20 At the beginning of March 20X2, a company has an opening balance of £60,000 on its

receivables ledger. Sales of £160,000 have been budgeted for March and it is budgeted
that 60% of these will be settled in March after a cash discount of 2.5%.
If 23% of the opening receivables are still outstanding at the end of March, what will be the
budgeted receivables figure at that date?
A £76,200
B £77,800
C £80,200
D £110,200 LO 2c

21 A retailing company budgets to maintain inventories at the end of each month which are
sufficient to meet the budgeted sales requirements for the following month. Two months'
credit will be received from suppliers of inventory.
Budgeted sales, which earn a gross profit margin of 20% of sales value, are as follows:
£
January 28,300
February 26,100
March 33,800
April 30,690
The budgeted balance sheet as at the end of March will show a payables balance of
A £47,920
B £51,592
C £59,900
D £64,490 LO 2c

22 A company's master budget contains the following budgeted income statement.

£ £
Sales revenue (5,000 units) 120,000
Variable materials cost 24,000
Variable labour cost 32,500
Variable overhead 13,000
Fixed overhead 41,000
110,500
Budgeted net profit 9,500

The company's management are considering a change in the materials specification. This
would reduce the materials cost per unit by 10%. The reduced product quality would
necessitate a 2% reduction in the selling price and the sales volume would fall by 5%.
The revised budgeted net profit for the period would be
A £3,620
B £6,975
C £9,025
D £9,375 LO 2c

64 Management Information: Question Bank ICAEW 2019

 23 Which two of the following statements are correct?
A A forecast and a budget are essentially the same thing.
B A budget must be quantified if it is to be useful for planning and control purposes.
C A budget provides the basic unit rates to be used in the preparation of standards for
control purposes.
D The sales budget must always be prepared first.
E An organisation's long term plan provides the framework within which an annual
budget is set. LO 2a

24 A company has recorded the following costs over the last six months.
Month Total cost Units produced
£
1 74,000 3,000
2 72,750 1,750
3 73,250 2,000
4 75,000 2,500
5 69,500 1,500
6 72,750 2,000
Using the high-low method, which of the following represents the total cost equation?
A Total cost = 61,250 + (1.25  quantity)
B Total cost = 65,000 + (3  quantity)
C Total cost = 65,000 + (1.25  quantity)
D Total cost = 61,250 + (3  quantity) LO 2a

25 A company has recorded the following costs over the last four months.
Month Cost Production
£ Units
1 21,995 1,050
2 19,540 1,090
3 19,000 750
4 17,200 700
Using the high-low method, the expected cost of producing 950 units is
A £17,030
B £18,700
C £20,625
D £23,343 LO 2a

ICAEW 2019 Chapter 6: Budgeting 65

 26 The following estimates of possible sales revenue and cost behaviour for a one-year period
relate to one of AB Company's products:
Activity level 60% 100%
Sales and production (units) 36,000 60,000
£ £
Sales revenue 432,000 720,000
Production costs
Variable and fixed 366,000 510,000
Sales distribution and administration costs
Variable and fixed 126,000 150,000
The budgeted level of activity for the current year is 60,000 units, and fixed costs are
incurred evenly throughout the year.
There was no inventory of the product at the start of the first quarter, in which 16,500 units
were made and 13,500 units were sold. Actual fixed costs were the same as budgeted.
AB Company uses absorption costing. You may assume that sales revenue and variable
costs per unit are as budgeted.
What is the value of the fixed production costs that were absorbed by the product in the
first quarter?
A £33,750
B £37,500
C £41,250
D £66,000 LO 2a

27 The following data have been extracted from the budget working papers of BL Ltd.
Production volume 1,000 2,000
£/unit £/unit
Variable materials 4.00 4.00
Variable labour 3.50 3.50
Production overhead – department 1 6.00 4.20
Production overhead – department 2 4.00 2.00
The total fixed cost and variable cost per unit is
Total fixed cost Variable cost per unit
£ £
A 3,600 9.90
B 4,000 11.70
C 7,600 7.50
D 7,600 9.90 LO 2a

66 Management Information: Question Bank ICAEW 2019

 28 Which of the following would affect the reliability of a forecast using linear regression?
(1) The amount of data on which the regression line is based
(2) The assumption that the trend line applies outside the range of X values used to
establish the line in the first place
(3) The assumption that there is a linear relationship between the two variables
(4) The coefficient of correlation
A (1) and (2) only
B (1), (2) and (3) only
C (1), (2), (3) and (4)
D (2) and (4) only LO 2a

29 Which two of the following are underlying assumptions of forecasts made using regression
analysis?
A A curvilinear relationship exists between the two variables
B The value of one variable can be predicted or estimated from the value of one other
variable
C A perfect linear relationship between the two variables
D What has happened in the past will provide a reliable guide to the future LO 2a

30 A company's weekly costs (£C) were plotted against production level (P) for the last 50
weeks and a regression line calculated to be C = 100 + 20P.
Which of the following statements about the breakdown of weekly costs is true?
A Fixed costs are £100. Variable costs per unit are £20.
B Fixed costs are £20. Variable costs per unit are £100.
C Fixed costs are £20. Variable costs per unit are £5.
D Fixed costs are £100. Variable costs per unit are £4. LO 2a

31 Which two of the following statements are correct?

A Positive correlation means that low values of one variable are associated with low
values of the other, and high values of one variable are associated with high values of
the other.
B Positive correlation means that low values of one variable are associated with high
values of the other, and high values of one variable are associated with low values of
the other.
C Negative correlation means that low values of one variable are associated with low
values of the other, and high values of one variable are associated with high values of
the other.
D Negative correlation means that low values of one variable are associated with high
values of the other, and high values of one variable are associated with low values of
the other. LO 2a

ICAEW 2019 Chapter 6: Budgeting 67

 32 Examine the following graphs:
(a) Y

X
(b) Y

X
Which of the following statements is correct?
A Diagram (a) represents perfect positive correlation; diagram (b) represents negative
correlation.
B Diagram (b) represents perfect positive correlation; diagram (a) represents negative
correlation.
C Diagram (a) represents perfect negative correlation; diagram (b) represents imperfect
positive correlation.
D Diagram (b) represents perfect negative correlation; diagram (a) represents perfect
positive correlation. LO 2a

33 The correlation coefficient between two variables, x and y, is +0.72.

The proportion of variation in y that is explained by variation in x is (to two decimal places).
A 0.52
B 0.72
C 0.85
D 1.44 LO 2a

34 Which two of the following statements are correct?

A The coefficient of determination must always fall between 0 and +1.
B The correlation coefficient must always fall between –1 and +1.
C An advantage of the high-low method of cost estimation is that it takes into account the
full range of available data.
D A cost estimate produced using the high-low method can be used to reliably predict
the cost for any level of activity. LO 2a

68 Management Information: Question Bank ICAEW 2019

 35 The correlation coefficient between advertising expenditure and sales revenue is calculated
to be 0.85.
Which of the following statements is true?
A There is a weak relationship between advertising expenditure and sales revenue.
B 85% of the variation in sales revenue can be explained by the corresponding variation
in advertising expenditure.
C 72% of the variation in sales revenue can be explained by the corresponding variation
in advertising expenditure.
D Sales revenue will increase by 85% more than advertising expenditure will increase.
LO 2a

36 The linear relationship between advertising in thousands of pounds (X) and sales in tens of
thousands of pounds (Y) is given by Y = 5 + 2X.
Which two of the following statements are correct?
A For every £1,000 spent on advertising, sales revenue increases by £50,000 on average.
B When nothing is spent on advertising the average level of sales is £50,000.
C For every £1,000 spent on advertising, sales revenue increases by £20,000 on average.
D When nothing is spent on advertising, the average level of sales is £20,000. LO 2a

37 Which of the following is the best description of a 'top-down' budgeting process?

A The process starts with sales, then progresses to production, materials usage and other
functional budgets.
B Top management prepare a budget with little or no input from operating personnel.
C A series of budgets is prepared, from the most optimistic performance down to the
most pessimistic.
D The top level budget is non-financial, but more detailed budgets are progressively in
more financial terms. LO 2d

38 Which two of the following are advantages of a 'bottom-up' style of budgeting?

A Increase operational managers' commitment to organisational objectives
B Enhance the coordination between the plans and objectives of divisions
C Reduce the incidence of budgetary slack
D Based on information from employees most familiar with day to day activities
E Decrease the period of time taken to prepare the budgets LO 2d

ICAEW 2019 Chapter 6: Budgeting 69

 39 Which of the following are criticisms of incremental budgeting?
(1) It is time consuming because it involves starting each budget from scratch
(2) It encourages slack
(3) It includes past inefficiencies as cost levels are not scrutinised
(4) It encourages wasteful spending

A (1) and (2) only

B (1), (2) and (3) only
C (2), (3) and (4) only
D (3) and (4) only LO 2d

40 Which of the following best describes incremental budgeting?

A Increments of expenditure are compared with the expected benefits to be received.
B Budgeted capacity is increased in increments until it is just sufficient to satisfy
budgeted production requirements.
C The budget for each period is based on the current year's results, modified for
changes in activity levels.
D The budget is updated in regular increments, by adding the budget for a further
accounting period when the earliest accounting period has expired. LO 2d

41 Which two of the following are characteristics of rolling budgets?

A Each item of expenditure has to be justified in its entirety in order to be included in the
next year's budget.
B A new accounting period, such as a month or a quarter, is added as each old one
expires.
C The budget is more realistic and certain as there is a short period between the
preparation of budgets.
D Updates to the fixed annual budget are made only when they are foreseeable. LO 2d

42 Which of the following best describes 'zero-based budgeting'?

A A budget method where an attempt is made to make expenditure under each cost
heading as close to zero as possible.
B A method of budgeting whereby all activities are re-evaluated each time a budget is
formulated.
C A method of budgeting where the sum of costs and revenues for each budget centre
equals zero.
D A method of budgeting that distinguishes fixed and variable cost behaviour with
respect to changes in output and the budget is designed to change appropriately with
such fluctuations. LO 2d

70 Management Information: Question Bank ICAEW 2019

 43 Three separate newly-formed companies are currently designing their budgetary planning
and control systems.
Company A will manufacture a wide range of products of varying flexibility. Some of the
products will be mass produced, others will be low volume. The degree of non-production
support required for each product differs widely.
Company B will manufacture a single product and has employed a specialist to manage
each of its production and non-production activities.
Company C will manufacture a small range of diverse products and the cost and revenue
responsibilities will differ for each product.
Indicate which budget structure would be most appropriate for each organisation.
Product based budget
A Company A
B Company B
C Company C
Responsibility based budget
D Company A
E Company B
F Company C
Activity based budget
G Company A
H Company B
I Company C LO 2d

44 Which two of the following statements about budgeting are correct?

A A forecast is an attempt to predict what will happen.
B A budget is a plan of what is intended to happen.
C All budgets are prepared in financial terms.
D The master budget consists of a budgeted income statement and a budgeted balance
sheet.
E A flexible budget adjusts both fixed and variable costs for the level of activity. LO 2d

45 A firm that uses zero-based budgeting for its overheads has

A zero as the starting point for budgeting the coming year's overheads
B a zero variance between budgeted and actual overhead
C an assumed sales level of zero as the starting point for budgeting the coming year's
overheads
D an overhead budget of zero LO 2d

ICAEW 2019 Chapter 6: Budgeting 71

 46 The high-low method of cost estimation is useful for
A calculating the budgeted cost for the actual activity
B calculating the highest and lowest costs in the budget period
C measuring the actual cost for the budgeted activity
D predicting the range of costs expected in the budget period LO 2a

47 An extract from next year's budget for a manufacturing company is shown below.
Month 3 Month 4
£ £
Closing inventory of raw materials 22,000 12,000
The manufacturing cost of production is £116,000 in both Month 3 and Month 4. Materials
costs represent 40% of manufacturing cost.
The budgeted material purchases for Month 4 are
A £36,400
B £42,400
C £46,400
D £56,400 LO 2c

48 You are given the following budgeted cost information for Verlaine plc for January.
Sales £120,000
Unit selling price £2
Gross profit 30% margin on sales
Opening inventory 6,000 units
Sales volumes are increasing at 20% per month and company policy is to maintain 10% of
next month's sales volume as closing inventory.
The budgeted cost of production for January is
A £84,000
B £85,680
C £120,000
D £122,400 LO 2c

72 Management Information: Question Bank ICAEW 2019

 49 Which of the following statements about big data is/are correct?
(1) Big data is often out of date before it can be used.
(2) Big data is only relevant for short term decisions.
(3) Big data can be used to predict consumer preferences.
A (1), (2) and (3)
B (1) and (2) only
C (3) only
D (2) and (3) only LO 2b

50 Fashn Ltd runs a chain of fashion retail stores. A key element of its commercial success
comes from being able to identify customer trends, and responding to them, more quickly
than its competitors.
Which two of the following are potential sources of big data for Fashn Ltd?
A Online video clips of clothes being shared by customers
B Daily transactions records from stores
C Inventory records from the chain’s central warehouse
D Keywords from conversations about fashion on social media
E The number, and level, of discounts Fashn Ltd has to offer on its products LO 2b

51 Consider the following statements:

(1) Big data analytics enables businesses to gain a more detailed understanding of
customer behaviour.
(2) Big data requires analysis by a skilled data analyst.
Which of the following is correct with regards to the statements above?
A (1) and (2) are correct
B (1) and (2) are incorrect
C (1) is correct and (2) is incorrect
D (2) is correct and (1) is incorrect LO 2b

52 What are the four 'V's associated with big data?

A Volume, velocity, visibility, veracity
B Variability, volume, verification, veracity
C Volume, velocity, variety, veracity
D Velocity, visibility, variety, variability LO 2b

ICAEW 2019 Chapter 6: Budgeting 73