Question 1

In "Zero-Based Budgeting" (ZBB), the budgeting process starts from:

Scratch (Zero), requiring justification for every expense.The previous year's figures adjusted for inflation.Top management's discretion.The average of the last 3 years.

View Explanation

ZBB does not take the previous year's budget as a base. Every activity/expense must be justified from scratch as if it were new.

Question 2

A "Master Budget" is essentially:

A summary of all functional budgets (Sales, Production, Cash, etc.) integrating them into Projected Financial Statements.A budget prepared by the government.A budget for capital expenditure only.A budget for the production department only.

View Explanation

The Master Budget aggregates all sub-budgets to present the overall plan of the organization, typically culminating in a Budgeted P&L and Balance Sheet.

Question 3

Which of the following items is NOT included in a Cash Budget?

Depreciation.Capital Expenditure.Cash Sales.Payment to Creditors.

View Explanation

Cash Budget records only actual cash inflows and outflows. Depreciation is a non-cash expense and is excluded.

Question 4

A "Flexible Budget" is designed to change with:

The level of activity or volume of output.The rate of inflation.The management team.The tax rates.

View Explanation

A Flexible Budget adjusts budgeted costs for different levels of activity, recognizing that variable costs change with volume while fixed costs remain constant.

Question 5

Performance Budgeting focuses primarily on:

Historical data.The amount of money spent.The outcome or result achieved for the money spent.Reducing staff.

View Explanation

Unlike traditional budgeting which focuses on inputs (expenditure items), Performance Budgeting links funding to expected outcomes and outputs (results).

Question 6

Management by Exception (MBE) in budgetary control implies:

Focusing attention only on significant variances (adverse or favorable) that exceed a certain threshold.Ignoring all variances.Checking every single variance.Changing the budget every month.

View Explanation

MBE saves management time by alerting them only when actual performance deviates significantly from the plan.

Question 7

Which of the following is estimated as a cash INFLOW in a Cash Budget?

Bad DebtsDepreciationCredit SalesCollection from Debtors

View Explanation

Credit sales do not bring immediate cash. Only when debtors pay (collection) does cash flow in. Depreciation and Bad Debts are non-cash items.

Question 8

Which of the following is a distinct feature of "Zero Based Budgeting" (ZBB)?

It assumes the current year's budget is the best estimate for next year.It justifies every expense from scratch, treating the previous year's budget as non-existent.It is used only for capital expenditure.It focuses solely on increasing sales.

View Explanation

ZBB reverses the traditional incremental budgeting approach. Managers must justify all expenses for each new period, starting from a "zero base," forcing a review of cost-benefit for every activity to eliminate inefficiencies.

Question 9

In a Cash Budget, if the closing cash balance is negative (deficit), the management should plan for:

Investing surplus funds.Increasing depreciation.Arranging short-term borrowing (Overdraft).Paying higher dividends.

View Explanation

A projected cash deficit indicates that outflows exceed inflows. Management must arrange temporary financing like an overdraft or short-term loan to maintain liquidity.

Question 10

Which budget is usually prepared FIRST and serves as the basis for other budgets?

Production BudgetCash BudgetPurchase BudgetSales Budget

View Explanation

The Sales Budget estimates the revenue and demand. Since production, purchasing, and cash needs depend on how much the company expects to sell, the Sales Budget is the starting point (Key Factor).

Question 11

A "Rolling Budget" is one that:

Is revised continuously by adding a new period (month/quarter) as the current period expires.Is used only for rolling stock (trains).Has no fixed period.Remains constant for 5 years.

View Explanation

This ensures that a budget for a full year is always available, keeping the plan current and responsive to changes.

Question 12

In preparing a Cash Budget, if "Wages are paid with a time lag of 1/4 month", it means in the month of April, the wages paid will be:

100% of April's wages.75% of April's wages + 25% of May's wages.25% of April's wages + 75% of March's wages.75% of April's wages + 25% of March's wages.

View Explanation

1/4 lag means 1 week's wages are paid next month. So, in April, you pay for the remaining 3 weeks (3/4 or 75%) of April and the pending 1 week (1/4 or 25%) of March.

Question 13

A "Functional Budget" relates to:

The overall Master Budget only.Specific functions like Sales, Production, Material, etc.Government functions.The functions of the CEO.

View Explanation

Budgets prepared for individual functions/departments of the organization (e.g., Sales Budget, Production Budget) are Functional Budgets. They are consolidated into the Master Budget.

Question 14

"Capacity Ratio" in budgetary control is calculated as:

(Standard Hours / Actual Hours) * 100(Standard Hours / Budgeted Hours) * 100(Actual Hours / Budgeted Hours) * 100(Actual Output / Budgeted Output) * 100

View Explanation

Capacity Ratio measures whether the available capacity was utilized fully. >100% means overtime was worked; <100% means underutilization.

JAIIB Quiz

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