Management Accounting (MA) Budgeting Flashcards
6 cards from real ACCA AK practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Management Accounting (MA) Budgeting flashcards as text
What is the purpose of a flexible budget?
Answer: To adjust budgeted costs and revenues to reflect the actual level of activity achieved
A flexible budget adjusts the original budget figures to reflect the actual level of activity. This provides a more meaningful basis for comparing actual costs against what should have been spent at the actual activity level, improving cost control.
In the context of budgeting, what is budgetary slack?
Answer: An underestimate of revenues or overestimate of costs deliberately built into a budget by managers
Budgetary slack occurs when managers deliberately underestimate revenues or overestimate costs to make targets easier to achieve. This is a behavioural problem that undermines the accuracy and usefulness of budgets.
Which of the following is the correct sequence for preparing functional budgets?
Answer: Sales budget → Production budget → Materials and labour budgets → Cash budget
The budgeting process typically starts with the sales budget (assuming sales is the principal budget factor), then derives the production budget, followed by materials, labour, and overhead budgets. The cash budget is one of the last to be prepared as it draws on all other budgets.
A company's budgeted sales are £500,000. 60% of customers pay in the month of sale and 40% pay in the following month. Opening trade receivables are £80,000. What are the budgeted cash receipts for the month?
Answer: £380,000
Cash receipts from current month sales = £500,000 × 60% = £300,000. Cash receipts from prior month (opening receivables) = £80,000. Total cash receipts = £300,000 + £80,000 = £380,000.
What is a key advantage of participative (bottom-up) budgeting?
Answer: It increases motivation and ownership among managers who help set the budget
Participative budgeting involves lower-level managers in the budget-setting process. This increases their sense of ownership and commitment to achieving budget targets, improving motivation and often leading to more realistic budgets based on operational knowledge.
Activity-based budgeting (ABB) focuses on:
Answer: Budgeting the costs of activities and the cost drivers that cause those costs
ABB uses the principles of activity-based costing to budget costs. It identifies activities, determines cost drivers, and budgets the cost of each activity based on expected levels of the cost driver, providing a more accurate reflection of resource consumption.