Budgetary Control Questions and Answers

Answer: A

It is known as the Master Budget.

The master budget is the final, summary budget of an organisation. It brings together all the functional budgets, such as sales, production, materials, labour, overheads and cash, and presents a budgeted (projected) profit and loss account and a budgeted balance sheet for the period. It is approved by top management as the overall plan.

A capital budget deals only with long-term investment in fixed assets. A flexible budget shows costs at different levels of activity, and a fixed budget is prepared for one level of activity only; both describe how a budget behaves with activity, not a summary of all the functional budgets.

Answer: D

The one that is not a responsibility centre is the control centre.

Responsibility accounting divides an organisation into centres according to what a manager is held responsible for. A cost or expense centre is answerable for costs; a revenue centre for revenue; a profit centre for both, and so for profit; an investment centre for profit in relation to the capital employed, measured by return on investment or residual income.

Expense, profit and investment centres are therefore all standard responsibility centres. Every responsibility centre is a unit of control, but 'control centre' is not one of the types, which makes it the answer.

Answer: B

The marketing manager of a product line is an example of a revenue centre.

In responsibility accounting, a revenue centre is a unit whose manager is held accountable mainly for generating sales revenue, with little control over the cost of making the product or the capital invested in it. A marketing or sales manager for a product line, judged on the sales achieved, is the classic example.

A cost centre manager is answerable for costs, such as a production shop. A profit centre manager controls both revenue and costs, as in a self-contained division. An investment centre manager is responsible for profit and the capital employed. A marketing manager who controls revenue but not production cost or investment fits none of these.

Answer: D

Zero based budgeting was introduced by Peter Phyrr (Peter Pyhrr).

Peter A. Pyhrr developed zero-based budgeting at Texas Instruments in the late 1960s and described it in a 1970 Harvard Business Review article and a 1973 book. Jimmy Carter later adopted it as governor of Georgia.

Under ZBB every activity must be justified from zero each year instead of adding increments to last year's budget. Peter Thiel is a technology investor and Peter Drucker a management thinker best known for management by objectives.

Answer: D

The item that is not a part of the budget is the Budget manual.

A budget manual is a document that sets out the procedures of budgeting: who is responsible for each budget, the budget calendar, the forms to be used and the duties of the budget committee. It guides the preparation of budgets but is not itself a budget.

The other three are budgets or parts of the master budget. Operating budgets cover sales, production and expenses; the capital expenditure budget plans spending on fixed assets; and the projected (budgeted) balance sheet is the financial budget that closes the master budget.

Answer: D

The keyed answer is The budgeted cash flow, budgeted profit and loss statement and budgeted balance sheet.

CIMA defines the master budget as the budget prepared to bring together all the functional budgets, and its summary output is the set of budgeted financial statements: the budgeted profit and loss account, the cash budget and the budgeted balance sheet. These show the overall effect of all the departmental plans on the firm's profit, liquidity and financial position.

The budgeted cash flow or the budgeted profit and loss account alone is only one part of it. 'The entire set of budgets prepared' describes the full budget set rather than the master budget's summary statements, which is why the key prefers the option naming all three statements.