budget is called slack. Option B, budget manual, is a document explaining budget procedures, responsibilities, forms, and timings; it is not dishonest target setting. Option C, cash surplus, means cash available after expected inflows exceed outflows; nothing in the situation concerns a cash balance. Option D, fixed cost, is a cost that does not change with activity within a relevant range, such as rent; it has no connection with manipulating a sales target. Slack can harm planning because it hides true capacity, weakens motivation, reduces comparability, and may lead to poor resource allocation. Exam cue: an intentionally easy target made to protect a person or secure a reward is budget slack.

Correct answer: A. Because fixed budget is based on one fixed activity level

A fixed budget does not adjust according to changing activity level. Remember flexible budget comparison in exams.

Correct answer: A. More fair performance comparison

A flexible budget makes comparison more appropriate according to actual activity. Remember fair comparison in exams.

Correct answer: A. Overestimation of cash availability

In credit sales cash may be received later. Remember the difference between sales and cash collection in exams.

Correct answer: A. Short term finance or rescheduling payments

A temporary cash deficit may need a short term solution. Link cash deficit also with timing problem in exams.

Correct answer: A. Losing possible income or use of funds

Idle cash may lose benefit of possible investment or use. Remember surplus fund management in exams.

Correct answer: A. When departmental budgets do not match each other

The main work of budget committee is coordination and review. Understand committee as a coordination mechanism in exams.

Correct answer: A. Accountability and timeliness will weaken

Without clear responsibility the budgeting process may become weak. Link budget manual with role clarity in exams.

Correct answer: A. Principle of common assumptions and coordination

A common demand assumption keeps departmental budgets aligned. Remember common base for budgets in exams.

Correct answer: A. Reasons may be controllable or uncontrollable

Reasons for variance should be examined first. In exams do cause analysis before fixing responsibility.

Correct answer: A. Uncontrollable variance

A department may not directly control external policy change. Link external cause with uncontrollable variance in exams.

Correct answer: A. Controllable expense

The department can control unnecessary use. Link controllable cost with managerial responsibility in exams.

Correct answer: A. वास्तविक दक्षता या बेहतर प्रदर्शन के बिना बोनस का भुगतान

When budget targets are too easy, employees may receive bonuses even for routine performance. The bonus then fails to reward genuine efficiency, productivity, or extra effort and may raise avoidable costs for the organisation. Option B is more likely when targets are excessively difficult or unrealistic, not when they are easy. Exam tip: In incentive budgeting, targets should be challenging but achievable.

Correct answer: A. Morale and commitment may decrease

Impossible targets can discourage employees. Understand target as challenging but attainable in exams.

Correct answer: A. Rigidity and delay

The direct answer is A: rigidity and delay. Budget control is useful because it compares planned results with actual results and encourages disciplined resource use. However, excessive control can make managers afraid to act without repeated permission. They may spend too much time seeking approval, postpone urgent decisions, or refuse sensible changes even when market conditions have changed. The reasoning is: too many restrictions reduce discretion; reduced discretion slows decisions; slow decisions make the organisation rigid and less responsive. Option A is correct because rigidity and delay are common effects of over-control. Option B is wrong because excessive control does not create full freedom; it usually reduces freedom. It may sometimes create clarity, but the option joins clarity with freedom and does not describe the main problem. Option C is wrong because control cannot make all costs disappear; costs are still necessary for operations. Option D is wrong because budget control does not remove legal duties or obligations. A good budget should provide discipline while allowing justified revisions, emergency action, and changing assumptions. Memory cue: a budget should be a guide and control tool, not an unchangeable cage.

Correct answer: A. To keep planning continuously updated and relevant

Rolling budget provides current planning in a changing environment. Link rolling budget with continuous planning in exams.

Correct answer: A. To understand impact of inflation on cost estimates

When inflation changes cost and cash need may change. Link sensitivity with risk analysis in exams.

Correct answer: A. Cash budget

The direct answer is A: cash budget. A cash budget records expected cash receipts and cash payments over a period. The date on which tax must be paid determines when cash will leave the business. If that date is assumed incorrectly, the forecast cash balance, timing of shortages, borrowing needs, and ability to meet obligations may all be wrong. Step by step: tax is a payment; payment creates a cash outflow; the date fixes the period of that outflow; therefore an incorrect date directly distorts the cash budget. Option A is correct. Option B, colour budget, is not a standard budget used for this purpose and has no necessary connection with tax payment timing. Option C, employee hobby budget, is irrelevant to the company’s tax cash flow. Option D, building decoration budget, may concern a particular expense, but it does not primarily measure the timing of tax-related cash movements. A tax amount might also affect a profit or expense forecast, but the question stresses the payment date, so the cash budget is most directly affected. Exam cue: whenever the focus is on when money is received or paid, choose cash budget.

Correct answer: A. Because loan repayment is actual cash outflow

Loan repayment is a payment of cash by the organisation to the lender. It reduces the amount of cash available, so it must be reflected in the cash budget. A profit budget and a cash budget serve different purposes: profit planning considers accounting income and expenses, while cash planning tracks actual cash receipts and payments. Ignoring repayment in the cash budget would give a misleading picture of liquidity.

Option A is correct because loan repayment is an actual cash outflow. If a business must repay 50,000 during a month, its cash balance will fall by that payment, even if the repayment does not represent an ordinary operating expense in the same way as wages. The principal repayment must therefore be included in cash-flow planning. The other options wrongly describe repayment as a receipt or unrelated item. The supplied answer is correct.

Correct answer: A. Low stock causes interruption and high stock increases cost

Safety stock requires balance between continuity and cost. Remember balanced stock decision in exams.

Correct answer: A. Actual material requirement will be underestimated

The direct answer is A: actual material requirement will be underestimated. Spoilage means that some material is lost, damaged, rejected, or becomes unusable during storage or production. If the budget calculates only the material that should enter the finished product and ignores normal spoilage, the planned quantity will be too low. For example, if production needs 100 usable units and 5% spoilage is expected, the business must provide more than 100 units; otherwise usable material may run short. The exact calculation depends on the method used, but the essential fact is that wastage requires an additional provision. Option A is correct because omitting spoilage understates the quantity that must be purchased or issued and may also understate material cost. Option B is wrong because spoilage cannot make production cost zero; wasted material generally increases cost. Option C is wrong because cash receipts depend on sales and collection, not automatically on spoilage. Option D is wrong because a material assumption does not remove the sales budget. The business should estimate a realistic spoilage rate, monitor actual waste, and investigate unusual losses. Memory cue: required input equals usable output plus expected normal loss.