Chapter 7 - Aspects Of Budgeting

Question 1

What is a budget ?

Answer 1

A budget is a financial plan for a business that is prepared in advance

Question 2

How do you work out the budgeted materials cost ?

Answer 2

Expected quantity of materials x Expected material price

Question 3

How do you work out the budgeted labour cost ?

Answer 3

Expected labour hours x Expected wage rate

Question 4

How do you work out the budgeted overhead cost ?

Answer 4

Expected volume of output x Overhead absorption rate

Question 5

What type of budget stays the same no matter the level of activity

Answer 5

A Fixed budget

Question 6

What type of budget changes with the level of activity and takes into account different cost behavior patterns ?

Answer 6

A Flexible budget

Question 7

Budgets are usually set for each of the ?

Answer 7

Responsibility centres

Question 8

Fixed and variable costs in budgeting and decision making

The knowledge of the behaviour of costs can be used to help management to ?

• identify……….
• prepare……..

Answer 8

1. Identify the amount of fixed costs within a semi variable cost
2. Prepare flexible budgets for revenue and costs

Question 9

What method is used to idenitfy the fixed and variable costs within semi-variable costs ?

Answer 9

High/Low method

Question 10

The high/low method can only be used when the ……….. costs increase by the same money amount for each extra unit of output ?

Answer 10

Variable

Question 11

How do we calculate contribution ?

hint- you need the selling price and variable costs

Answer 11

subtract the variable costs from selling price