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Free ACCA Management Accounting Practice Questions & Answers
400 exam-style Management Accounting questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 151
What is the primary purpose of a budget in an organisation?
Select an option first.
Correct answer: B — To quantify plans, allocate resources, and provide a benchmark for performance control
Explanation: B is correct: a budget translates plans into financial terms, authorises spending, coordinates activities across departments, motivates managers and provides a yardstick against which actual results are compared. A is wrong — tax calculation is the domain of tax accounting. C is wrong — budgets support, not replace, management judgement. D is wrong — reporting historical results is a function of management reporting, not budgeting.
Question 152
Which of the following is NOT a purpose of budgeting?
Select an option first.
Correct answer: C — Eliminating the need for strategy
Explanation: C is correct (it is NOT a purpose): budgeting does not eliminate the need for strategy — in fact, budgets operationalise strategy. The genuine purposes of budgeting are planning, control, communication, motivation and co-ordination. A is a genuine purpose. B is a genuine purpose. D is a genuine purpose.
Question 153
A master budget consists of:
Select an option first.
Correct answer: D — All functional budgets combined into an overall plan
Explanation: D is correct: the master budget is the culmination of all functional budgets (sales, production, materials, labour, overheads) and includes a budgeted income statement, budgeted balance sheet and cash budget. A is wrong — the cash budget is one component of the master budget. B is wrong — capital expenditure is one component. C is wrong — this partially describes the master budget's outputs but misses the functional budgets that feed into it.
Question 154
The budget that is typically prepared first in the budget-setting process is the:
Select an option first.
Correct answer: C — Sales budget
Explanation: C is correct: the sales budget comes first because revenue drives most other budgets. Production, materials, labour and overhead budgets are all derived from what the business plans to sell. A is wrong — the production budget depends on the sales budget. B is wrong — the labour budget depends on production requirements. D is wrong — the cash budget is one of the last to be prepared, incorporating all receipts and payments.
Question 155
A principal budget factor (limiting budget factor) is:
Select an option first.
Correct answer: B — The constraint that limits the organisation's activities and must be identified before other budgets are set
Explanation: B is correct: the principal budget factor is the key constraint on the organisation — usually sales demand, but sometimes material availability, skilled labour or machine capacity. It must be identified first because all other budgets must be consistent with it. A is wrong — detail level is not the criterion. C is wrong — seniority of the preparer doesn't define the principal budget factor. D is wrong — monetary value is irrelevant.
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Question 156
Incremental budgeting involves:
Select an option first.
Correct answer: B — Taking last period's budget and adjusting it for expected changes
Explanation: B is correct: incremental budgeting starts from the prior period's budget and makes adjustments for known changes (e.g. inflation, volume changes). It is simple but can perpetuate inefficiency. A is wrong — that describes zero-based budgeting. C is wrong — that describes scenario-based planning. D is wrong — optimisation is a separate technique.
Question 157
Zero-based budgeting (ZBB) requires managers to:
Select an option first.
Correct answer: B — Justify every item of expenditure from scratch, as if starting from zero
Explanation: B is correct: ZBB requires every cost to be justified and approved anew each period — nothing is automatically carried forward. It challenges existing spending patterns and can eliminate wasteful costs. A is wrong — that is incremental budgeting. C is wrong — ZBB applies to all expenditure. D is wrong — ZBB covers all budgets, not just capital.
Question 158
Which of the following is a DISADVANTAGE of zero-based budgeting?
Select an option first.
Correct answer: C — It is very time-consuming and costly to implement
Explanation: C is correct: ZBB's main drawback is the substantial time and management effort required to justify all expenditure from scratch every period. A is wrong — that is an advantage of ZBB. B is wrong — that is an advantage. D is wrong — preventing automatic roll-forward is a feature and advantage, not a disadvantage.
Question 159
A fixed budget is one that:
Select an option first.
Correct answer: A — Remains unchanged regardless of actual activity level
Explanation: A is correct: a fixed budget is prepared for a single planned activity level and is not adjusted when actual activity differs — making it unsuitable for performance appraisal when actual volume differs from budget. B is wrong — that describes a flexible budget. C is wrong — monthly updating describes rolling budgets. D is wrong — fixed budgets include all costs, not just fixed ones.
Question 160
A flexible budget is useful because it:
Select an option first.
Correct answer: B — Adjusts for the actual volume of activity, making performance comparisons meaningful
Explanation: B is correct: a flexible budget is re-expressed at the actual activity level, separating volume differences from efficiency and price differences — enabling a fairer comparison of actual costs with budgeted costs for the actual output achieved. A is wrong — flexible budgets still set spending limits. C is wrong — flexible budgets are more useful for comparison but not necessarily more 'accurate'. D is wrong — variance analysis is still performed on the flexed budget.
Question 161
Which of the following best describes a rolling (continuous) budget?
Select an option first.
Correct answer: B — A budget that is continually updated by adding a new period as the most recent period expires
Explanation: B is correct: a rolling budget always maintains a full planning horizon (e.g. 12 months ahead) by dropping the most recently completed period and adding a new future period, ensuring plans are always current. A is wrong — inflation adjustment is incremental budgeting. C is wrong — scope of application doesn't define rolling budgets. D is wrong — rolling budgets include all costs.
Question 162
The production budget for a period is calculated as:
Select an option first.
Correct answer: B — Sales units minus opening inventory plus closing inventory
Explanation: B is correct: production required = budgeted sales + desired closing inventory - opening inventory. You need to produce enough to meet sales AND build up inventory to the required level, starting from what you already have. A is wrong — the formula is inverted; this would reduce production by closing inventory. C is wrong — that calculates revenue, not production units. D is wrong — that calculates cost of goods sold.
Question 163
Budgetary slack (or padding) refers to:
Select an option first.
Correct answer: B — Deliberately understating revenue or overstating cost estimates in a budget to make targets easier to achieve
Explanation: B is correct: budgetary slack occurs when managers build in extra costs or lower revenues so that actual performance easily beats the budget — making them look good while wasting resources. A is wrong — preparation time is not slack. C is wrong — that is a volume variance concept. D is wrong — cash buffer is a liquidity concept, not slack.
Question 164
Participative (bottom-up) budgeting involves:
Select an option first.
Correct answer: B — Managers at all levels contributing to the budget they will be responsible for
Explanation: B is correct: in participative budgeting, the people who will be held accountable for a budget are involved in setting it — improving information quality, buy-in and motivation, though it can also introduce slack. A is wrong — that is top-down (imposed) budgeting. C is wrong — historical data alone is not participative. D is wrong — external consultants would reduce participation.
Question 165
A cash budget differs from a profit budget because:
Select an option first.
Correct answer: B — Cash budgets focus on when cash is received and paid; profit budgets match income and expenses to the period they relate to
Explanation: B is correct: a cash budget tracks actual cash inflows and outflows (timing matters — credit sales are received later, capital purchases are paid upfront), while the profit budget follows accrual accounting matching costs and revenues to the period they earn/incur. A is wrong — depreciation appears in profit budgets but NOT in cash budgets (non-cash expense). C is wrong — cash budgets are often monthly. D is wrong — profit budgets include revenue.
Question 166
Variance analysis compares:
Select an option first.
Correct answer: B — Actual results with budgeted (or standard) results to identify and explain differences
Explanation: B is correct: variance analysis measures the difference between actual results and what was expected (budget or standard) — explaining whether differences were favourable or adverse and helping managers take corrective action. A is wrong — comparing two budgets is trend analysis. C is wrong — competitor benchmarking is not traditional variance analysis. D is wrong — that is cost classification, not variance analysis.
Question 167
A favourable variance occurs when:
Select an option first.
Correct answer: C — Actual profit is higher than budgeted profit (costs lower or revenues higher than budget)
Explanation: C is correct: a variance is favourable when the actual result is better than expected — costs below budget or revenues above budget both improve profit and are labelled favourable (F). A is wrong — actual costs higher than budget is an adverse cost variance. B is wrong — lower revenues than budget is adverse. D is wrong — loose budgets relate to slack, not the definition of favourable.
Question 168
Which of the following is an example of strategic planning?
Select an option first.
Correct answer: B — Deciding which new markets to enter over the next five years
Explanation: B is correct: strategic planning involves long-term, high-level decisions about the overall direction of the organisation — such as which markets to compete in, major capital investments, or mergers. A is wrong — weekly production targets are operational planning. C is wrong — payroll is operational. D is wrong — maintenance scheduling is tactical/operational.
Question 169
Tactical planning typically covers a time horizon of:
Select an option first.
Correct answer: B — One to three years
Explanation: B is correct: tactical planning (also called medium-term planning) bridges strategy and operations, typically covering one to three years and translating strategic goals into specific programmes and budgets. A is wrong — days or weeks are operational. C is wrong — ten to twenty years is strategic (very long-term). D is wrong — the current period is operational.
Question 170
The term 'management by exception' means:
Select an option first.
Correct answer: B — Managers focus their attention on significant variances and deviations from plan
Explanation: B is correct: management by exception allows managers to concentrate on the variances that matter — those that are significant or unexpected — rather than reviewing all activities. Minor variances within tolerance are ignored. A is wrong — reviewing every transaction is the opposite of MBE. C is wrong — it refers to management style, not seniority. D is wrong — budgets are set for all activities.
Question 171
A standard cost is:
Select an option first.
Correct answer: B — A pre-determined expected cost based on efficient operation
Explanation: B is correct: a standard cost is a carefully calculated, predetermined cost representing what a unit should cost under efficient, attainable operating conditions — used as a benchmark for comparison with actual costs. A is wrong — actual cost is recorded, not a standard. C is wrong — competitor costs are benchmarks, not standard costs. D is wrong — manager approval does not define standard cost.
Question 172
An ideal standard is set assuming:
Select an option first.
Correct answer: B — Perfect efficiency with no wastage, idle time or machine breakdowns
Explanation: B is correct: ideal standards represent perfect efficiency — every minute of labour is productive, no materials are wasted, all machines run without issue. They are rarely achieved but can be used as a long-term aspirational target. A is wrong — allowing for wastage and downtime is an attainable standard. C is wrong — above-average historical is closer to attainable or normal standard. D is wrong — maintaining current efficiency is a current standard.
Question 173
An attainable standard is set assuming:
Select an option first.
Correct answer: B — Efficient performance but allowing for normal levels of waste and downtime
Explanation: B is correct: attainable standards are the most commonly used — they assume efficient, well-managed operations but acknowledge realistic levels of downtime, material waste and human imperfection. They motivate because they are achievable but require effort. A is wrong — perfect conditions describe ideal standards. C is wrong — historical averages may not reflect what is possible with effort. D is wrong — minimum performance is a different concept.
Question 174
A direct material price variance measures:
Select an option first.
Correct answer: B — The difference between what materials actually cost and what they should have cost for the quantity purchased
Explanation: B is correct: the material price variance = (standard price - actual price) × actual quantity purchased. It isolates whether the purchasing function paid more or less than the standard price for materials. A is wrong — that is the usage variance. C is wrong — material usage, not price, relates to workforce efficiency. D is wrong — volume differences are sales variances.
Question 175
A direct material usage variance measures:
Select an option first.
Correct answer: B — The difference in cost because more or fewer materials were used than the standard quantity for actual output
Explanation: B is correct: material usage variance = (standard quantity for actual output - actual quantity used) × standard price. It measures whether production was material-efficient. A is wrong — price differences are captured by the price variance. C is wrong — the overall variance is price + usage combined. D is wrong — inventory movement is not a usage variance.
Question 176
If actual material cost is $48,000 and standard material cost for actual output is $45,000, the total material cost variance is:
Select an option first.
Correct answer: B — $3,000 adverse
Explanation: B is correct: total material variance = standard cost - actual cost = $45,000 - $48,000 = -$3,000 = $3,000 adverse (actual cost exceeded standard, so worse than expected). A is wrong — the variance is adverse because actual cost is higher. C is wrong — $48,000 is the actual cost, not the variance. D is wrong — $45,000 is the standard, not the variance.
Question 177
A direct labour rate variance is caused by:
Select an option first.
Correct answer: B — Paying workers at a different hourly rate than the standard rate
Explanation: B is correct: the labour rate variance = (standard rate - actual rate) × actual hours paid. It arises when the actual wage rate differs from the pre-set standard rate. A is wrong — taking longer is an efficiency variance. C is wrong — production volume differences are volume variances. D is wrong — material usage is a materials variance, not a labour rate variance.
Question 178
A direct labour efficiency variance is:
Select an option first.
Correct answer: A — (Standard hours for actual output - actual hours worked) × standard rate
Explanation: A is correct: the efficiency variance measures whether workers took more or less time than standard for the actual output. Favourable if fewer hours used than standard; adverse if more. B is wrong — that compares actual to budgeted hours using actual rate — not the efficiency variance formula. C is wrong — that is the rate variance formula. D is wrong — that is closer to a volume variance.
Question 179
A fixed overhead expenditure variance measures:
Select an option first.
Correct answer: B — The difference between budgeted fixed overhead and actual fixed overhead incurred
Explanation: B is correct: fixed overhead expenditure variance = budgeted fixed overhead - actual fixed overhead. It simply measures whether the business spent more or less on fixed overheads than planned. A is wrong — production volume difference is captured by the fixed overhead volume variance. C is wrong — labour efficiency is a labour variance. D is wrong — that would be variable overhead-related.
Question 180
The fixed overhead volume variance is caused by:
Select an option first.
Correct answer: B — Actual production volume differing from the budgeted production volume
Explanation: B is correct: fixed overhead volume variance = (actual output - budgeted output) × fixed overhead absorption rate per unit. When more units are produced than budgeted, more overhead is absorbed (favourable). A is wrong — actual vs budgeted overhead spend is the expenditure variance. C is wrong — labour rate is unrelated to fixed overhead volume variance. D is wrong — material prices affect material variances.
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Strategic Business Leader300
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