Question

Question 6
An increase in of GHS1,000 in fixed selling overheads will affect the net profit reported under
marginal and absorption cost methods as follows:
a) Decrease net profit only where absorption costing is used
b) Decrease net profit only where marginal costing is used
c) Decrease net profit equally in both absorption and marginal costing
d) Leave net profit unchanged in both cases
Question 7
The purpose of a flexible budget is:
a) To cap discretionary expenditure
b) To produce a revised forecast by changing the original budget when actual costs are known
c) To control resource efficiently
d) To communicate target activity levels within the organization by setting a budget in
advance of the period to which it relates
Question 8
A budget is:
a) a long-term plan
b) only a control tool
c) necessary only for large firms
d) a short-term financial plan
Question 9
Which of the following is not part of the control process?
a) Monitoring of actual activity
b) Comparing of actual with planned activity
c) Investigating
d) Developing a strategic plan
e) Taking corrective action
Question 10
Which of the following is not an advantage of budgeting?
a) Forces managers to plan
b) Provides information for decision making
c) Guarantees an improvement in organizational efficiency
d) Provides a standard for performance evaluation
e) Improves communication and co-ordination

Answer 1

Question 6

Answer (a) Decrease net profit only where absorption costing is used

Justification: Absorption costing consider both fixed and variable cost for product costing and inventory valuation whereas marginal costing consider only variable cost for product costing and inventory valuation . Under marginal costing fixed cost are considered as periodic cost. Therefore any changes in fixed cost doesn't impacts the profit under marginal costing and only effects under absorption costing.

Question 7

c) To control resource efficiently

Justification Main objective of this budget is to test resouces at different level of activity is order to effective utilisation of resources

Question 8

Answer (b) Only a control tool

Justification: Budgets is generally a control tool which is prepared to compare its actual financial results with budgeted results. Budget as a control tool provide an action in order to ensure that organisation actual activities are ongoing with planned activities and minimise the variance in both to ensure smooth fiancial position. It give a planned idea of profitability, cash flow and other operational activities in order to compare with actuals lateron.

Question 9

(a) Monitoring of actual activity

Justification . ALL the others are part of control first management have to perpare plan or set standard then he compare planned result with actuals, then find the differences and reasons and then take corrective action to resolve.

Question 10

c) Guarantees an improvement in organizational efficiency

Justification Budgets are prepared by management for planning and controlling purpose in order to make decision and to compare between actual and expected results. Budgets only give idea but its doesnt guarantee that if an organisation prepare budget will improve its performance. Its may be possible managers are able or not able to achevied the set standards of budgets