Costing MCQ Questions and Solutions with Explanations | Commerce

Last step in developing operating budget is implementing decision. An operating budget is a forecast of the revenues and expenses expected for one or more future periods.

In master budgeting, cost drivers for manufacturing overhead costs are direct manufacturing labour-hours and setup labour-hours.

Document, which contains information about used material sequence, detail and quantity of raw material is classified as bill of materials. A bill of materials (BOM) is used in the manufacture of a product and should contain raw materials, subassemblies, subcomponents, and parts.

Type of budget, which is always available for specified period of future is called continuous budget. Continuous budgeting is the process of continually adding one more month to the end of a multi-period budget as each month goes by.

Plan of action; how an organization meets its opportunities and capabilities is classified as strategy. Strategy is a high level plan to achieve one or more goals under conditions of uncertainty.

Focus on budget cost of all activities necessary to sell and produce market offerings is known as activity based budgeting. Activity based budgeting is a budgeting method in which budgets are prepared using Activity Based Costing after considering the overhead costs. In simple words, activity based budgeting is management accounting tool which does not consider the past year's budget to arrive at current year's budget.

Budgeted income statement and supporting budget schedules are categorized under operating budget. An operating budget is a forecast of the revenues and expenses expected for one or more future periods.

Budget production = Budget sales + Ending inventory - Beginning inventory
= 5000 + 4000 - 1000 = 8000 units.

Budget sales, plus target ending finished goods inventory, minus beginning finished goods inventory is equal to budget production. The production budget contains details of the number of units that are intended to be produced by a business in a particular period.

Budget, which predicts effect of given level of operations on a cash position is classified as cash budget. A cash budget is an estimation of the cash inflows and outflows for a business over a specific period of time. This budget is used to assess whether the entity has sufficient cash to operate.