Budget

Correct answer: C. Sales estimate may become unrealistic

Current market conditions must be included in budgeting. In exams, combine historical data with current factors.

Correct answer: A. When an expensive machine is to be purchased and payment timing affects cash

Machine purchase is capital investment and its payment affects cash flow. In exams, check both capital and cash impact in investment decisions.

Correct answer: D. Long-term risk due to short-term saving

Removing quality checks may increase defects and complaints. In exams, do not always treat lower spending as good.

Correct answer: B. When actual output is very different from budgeted output

Flexible budget adjusts costs according to activity level. In exams, choose flexible budget when output changes.

Correct answer: C. Budgetary slack

Deliberately easy or inflated budgets are called budgetary slack. In exams, consider honesty of budget data important.

Correct answer: A. It checks the usefulness of every activity from a fresh base

Zero-based budgeting does not automatically accept old expenses. In exams, connect it with waste control and justification.

Correct answer: D. Plan short-term finance for March and repayment in April

Cash budget helps in timing-based liquidity decisions. In exams, view shortages and surpluses with time.

Correct answer: B. Show cash receipts according to the collection period

A credit sale is recorded when the sale takes place, but the cash may be received in a later period. Therefore, the cash budget should schedule cash receipts from customers according to the expected collection period. Option A is the closest distractor because it incorrectly treats credit sales as immediate cash sales. Exam tip: a sales budget estimates sales, whereas a cash budget shows the timing of actual cash receipts and payments.

Correct answer: C. When punishment is given without knowing the cause of variance

Action without knowing the cause of variance may be wrong. In exams, write that cause analysis is necessary after comparison.

Correct answer: A. Production quantity does not depend only on sales

Production budget is affected by sales as well as inventory policy. In exams, remember closing stock in production calculation.

Correct answer: D. There is a problem in coordination and assumptions

Logical alignment of functional budgets is necessary in a master budget. In exams, treat inconsistent figures as a coordination issue.

Correct answer: B. Large and controllable variance

Action is possible on significant and controllable variance. In exams, remember both materiality and controllability.

Correct answer: A. Misalignment between budget and strategy

Budget provides resources to strategy. In exams, check alignment between strategic goals and budget allocation.

Correct answer: C. Cost and purchase price

Inflation can increase expenses and purchase costs. In exams, include external factors in budget assumptions.

Correct answer: D. It may be misleading saving

Postponing maintenance may increase future breakdown cost. In exams, examine even favourable variance by cause.

Correct answer: B. When department heads deliberately ask for easy targets

Participation may carry a risk of budgetary slack. In exams, remember both benefit and limitation of participative budgeting.

Correct answer: A. When market and demand are changing rapidly

Rolling budget is useful in a changing environment due to regular updates. In exams, connect uncertainty with rolling budget.

Correct answer: C. Cash budget

Cash budget shows collection timing. In exams, distinguish sales achievement from cash availability.

Correct answer: A. Production may be disrupted due to raw material shortage

Operations are affected when functional budgets lack coordination. In exams, check purchase and production budget alignment.

Correct answer: A. Operational causes and corrective action are not examined after variance report

Budgetary control needs managerial action along with accounting. In exams, write corrective action after variance report.

Correct answer: A. If the project ignores long-term strategic value and risk analysis

Quick payback alone is not enough. In exams, also check risk and strategy in capital budget decisions.

Correct answer: A. Resources may get unnecessarily blocked

Contingency is prudent but excessive reserve can make funds idle. In exams, see the balance between safety and efficiency.

Correct answer: C. Targets should be realistic and resistant to manipulation

Reward-linked budgets may increase risk of wrong reporting. In exams, connect target design with fairness.

Correct answer: B. When lower cost is due to stopping safety training

Stopping safety training can increase future risks. In exams, check the quality of favourable variance.

Correct answer: A. Inventory mismatch and delivery failure

Different assumptions can make sales and production budgets conflict. In exams, consider common assumptions necessary for coordination.