Budget

Q: An organisation set a high sales target but did not analyse production capacity. Which weakness of budgeting does this show?

Lack of departmental coordination If sales and production budgets are not aligned the plan may become unrealistic. In exams understand budget as a coordination tool.

Q: A manager only adds ten percent to the previous budget every year and does not recheck any expense. Which method does this indicate?

Incremental budgeting Incremental budgeting uses the previous budget as a base and adds changes. Identify it as past budget plus adjustment in exams.

Q: Why are old expenses not automatically accepted in zero based budgeting?

Because every expense needs fresh justification In zero based budgeting every item is justified afresh. Remember fresh justification as the key term in exams.

Q: What is the most appropriate managerial response when an adverse variance is found in budgetary control?

Investigate reasons and take corrective action An adverse variance may indicate poor result or higher cost. Remember analysis and correction after variance in exams.

Q: If shortage of raw material is the main constraint what should be considered first while preparing the budget?

Limiting factor A limiting factor can determine the limit of production and sales. Treat key factor as a base of budgeting in exams.

Q: Credit sales are high but cash collection is delayed. Which budget will be especially important in this situation?

Cash budget Credit sales may show profit but cash is received later. Remember the difference between profit and cash flow in exams.

Q: In which situation will a flexible budget prove more useful than a fixed budget?

When production volume changes frequently A flexible budget adjusts according to changing activity levels. Link flexible budget with variable activity in exams.

Q: What is the most correct use of a budget manual?

To clarify budget process responsibilities and deadlines A budget manual organizes the process of preparing and implementing budgets. Link it with budgeting guidelines in exams.

Q: When managers show lower income and higher expenses to make targets easier what can this be called?

Budget slack Direct answer: Option C, budget slack. Budget slack occurs when a manager deliberately makes the expected income lower or the expected expenses higher than the most realistic estimate. This creates an easier target and may make later performance look better. Step by step: first, the manager knows a more realistic income or cost figure; second, the manager intentionally understates income or overstates cost; third, the resulting budget contains extra looseness, called slack. Option A, budget report, is a general document and does not necessarily involve manipulation. Option B, cash surplus, means cash received exceeds cash paid; it is not deliberate distortion of targets. Option D, capital budget, concerns long-term investment in assets such as machinery. Option C is correct, although such manipulation can weaken control and may be unethical. Exam cue: deliberately easy income or expense targets suggest budget slack.

Q: Why is a master budget considered broader than separate departmental budgets?

It gives an integrated picture of all major budgets A master budget combines departmental budgets and shows the whole plan of the organisation. Treat master budget as overall budget in exams.

01An organisation set a high sales target but did not analyse production capacity. Which weakness of budgeting does this show?

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Answer and explanation

Correct answer: C. Lack of departmental coordination

If sales and production budgets are not aligned the plan may become unrealistic. In exams understand budget as a coordination tool.

Practice questions

03Why are old expenses not automatically accepted in zero based budgeting?शून्य आधारित बजट में पुराने खर्च को स्वतः स्वीकार क्यों नहीं किया जाता?

07In which situation will a flexible budget prove more useful than a fixed budget?किस स्थिति में लचीला बजट स्थिर बजट से अधिक उपयोगी सिद्ध होगा?

08What is the most correct use of a budget manual?बजट मैनुअल का सबसे सही उपयोग क्या है?

10Why is a master budget considered broader than separate departmental budgets?मास्टर बजट को अलग अलग विभागीय बजटों से अधिक व्यापक क्यों माना जाता है?

12Which decision will be the most suitable example of capital budgeting?पूंजीगत बजट में कौन सा निर्णय सबसे उपयुक्त उदाहरण होगा?

13What is the basic difference between operating budget and capital budget?संचालन बजट और पूंजीगत बजट में मूल अंतर क्या है?

15Which basis will be considered most logical while choosing a budget period?बजट अवधि चुनते समय किस आधार को सबसे अधिक तार्किक माना जाएगा?

16Why is it necessary to separate controllable and uncontrollable expenses in a budget?बजट में नियंत्रण योग्य और अनियंत्रण योग्य खर्च अलग करना क्यों जरूरी है?

18What is the main purpose of keeping standard cost in a budget?बजट में मानक लागत रखने का मुख्य उद्देश्य क्या है?

19If excessive purchase is kept in material budget which result is possible?यदि सामग्री बजट में बहुत अधिक खरीद रखी गई है तो कौन सा परिणाम संभव है?

20If the material budget is too low what will be the effect on production plan?यदि सामग्री बजट बहुत कम है तो उत्पादन योजना पर क्या प्रभाव पड़ेगा?

22What is the main reason for treating sales commission as a variable cost?बिक्री कमीशन को परिवर्ती लागत मानने का मुख्य कारण क्या है?

23When will it be appropriate to treat insurance premium as fixed cost?बीमा प्रीमियम को स्थायी लागत मानने की स्थिति कब उचित होगी?

24On what basis should the frequency of budget reports be decided?बजट रिपोर्ट की आवृत्ति किस आधार पर तय होनी चाहिए?

25What is the biggest benefit of creating responsibility centres in a budget?बजट में जिम्मेदारी केंद्र बनाने से कौन सा लाभ सबसे अधिक मिलता है?

Analytics choices

03Why are old expenses not automatically accepted in zero based budgeting?

07In which situation will a flexible budget prove more useful than a fixed budget?

08What is the most correct use of a budget manual?

10Why is a master budget considered broader than separate departmental budgets?

12Which decision will be the most suitable example of capital budgeting?

13What is the basic difference between operating budget and capital budget?

15Which basis will be considered most logical while choosing a budget period?

16Why is it necessary to separate controllable and uncontrollable expenses in a budget?

18What is the main purpose of keeping standard cost in a budget?

19If excessive purchase is kept in material budget which result is possible?

20If the material budget is too low what will be the effect on production plan?

22What is the main reason for treating sales commission as a variable cost?

23When will it be appropriate to treat insurance premium as fixed cost?

24On what basis should the frequency of budget reports be decided?

25What is the biggest benefit of creating responsibility centres in a budget?