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Question 1 of 21
1. Question
Under Section 80TTA of the Income-tax Act, which of the following taxpayers may generally claim a deduction for eligible interest earned on savings accounts, subject to the statutory conditions?
Correct
Section 80TTA generally allows an eligible individual or Hindu Undivided Family (HUF) to claim a deduction for qualifying interest from savings accounts with banks, co-operative societies engaged in banking, or post offices, up to the prescribed limit. It does not generally cover interest on fixed deposits or recurring deposits. Senior citizens claiming eligible deposit interest may instead need to consider Section 80TTB, subject to the applicable law and tax regime. Always check whether the deduction is available under the taxpayer‘s chosen tax regime.
Incorrect
Section 80TTA generally allows an eligible individual or Hindu Undivided Family (HUF) to claim a deduction for qualifying interest from savings accounts with banks, co-operative societies engaged in banking, or post offices, up to the prescribed limit. It does not generally cover interest on fixed deposits or recurring deposits. Senior citizens claiming eligible deposit interest may instead need to consider Section 80TTB, subject to the applicable law and tax regime. Always check whether the deduction is available under the taxpayer‘s chosen tax regime.
Unattempted
Section 80TTA generally allows an eligible individual or Hindu Undivided Family (HUF) to claim a deduction for qualifying interest from savings accounts with banks, co-operative societies engaged in banking, or post offices, up to the prescribed limit. It does not generally cover interest on fixed deposits or recurring deposits. Senior citizens claiming eligible deposit interest may instead need to consider Section 80TTB, subject to the applicable law and tax regime. Always check whether the deduction is available under the taxpayer‘s chosen tax regime.
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Question 2 of 21
2. Question
A bank credits interest to a customer‘s account and deducts tax at source where the statutory conditions require it. What is the primary purpose of TDS?
Correct
Tax Deducted at Source (TDS) is a mechanism for collecting income tax at the point specified payments are made or credited. The deductor deposits the tax with the government and reports the deduction as required. The recipient can generally claim credit for eligible TDS against their tax liability, subject to correct reporting and the applicable rules. TDS is not necessarily the recipient‘s final tax liability; the final liability depends on their total taxable income and applicable provisions.
Incorrect
Tax Deducted at Source (TDS) is a mechanism for collecting income tax at the point specified payments are made or credited. The deductor deposits the tax with the government and reports the deduction as required. The recipient can generally claim credit for eligible TDS against their tax liability, subject to correct reporting and the applicable rules. TDS is not necessarily the recipient‘s final tax liability; the final liability depends on their total taxable income and applicable provisions.
Unattempted
Tax Deducted at Source (TDS) is a mechanism for collecting income tax at the point specified payments are made or credited. The deductor deposits the tax with the government and reports the deduction as required. The recipient can generally claim credit for eligible TDS against their tax liability, subject to correct reporting and the applicable rules. TDS is not necessarily the recipient‘s final tax liability; the final liability depends on their total taxable income and applicable provisions.
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Question 3 of 21
3. Question
An employee‘s employer deducts TDS from salary during the financial year. Which statement best describes the relationship between TDS and the employee‘s final income-tax liability?
Correct
TDS is an advance collection mechanism and is credited against the employee‘s computed tax liability. When the employee files a return, total tax liability is calculated under the applicable provisions and compared with eligible tax credits, including TDS and advance tax. If tax credits exceed the final liability, a refund may arise; if they are lower, additional tax may be payable. Therefore, the amount deducted as TDS does not automatically equal the final tax payable.
Incorrect
TDS is an advance collection mechanism and is credited against the employee‘s computed tax liability. When the employee files a return, total tax liability is calculated under the applicable provisions and compared with eligible tax credits, including TDS and advance tax. If tax credits exceed the final liability, a refund may arise; if they are lower, additional tax may be payable. Therefore, the amount deducted as TDS does not automatically equal the final tax payable.
Unattempted
TDS is an advance collection mechanism and is credited against the employee‘s computed tax liability. When the employee files a return, total tax liability is calculated under the applicable provisions and compared with eligible tax credits, including TDS and advance tax. If tax credits exceed the final liability, a refund may arise; if they are lower, additional tax may be payable. Therefore, the amount deducted as TDS does not automatically equal the final tax payable.
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Question 4 of 21
4. Question
After computing her income-tax liability, a taxpayer finds that eligible TDS and advance-tax payments exceed the tax payable. What is the usual tax treatment of the excess, subject to processing and verification?
Correct
Where eligible tax payments and credits exceed the taxpayer‘s final tax liability, the excess may be refunded under the Income-tax Act, subject to return processing, verification, and other applicable requirements. A refund is not the same as a deduction: a deduction reduces the income used to calculate taxable income, whereas a refund returns excess tax paid or credited. The taxpayer should ensure that return details and bank-account information are correct.
Incorrect
Where eligible tax payments and credits exceed the taxpayer‘s final tax liability, the excess may be refunded under the Income-tax Act, subject to return processing, verification, and other applicable requirements. A refund is not the same as a deduction: a deduction reduces the income used to calculate taxable income, whereas a refund returns excess tax paid or credited. The taxpayer should ensure that return details and bank-account information are correct.
Unattempted
Where eligible tax payments and credits exceed the taxpayer‘s final tax liability, the excess may be refunded under the Income-tax Act, subject to return processing, verification, and other applicable requirements. A refund is not the same as a deduction: a deduction reduces the income used to calculate taxable income, whereas a refund returns excess tax paid or credited. The taxpayer should ensure that return details and bank-account information are correct.
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Question 5 of 21
5. Question
Which statement correctly distinguishes a direct tax from an indirect tax?
Correct
A direct tax is generally imposed directly on the income or profits of the person or entity liable to pay it, and the legal incidence and economic burden are ordinarily intended to rest on that taxpayer. An indirect tax is imposed on supplies or transactions and may be collected by one person from another as part of the price. GST is an indirect tax, while income tax is a direct tax. The economic burden of an indirect tax may ultimately be borne by the consumer, depending on market conditions.
Incorrect
A direct tax is generally imposed directly on the income or profits of the person or entity liable to pay it, and the legal incidence and economic burden are ordinarily intended to rest on that taxpayer. An indirect tax is imposed on supplies or transactions and may be collected by one person from another as part of the price. GST is an indirect tax, while income tax is a direct tax. The economic burden of an indirect tax may ultimately be borne by the consumer, depending on market conditions.
Unattempted
A direct tax is generally imposed directly on the income or profits of the person or entity liable to pay it, and the legal incidence and economic burden are ordinarily intended to rest on that taxpayer. An indirect tax is imposed on supplies or transactions and may be collected by one person from another as part of the price. GST is an indirect tax, while income tax is a direct tax. The economic burden of an indirect tax may ultimately be borne by the consumer, depending on market conditions.
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Question 6 of 21
6. Question
Subject to the statutory place-of-supply rules and applicable exceptions, which GST components generally apply to a taxable inter-State supply within India?
Correct
For a taxable inter-State supply, Integrated GST (IGST) generally applies. For an intra-State supply, Central GST (CGST) and the relevant State GST (SGST) or Union Territory GST (UTGST) generally apply together. The determination depends on the legally relevant location of the supplier and place of supply, not simply on where the invoice is prepared or where payment is received. Special rules and exceptions may apply to particular transactions.
Incorrect
For a taxable inter-State supply, Integrated GST (IGST) generally applies. For an intra-State supply, Central GST (CGST) and the relevant State GST (SGST) or Union Territory GST (UTGST) generally apply together. The determination depends on the legally relevant location of the supplier and place of supply, not simply on where the invoice is prepared or where payment is received. Special rules and exceptions may apply to particular transactions.
Unattempted
For a taxable inter-State supply, Integrated GST (IGST) generally applies. For an intra-State supply, Central GST (CGST) and the relevant State GST (SGST) or Union Territory GST (UTGST) generally apply together. The determination depends on the legally relevant location of the supplier and place of supply, not simply on where the invoice is prepared or where payment is received. Special rules and exceptions may apply to particular transactions.
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Question 7 of 21
7. Question
A manufacturer incurs direct material cost of â¹80,000 and direct labour cost of Rs45,000. What is the prime cost, excluding direct expenses not mentioned?
Correct
Prime cost is the total of direct material, direct labour and other direct expenses attributable to a cost unit or job. Since the question gives only direct material and direct labour, prime cost is Rs80,000 + Rs45,000 = Rs1,25,000. Production overheads, administration overheads and selling overheads are not added to prime cost merely because they relate to the business; they are treated according to their nature and the relevant costing framework.
Incorrect
Prime cost is the total of direct material, direct labour and other direct expenses attributable to a cost unit or job. Since the question gives only direct material and direct labour, prime cost is Rs80,000 + Rs45,000 = Rs1,25,000. Production overheads, administration overheads and selling overheads are not added to prime cost merely because they relate to the business; they are treated according to their nature and the relevant costing framework.
Unattempted
Prime cost is the total of direct material, direct labour and other direct expenses attributable to a cost unit or job. Since the question gives only direct material and direct labour, prime cost is Rs80,000 + Rs45,000 = Rs1,25,000. Production overheads, administration overheads and selling overheads are not added to prime cost merely because they relate to the business; they are treated according to their nature and the relevant costing framework.
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Question 8 of 21
8. Question
In a bank, the cash department is separately monitored so that the costs of its staff, equipment and operations can be collected and analysed. In cost-accounting terminology, the cash department is best described as what?
Correct
A cost centre is a location, person, department or item of equipment for which costs are accumulated and analysed. It helps management monitor expenditure and responsibility. A cost unit, by contrast, is the unit of product or service in relation to which cost is measured, such as cost per transaction, per account serviced, or per service unit where appropriate. A department can be a cost centre even when it does not directly manufacture a physical product.
Incorrect
A cost centre is a location, person, department or item of equipment for which costs are accumulated and analysed. It helps management monitor expenditure and responsibility. A cost unit, by contrast, is the unit of product or service in relation to which cost is measured, such as cost per transaction, per account serviced, or per service unit where appropriate. A department can be a cost centre even when it does not directly manufacture a physical product.
Unattempted
A cost centre is a location, person, department or item of equipment for which costs are accumulated and analysed. It helps management monitor expenditure and responsibility. A cost unit, by contrast, is the unit of product or service in relation to which cost is measured, such as cost per transaction, per account serviced, or per service unit where appropriate. A department can be a cost centre even when it does not directly manufacture a physical product.
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Question 9 of 21
9. Question
Within the relevant range and for a given period, a service centre‘s total rent remains unchanged even when the number of transactions processed increases. How should this rent generally be classified?
Correct
A fixed cost remains constant in total within a specified relevant range and period despite changes in activity volume. Rent is a common example, although contracts and circumstances can change its behaviour over longer periods. A variable cost changes in total in proportion to activity, while a semi-variable cost contains both fixed and variable elements. Fixed cost per unit generally falls as output increases within the relevant range because the same total fixed cost is spread over more units.
Incorrect
A fixed cost remains constant in total within a specified relevant range and period despite changes in activity volume. Rent is a common example, although contracts and circumstances can change its behaviour over longer periods. A variable cost changes in total in proportion to activity, while a semi-variable cost contains both fixed and variable elements. Fixed cost per unit generally falls as output increases within the relevant range because the same total fixed cost is spread over more units.
Unattempted
A fixed cost remains constant in total within a specified relevant range and period despite changes in activity volume. Rent is a common example, although contracts and circumstances can change its behaviour over longer periods. A variable cost changes in total in proportion to activity, while a semi-variable cost contains both fixed and variable elements. Fixed cost per unit generally falls as output increases within the relevant range because the same total fixed cost is spread over more units.
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Question 10 of 21
10. Question
A printing firm receives separate orders for customised annual reports. Each order has different specifications, and material, labour and overhead costs are tracked separately for each order. Which costing method is most suitable?
Correct
Job costing is suitable when work is undertaken against separately identifiable jobs or customer orders, and each job can be costed individually. A job cost card can record direct materials, direct labour and the allocation of appropriate overheads to that job. Process costing is generally more suitable for continuous, homogeneous production, while service costing is often used for services measured in suitable service units. The key feature here is that each customised order is separately identifiable.
Incorrect
Job costing is suitable when work is undertaken against separately identifiable jobs or customer orders, and each job can be costed individually. A job cost card can record direct materials, direct labour and the allocation of appropriate overheads to that job. Process costing is generally more suitable for continuous, homogeneous production, while service costing is often used for services measured in suitable service units. The key feature here is that each customised order is separately identifiable.
Unattempted
Job costing is suitable when work is undertaken against separately identifiable jobs or customer orders, and each job can be costed individually. A job cost card can record direct materials, direct labour and the allocation of appropriate overheads to that job. Process costing is generally more suitable for continuous, homogeneous production, while service costing is often used for services measured in suitable service units. The key feature here is that each customised order is separately identifiable.
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Question 11 of 21
11. Question
A pharmaceutical manufacturer produces tablets in identifiable batches of 10,000 units. Costs are accumulated for each batch, and the cost per tablet is calculated from the batch total. Which method is being used?
Correct
Batch costing is a form of specific order costing in which a batch of similar units is treated as the cost unit. The total cost of the batch is accumulated and divided by the number of acceptable units produced to determine average cost per unit, with appropriate treatment of losses or rejects. It is commonly useful where identical or similar items are manufactured in batches, such as medicines, components or standardised products.
Incorrect
Batch costing is a form of specific order costing in which a batch of similar units is treated as the cost unit. The total cost of the batch is accumulated and divided by the number of acceptable units produced to determine average cost per unit, with appropriate treatment of losses or rejects. It is commonly useful where identical or similar items are manufactured in batches, such as medicines, components or standardised products.
Unattempted
Batch costing is a form of specific order costing in which a batch of similar units is treated as the cost unit. The total cost of the batch is accumulated and divided by the number of acceptable units produced to determine average cost per unit, with appropriate treatment of losses or rejects. It is commonly useful where identical or similar items are manufactured in batches, such as medicines, components or standardised products.
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Question 12 of 21
12. Question
Under a construction contract, the customer certifies work completed but withholds part of the certified amount until the contractor meets specified conditions or completes a defect-liability period. What is the withheld amount commonly called?
Correct
Retention money is the portion of a contractor‘s payment withheld by the contractee under the contract terms, often as protection against incomplete work or defects. It is generally released when specified milestones or contractual conditions are met. It differs from a progress payment, which is an interim payment for work completed and certified. The exact recognition and accounting treatment depend on the contract terms and the applicable accounting requirements.
Incorrect
Retention money is the portion of a contractor‘s payment withheld by the contractee under the contract terms, often as protection against incomplete work or defects. It is generally released when specified milestones or contractual conditions are met. It differs from a progress payment, which is an interim payment for work completed and certified. The exact recognition and accounting treatment depend on the contract terms and the applicable accounting requirements.
Unattempted
Retention money is the portion of a contractor‘s payment withheld by the contractee under the contract terms, often as protection against incomplete work or defects. It is generally released when specified milestones or contractual conditions are met. It differs from a progress payment, which is an interim payment for work completed and certified. The exact recognition and accounting treatment depend on the contract terms and the applicable accounting requirements.
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Question 13 of 21
13. Question
In a chemical process, some input is expected to be lost during normal production because of the nature of the process. How is this expected loss generally treated in process costing?
Correct
Normal loss is an unavoidable loss expected under efficient operating conditions. In conventional process-costing treatment, the cost of normal loss is absorbed by the good output, often after accounting for any realisable scrap value. Abnormal loss or abnormal gain is the difference between actual loss and the normal loss allowance and is generally identified separately for control and accounting purposes. The precise treatment should follow the costing policy and applicable standards.
Incorrect
Normal loss is an unavoidable loss expected under efficient operating conditions. In conventional process-costing treatment, the cost of normal loss is absorbed by the good output, often after accounting for any realisable scrap value. Abnormal loss or abnormal gain is the difference between actual loss and the normal loss allowance and is generally identified separately for control and accounting purposes. The precise treatment should follow the costing policy and applicable standards.
Unattempted
Normal loss is an unavoidable loss expected under efficient operating conditions. In conventional process-costing treatment, the cost of normal loss is absorbed by the good output, often after accounting for any realisable scrap value. Abnormal loss or abnormal gain is the difference between actual loss and the normal loss allowance and is generally identified separately for control and accounting purposes. The precise treatment should follow the costing policy and applicable standards.
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Question 14 of 21
14. Question
For material purchased and used, the standard price is 10 per kg and the actual price is Rs12 per kg. The actual quantity is 500 kg. Using Material Price Variance = Actual Quantity x (Standard Price-Actual Price), what is the variance?
Correct
Material Price Variance using the stated formula is AQ Ã (SP â AP), where AQ is actual quantity, SP is standard price and AP is actual price. The calculation is 500 Ã (â¹10 â â¹12) = ââ¹1,000. The negative result indicates an adverse variance of â¹1,000 because the actual price exceeded the standard price. Some texts present adverse variance as a positive amount labelled ‘Adverse‘; the sign convention should always be stated clearly.
Incorrect
Material Price Variance using the stated formula is AQ Ã (SP â AP), where AQ is actual quantity, SP is standard price and AP is actual price. The calculation is 500 Ã (â¹10 â â¹12) = ââ¹1,000. The negative result indicates an adverse variance of â¹1,000 because the actual price exceeded the standard price. Some texts present adverse variance as a positive amount labelled ‘Adverse‘; the sign convention should always be stated clearly.
Unattempted
Material Price Variance using the stated formula is AQ Ã (SP â AP), where AQ is actual quantity, SP is standard price and AP is actual price. The calculation is 500 Ã (â¹10 â â¹12) = ââ¹1,000. The negative result indicates an adverse variance of â¹1,000 because the actual price exceeded the standard price. Some texts present adverse variance as a positive amount labelled ‘Adverse‘; the sign convention should always be stated clearly.
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Question 15 of 21
15. Question
Standard hours allowed for actual output are 200 hours. Actual hours worked are 220 hours, and the standard labour rate is â¹150 per hour. Using Labour Efficiency Variance = Standard Rate x (Standard Hours – Actual Hours), what is the result?
Correct
Labour Efficiency Variance measures the cost impact of using more or fewer hours than the standard hours allowed for the actual output. Applying the formula: ₹150 × (200 − 220) = −₹3,000. Since actual hours exceed the standard hours allowed, the result is an adverse variance of ₹3,000. This variance concerns labour time efficiency; a difference between actual and standard wage rates is measured separately by labour rate variance.
Incorrect
Labour Efficiency Variance measures the cost impact of using more or fewer hours than the standard hours allowed for the actual output. Applying the formula: ₹150 × (200 − 220) = −₹3,000. Since actual hours exceed the standard hours allowed, the result is an adverse variance of ₹3,000. This variance concerns labour time efficiency; a difference between actual and standard wage rates is measured separately by labour rate variance.
Unattempted
Labour Efficiency Variance measures the cost impact of using more or fewer hours than the standard hours allowed for the actual output. Applying the formula: ₹150 × (200 − 220) = −₹3,000. Since actual hours exceed the standard hours allowed, the result is an adverse variance of ₹3,000. This variance concerns labour time efficiency; a difference between actual and standard wage rates is measured separately by labour rate variance.
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Question 16 of 21
16. Question
A bank‘s processing unit compares the standard cost of handling a transaction with the actual cost and investigates significant differences. What is the principal management purpose of this practice?
Correct
Standard costing establishes predetermined costs under specified operating conditions and compares them with actual costs. Variance analysis helps managers identify differences, investigate causes and take corrective action. Standards may relate to materials, labour and overheads, and can also support budgeting and performance measurement. A variance does not automatically prove that a person or department performed poorly; management should consider factors such as price changes, volume, quality, efficiency and whether the standard remains realistic.
Incorrect
Standard costing establishes predetermined costs under specified operating conditions and compares them with actual costs. Variance analysis helps managers identify differences, investigate causes and take corrective action. Standards may relate to materials, labour and overheads, and can also support budgeting and performance measurement. A variance does not automatically prove that a person or department performed poorly; management should consider factors such as price changes, volume, quality, efficiency and whether the standard remains realistic.
Unattempted
Standard costing establishes predetermined costs under specified operating conditions and compares them with actual costs. Variance analysis helps managers identify differences, investigate causes and take corrective action. Standards may relate to materials, labour and overheads, and can also support budgeting and performance measurement. A variance does not automatically prove that a person or department performed poorly; management should consider factors such as price changes, volume, quality, efficiency and whether the standard remains realistic.
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Question 17 of 21
17. Question
A product sells for 500 per unit and has a variable cost of 320 per unit. Fixed costs for the period are 90,000. What is the contribution per unit?
Correct
Contribution per unit equals selling price per unit minus variable cost per unit. Here, ₹500 − ₹320 = ₹180 per unit. Contribution first covers fixed costs; after fixed costs have been covered, the remaining contribution contributes to profit. Fixed costs are not deducted to calculate contribution per unit, although they are deducted from total contribution to determine profit for the period.
Incorrect
Contribution per unit equals selling price per unit minus variable cost per unit. Here, ₹500 − ₹320 = ₹180 per unit. Contribution first covers fixed costs; after fixed costs have been covered, the remaining contribution contributes to profit. Fixed costs are not deducted to calculate contribution per unit, although they are deducted from total contribution to determine profit for the period.
Unattempted
Contribution per unit equals selling price per unit minus variable cost per unit. Here, ₹500 − ₹320 = ₹180 per unit. Contribution first covers fixed costs; after fixed costs have been covered, the remaining contribution contributes to profit. Fixed costs are not deducted to calculate contribution per unit, although they are deducted from total contribution to determine profit for the period.
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Question 18 of 21
18. Question
A product sells for ₹200 per unit, variable cost is ₹120 per unit, and total fixed costs are ₹40,000. Assuming a constant sales mix is not relevant and all units are sold at the stated price, what is the break-even point in units?
Correct
Break-even point in units equals fixed costs divided by contribution per unit. Contribution per unit = ₹200 − ₹120 = ₹80. Break-even output = ₹40,000 ÷ ₹80 = 500 units. At this output, total contribution equals fixed costs and profit is zero, assuming the stated prices, variable costs and fixed costs remain valid and all output is sold.
Incorrect
Break-even point in units equals fixed costs divided by contribution per unit. Contribution per unit = ₹200 − ₹120 = ₹80. Break-even output = ₹40,000 ÷ ₹80 = 500 units. At this output, total contribution equals fixed costs and profit is zero, assuming the stated prices, variable costs and fixed costs remain valid and all output is sold.
Unattempted
Break-even point in units equals fixed costs divided by contribution per unit. Contribution per unit = ₹200 − ₹120 = ₹80. Break-even output = ₹40,000 ÷ ₹80 = 500 units. At this output, total contribution equals fixed costs and profit is zero, assuming the stated prices, variable costs and fixed costs remain valid and all output is sold.
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Question 19 of 21
19. Question
A business has sales of â¹8,00,000 and variable costs of â¹5,00,000. What is its P/V ratio?
Correct
The profit-volume (P/V) ratio is contribution divided by sales, expressed as a percentage. Contribution = Sales â Variable Costs = â¹8,00,000 â â¹5,00,000 = â¹3,00,000. P/V ratio = â¹3,00,000 ÷ â¹8,00,000 à 100 = 37.5%. With a constant P/V ratio, the ratio indicates how much contribution is generated from each rupee of sales and is useful for break-even and profit-planning calculations.
Incorrect
The profit-volume (P/V) ratio is contribution divided by sales, expressed as a percentage. Contribution = Sales â Variable Costs = â¹8,00,000 â â¹5,00,000 = â¹3,00,000. P/V ratio = â¹3,00,000 ÷ â¹8,00,000 à 100 = 37.5%. With a constant P/V ratio, the ratio indicates how much contribution is generated from each rupee of sales and is useful for break-even and profit-planning calculations.
Unattempted
The profit-volume (P/V) ratio is contribution divided by sales, expressed as a percentage. Contribution = Sales â Variable Costs = â¹8,00,000 â â¹5,00,000 = â¹3,00,000. P/V ratio = â¹3,00,000 ÷ â¹8,00,000 à 100 = 37.5%. With a constant P/V ratio, the ratio indicates how much contribution is generated from each rupee of sales and is useful for break-even and profit-planning calculations.
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Question 20 of 21
20. Question
A service unit‘s actual activity level differs substantially from the level assumed when its budget was prepared. Management wants to compare actual costs with budgeted costs adjusted for the actual activity level. Which budget is most appropriate?
Correct
A flexible budget is designed to adjust budgeted costs and, where relevant, revenues for the actual level of activity. It is particularly useful when activity fluctuates, because it provides a more meaningful comparison than a fixed budget prepared for only one activity level. A fixed budget remains based on a single planned level. A flexible budget does not mean that all costs vary; fixed, variable and semi-variable cost behaviour must be considered.
Incorrect
A flexible budget is designed to adjust budgeted costs and, where relevant, revenues for the actual level of activity. It is particularly useful when activity fluctuates, because it provides a more meaningful comparison than a fixed budget prepared for only one activity level. A fixed budget remains based on a single planned level. A flexible budget does not mean that all costs vary; fixed, variable and semi-variable cost behaviour must be considered.
Unattempted
A flexible budget is designed to adjust budgeted costs and, where relevant, revenues for the actual level of activity. It is particularly useful when activity fluctuates, because it provides a more meaningful comparison than a fixed budget prepared for only one activity level. A fixed budget remains based on a single planned level. A flexible budget does not mean that all costs vary; fixed, variable and semi-variable cost behaviour must be considered.
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Question 21 of 21
21. Question
Under which budgeting approach must a department justify its proposed expenditure from a zero base rather than simply adjusting the previous period‘s budget?
Correct
Zero-based budgeting (ZBB) requires activities and expenditure proposals to be justified from the beginning for the budget period, rather than automatically carrying forward the previous budget. Managers evaluate needs, alternatives and priorities, often through decision packages. ZBB can encourage resource allocation toward higher-priority activities, but it may require substantial time, information and managerial effort. It differs from incremental budgeting, which typically starts with the previous period‘s figures and adjusts them.
Incorrect
Zero-based budgeting (ZBB) requires activities and expenditure proposals to be justified from the beginning for the budget period, rather than automatically carrying forward the previous budget. Managers evaluate needs, alternatives and priorities, often through decision packages. ZBB can encourage resource allocation toward higher-priority activities, but it may require substantial time, information and managerial effort. It differs from incremental budgeting, which typically starts with the previous period‘s figures and adjusts them.
Unattempted
Zero-based budgeting (ZBB) requires activities and expenditure proposals to be justified from the beginning for the budget period, rather than automatically carrying forward the previous budget. Managers evaluate needs, alternatives and priorities, often through decision packages. ZBB can encourage resource allocation toward higher-priority activities, but it may require substantial time, information and managerial effort. It differs from incremental budgeting, which typically starts with the previous period‘s figures and adjusts them.