Budgeting and Forecasting Flashcards
6 cards from real AAT L4 practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Budgeting and Forecasting flashcards as text
A business uses zero-based budgeting (ZBB). Which statement best describes ZBB?
Answer: Every activity must be justified from scratch each budget period, regardless of past budgets
ZBB requires all activities to be justified each period as if starting from zero, eliminating the assumption that current activities will automatically continue to be funded.
A company's sales budget shows 10,000 units. Opening finished goods inventory is 500 units and target closing inventory is 800 units. What should the production budget be?
Answer: 10,300 units
Production = Sales + Closing inventory − Opening inventory = 10,000 + 800 − 500 = 10,300 units.
In time series analysis, what does the 'trend' component represent?
Answer: The underlying long-term movement in a data series
The trend is the underlying long-term direction of movement in the data, extracted after removing seasonal, cyclical, and random variations.
A flexed budget for 8,000 units shows variable costs of £48,000 and fixed costs of £30,000. Actual output was 8,000 units but actual variable costs were £50,000. What is the variable cost variance?
Answer: £2,000 Adverse
The flexed budget variable cost for 8,000 units is £48,000. Actual variable cost was £50,000. Variance = £50,000 − £48,000 = £2,000 Adverse (actual exceeded budget).
Which budgeting approach involves senior management setting overall targets and then passing them down through the organisation for department heads to plan how to achieve them?
Answer: Top-down (imposed) budgeting
Top-down (imposed) budgeting involves senior management setting the targets and communicating them downwards. Department managers then plan within those constraints rather than setting their own targets.
Regression analysis is used in budgeting to forecast costs. In the equation y = a + bx, what does 'b' represent?
Answer: Variable cost per unit of activity
In the regression equation y = a + bx, 'b' is the gradient (slope) of the regression line, representing the variable cost per unit of the independent variable (activity level).