level 4 budgeting exam practice questions

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Try these level 4 budgeting exam practice questions. It is important to practice if you are to succeed at level 4.

Question 1

You are employed as a trainee accountant for a manufacturing company and the managing director knows you are studying for your level 4 budgeting exam. He tells you that 60% of the company’s operating costs are variable and the remainder are fixed. He then asks you which of the following variances’ values would alter if the company changed from standard marginal costing to standard absorption costing?

A. Fixed overhead expenditure variance
B. Variable overhead efficiency variance
C. Sales volume variance
D. Direct material efficiency variance

Question 2

XYZ Co has a manufacturing capacity of 100,000 units. The flexed production cost budget of the company is as follows:

Capacity 60% 100%
Total production costs £111,280 £115,120

What is the budgeted total production cost if it operates at 85% capacity?

Question 3

Using the formula:

Fixed production overhead capacity variance = (Actual hours – Budgeted hours) x standard rate

ABC Ltd is a  manufacturing company and it operates a standard absorption costing system. Last month the budgeted fixed production cost was £125,000 and 25,000 production hours were budgeted.

Last month the actual hours worked were 24,000
and standard hours for actual production were 27,000.
What was the fixed production overhead capacity variance for last month?

Question 4

You are studying for your  level 4 budgeting exam when the sales manager asks you to identify which of the following statements BEST describes a flexible budget?

A. A budget that is updated halfway through the year to incorporate the actual results for the first half of the year
B. A monthly budget which is changed to reflect the number of days in the month
C. A budget which shows sales revenue and costs at different levels of activity
D. A budget which shows variable production costs only