Budget

Correct answer: A. Overproduction and storage cost

Wrong sales estimates can increase production and inventory. In exams, observe the interdependence of budgets carefully.

Correct answer: B. When checking ability to make payments next month

A cash budget focuses on actual cash receipts and payments. In exams, distinguish profit from cash.

Correct answer: C. The effect of activity level should be separated before comparison

Higher production can naturally increase cost. In exams, check activity level before comparing costs.

Correct answer: D. It gives fair comparison at different activity levels

A flexible budget adjusts according to changing activity. In exams, connect fair comparison with flexible budget.

Correct answer: A. Old inefficiencies may continue

Relying only on the previous budget can continue wasteful spending. In exams, remember zero-based thinking in such cases.

Correct answer: A. When every expense must be justified afresh

Zero-based budgeting rechecks the usefulness of every activity. In exams, connect it with control of unnecessary expenses.

Correct answer: C. Plan short-term use or investment of surplus cash

Cash surplus can be planned for use instead of being kept idle. In exams, connect cash surplus with cash management.

Correct answer: B. Expected demand and sales quantity

Sales quantity affects production and purchase budgets. In exams, treat sales budget as an initial base for many budgets.

Correct answer: B. The target may become unrealistic due to capacity constraint

Production budget should match capacity. In exams, connect resource capacity with realistic budgeting.

Correct answer: C. Fund plan for buying a new factory building

Expenditure on long-term assets is related to capital budget. In exams, connect investments like buildings and machines with capital budget.

Correct answer: A. Low effort may also appear as good performance

Very easy targets do not show real capability. In exams, keep budget targets challenging but achievable.

Correct answer: A. When it blocks even necessary expenses without judgment

Excessive rigidity can affect necessary work too. In exams, write balance between control and flexibility.

Correct answer: A. To coordinate and review departmental budgets

A budget committee coordinates different budgets. In exams, connect committee with coordination and review.

Correct answer: A. Price of key raw material suddenly rises sharply in the market

A major cost change can alter budget assumptions. In exams, connect major assumption change with revision.

Correct answer: A. Timing of cash receipt and income recognition may differ

Profit and cash flow may differ due to timing. In exams, understand the difference between accrual profit and cash flow.

Correct answer: B. Setting targets and spending limits for responsibility centres

Budget helps measure performance of responsibility centres. In exams, understand budget as an accountability tool.

Correct answer: C. Both external causes and internal efforts should be examined

The direct answer is C: both external causes and internal efforts should be examined. A sales shortfall means actual sales are lower than the planned figure, but this fact alone does not prove that the sales team performed badly. The total market may also have become smaller because of recession, competition, changing customer preferences, regulation, supply problems, or other outside conditions. First compare actual sales with budgeted sales. Next compare the actual market size with the expected market size. Then study the company’s market share, selling effort, distribution, price, promotion, product quality, and team performance. If the whole market declined but the company protected or increased its market share, external conditions may be the main reason. If the company lost more share than competitors, internal performance may also be responsible. Option A is wrong because immediate blame ignores evidence. Option B is wrong because variance analysis is necessary for corrective action. Option C is correct because fair analysis separates market effects from company efforts. Option D is wrong because one adverse result does not mean budgeting should always be abolished. Memory cue: a variance is a signal to investigate, not automatic proof of fault.

Correct answer: A. Cash budget

Cash budget gives advance warning of cash shortage. In exams, connect short-term finance with cash budget.

Correct answer: B. It integrates all major budgets and shows the overall plan

A master budget is the overall budget prepared for an organisation. It brings together important functional budgets, such as sales, production, purchases, expenses, cash, and sometimes capital expenditure. By combining these plans, it presents a complete picture of the organisation’s expected activities and financial position. It is therefore much broader than a single expense slip and does not mean stopping production.

Option B is correct because a master budget integrates the major budgets into one coordinated plan. For example, expected sales influence production, production influences material purchases, and these plans influence cash requirements. Looking at them together helps management coordinate departments, allocate resources, and evaluate overall performance. The term comprehensive budget is appropriate because it covers the organisation as a whole. The supplied answer accurately states its usefulness.

Correct answer: A. Budgetary slack

Budgetary slack may involve deliberately easy targets. In exams, connect slack with performance evaluation risk.

Correct answer: A. Past conditions may differ from the current market

Past data gives a base but current conditions are also necessary. In exams, mention both past trend and current environment.

Correct answer: A. Production interruption

Shortage of raw material can disrupt production. In exams, check matching of purchase and production budgets.

Correct answer: A. When cost fell because quality declined

Lower cost is not always good if quality falls. In exams, consider qualitative impact in budgetary control.

Correct answer: B. Updating the budget by extending it after each period

A rolling budget keeps planning updated under changing conditions. In exams, connect rolling budget with continuous planning.

Correct answer: A. Lack of coordination and conflicting budgets

Direct answer: Option A, lack of coordination and conflicting budgets. Preparing budgets is not an isolated activity. Sales, production, purchasing, labour and finance departments depend on one another. They must communicate assumptions, targets, timing and resource needs. If they do not communicate, one department may plan output that sales cannot support, purchasing may order materials that production does not need, or finance may not arrange enough cash. Thus budgets can contradict one another and coordination suffers. Option A is correct. Option B is wrong because poor communication cannot guarantee that cash will increase. Option C is wrong because silence and isolation do not make every budget accurate. Option D is wrong because a policy does not automatically end merely because departments fail to communicate. Memory cue: “No communication → no alignment → conflicting budgets.”