2.2.4 Budgets and variance analysis Quiz: Pearson Edexcel Business, Unit 2

The 20 questions

1. What is the main purpose of setting a budget in business?

   • Recording past sales
   • Planning and control
   • Calculating tax liabilities
   • Measuring asset values

2. Which type of budget sets each new budget by starting from the previous year's figures?

   • Capital budget
   • Zero-based budget
   • Flexible budget
   • Historical budget

3. Which budgeting method requires every expense to be justified from scratch each period?

   • Zero-based budgeting
   • Flexible budgeting
   • Variance budgeting
   • Historical budgeting

4. A budgeted spend on advertising is £20,000, and actual spend is £23,500. What is the variance?

   • £3,500 favourable
   • £20,000 favourable
   • £23,500 adverse
   • £3,500 adverse

5. A business's budgeted revenue is £150,000 and actual revenue is £162,000. What is the variance?

   • £12,000 adverse
   • £150,000 favourable
   • £162,000 adverse
   • £12,000 favourable

6. Which issue is a major limitation when preparing business budgets?

   • Guaranteed sales revenue
   • Excess liquidity
   • High interest rates
   • Inaccurate forecasts

7. What is a key disadvantage of using historical budgeting?

   • Encourages inefficient spending
   • Lowers operational risks
   • Eliminates all variance
   • Requires zero forecasting

8. What is the main benefit of using zero-based budgeting?

   • Uses past expenditure
   • Eliminates unnecessary spending
   • Guarantees revenue growth
   • Saves manager time

9. A firm's budgeted costs are £80,000 and its actual costs are £76,000. What is the variance and its type?

   • £76,000 favourable
   • £4,000 adverse
   • £80,000 adverse
   • £4,000 favourable

10. What should a business do immediately after identifying an adverse variance?

    • Investigate the cause
    • Ignore the difference
    • Increase dividend payments
    • Dismiss the manager

11. What does variance analysis compare to evaluate financial performance?

    • Assets versus liabilities
    • Revenue versus cost
    • Profit versus loss
    • Budget versus actual

12. A business budgets £45,000 for materials and spends £41,000. What is the variance and its type?

    • £4,000 favourable
    • £45,000 favourable
    • £4,000 adverse
    • £41,000 adverse

13. How does a departmental budget assist a manager?

    • Replaces financial accounts
    • Guarantees sales profit
    • Eliminates business risk
    • Sets spending limits

14. A firm's budgeted profit is £30,000 and its actual profit is £24,000. What is the variance?

    • £6,000 favourable
    • £6,000 adverse
    • £24,000 adverse
    • £30,000 favourable

15. Why might a budget become inaccurate during the financial year?

    • Constant consumer demand
    • Fixed capital expenditure
    • Predictable inflation rates
    • Changing market conditions

16. A business sets a budget for a new product using last year's figures for a similar product. What type of budget is this most like?

    • Historical budget
    • Capital budget
    • Zero-based budget
    • Cash budget

17. Which outcome causes an adverse financial variance for a business?

    • Higher actual profit
    • Higher actual revenue
    • Higher actual costs
    • Lower actual costs

18. A budget sets sales of 10,000 units. Actual sales are 9,400 units at £8 each. What is the revenue variance?

    • £4,800 favourable
    • £4,800 adverse
    • £9,400 adverse
    • £80,000 favourable

19. What is a major advantage of regularly reviewing a business budget?

    • Guarantees higher profits
    • Prevents budget errors
    • Eliminates all variances
    • Adapts to change

20. Why is sales forecasting a major difficulty when setting budgets?

    • Guaranteed cash surplus
    • Inaccurate future data
    • High tax rates
    • Fixed interest charges

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