Chapter 21 Budgeting - Test 2

1. VCE ACCOUNTING
UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE
CHAPTER 21 – BUDGETING
© Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Page | 1
Chapter 21 Test 2 – Budgeting
Name ___________________________________________
Circle the correct response for each question:
1. (a) (b) (c) (d)
2. (a) (b) (c) (d)
3. (a) (b) (c) (d)
4. (a) (b) (c) (d)
5. (a) (b) (c) (d)
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12. (a) (b) (c) (d)
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14. (a) (b) (c) (d)
15. (a) (b) (c) (d)
16. (a) (b) (c) (d)
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19. (a) (b) (c) (d)
20. (a) (b) (c) (d)
21. (a) (b) (c) (d)
22. (a) (b) (c) (d)
23. (a) (b) (c) (d)
24. (a) (b) (c) (d)
25. (a) (b) (c) (d)
26. (a) (b) (c) (d)
27. (a) (b) (c) (d)
28. (a) (b) (c) (d)
29. (a) (b) (c) (d)
30. (a) (b) (c) (d)
Total /30 marks

2. VCE ACCOUNTING
UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE
CHAPTER 21 – BUDGETING
© Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Page | 2
Chapter 21 Test 2 – Budgeting
The owner of a small business is attempting to plan for the future by preparing a budget for October
2015. The following information has been provided.
Balance of stock control 1 October 2015 $22,700
Balance of stock control 31 October 2015 $25,100
Balance of creditors control 1 October 2015 $5,900
Balance of creditors control 31 October 2015 $5,300
Returns of stock to suppliers expected during October $300 (GST $30)
Discounts expected to be received from suppliers during October $500
Sales expected during October $13,800 Plus GST $1,380
Cost of sales expected during October $6,900
1. The Stock Control ledger for the budgeted period will be:
a)
Stock Control
1 Oct Balance 22700 31 Oct Creditors control 300
31 Oct Creditors control 9600 31 Oct Cost of sales 6900
31 Oct Balance 25100
32300 32300
1 Nov Balance 25100
b)
Stock Control
1 Oct Balance 22700 31 Oct Creditors control/GST clearing 330
31 Oct Creditors control 9630 31 Oct Cost of sales 6900
31 Oct Balance 25100
32330 32330
1 Nov Balance 25100
c)
Stock Control
1 Oct Balance 22700 31 Oct Creditors control 300
31 Oct Creditors control/GST clearing 9600 31 Oct Cost of sales 6900
31 Oct Balance 25100
32300 32300
1 Nov Balance 25100

3. VCE ACCOUNTING
UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE
CHAPTER 21 – BUDGETING
© Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Page | 3
d)
Stock Control
1 Oct Balance 22700 31 Oct Creditors control/GST clearing 330
31 Oct Creditors control/GST clearing 9630 31 Oct Cost of sales 6900
31 Oct Balance 25100
32330 32330
1 Nov Balance 25100
2. The Creditors Control ledger for the budgeted period will be:
a)
Creditors Control
31 Oct Stock control/GST clearing 330 1 Oct Balance 5900
31 Oct Discount revenue 500 31 Oct Stock control 9600
31 Oct Bank 9370
31 Oct Balance 5300
15500 15500
1 Nov Balance 5300
b)
Creditors Control
31 Oct Stock control/GST clearing 330 1 Oct Balance 5900
31 Oct Discount revenue 500 31 Oct Stock control 10560
31 Oct Bank 10330
31 Oct Balance 5300
16460 16460
1 Nov Balance 5300
c)
Creditors Control
31 Oct Stock control 300 1 Oct Balance 5900
31 Oct Discount revenue 500 31 Oct Stock control/GST clearing 10560
31 Oct Bank 10360
31 Oct Balance 5300
16460 16460
1 Nov Balance 5300
d)
Creditors Control
31 Oct Stock control/GST clearing 330 1 Oct Balance 5900
31 Oct Discount revenue 500 31 Oct Stock control/GST clearing 10560
31 Oct Bank 10330
31 Oct Balance 5300
16460 16460
1 Nov Balance 5300

4. VCE ACCOUNTING
UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE
CHAPTER 21 – BUDGETING
© Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Page | 4
The following statement was supplied by the owner of a small business. The firm is about to prepare
a budget for January 2015.
Balance Sheet as at 31 December 2014
Assets $ $ Liabilities $ $
Cash at bank 7,000 Accrued advertising 200
Debtors control 5,400 Creditors control 10,100
Stock control 36,300 GST clearing 500
Furniture 2,900 Loan 6000 16,800
Shop fittings 18,000 Owner’s Equity
less Accumulated depreciation 4,000 14,000 Capital 48,800
Total Assets 65,600 65,600
Additional information:
 Sales for January 2015 are expected to be: cash $17,000 (plus $1,700 GST) and credit $6,200
(plus $620 GST). All debtors usually pay in the month after sale and are granted a 5%
discount.
 All stock is purchased on credit. During January, it is expected that stock purchases will be
$12,500 (plus $1,250 GST). All creditors are paid in the month after stock is purchased.
 The closing balance of stock at the end of January is expected to be $1,500 higher than at
the start of the month.
 The firm’s regular monthly expenses are budgeted at wages $1,700, office expenses $400
(plus $40 GST), rent $4,000 (plus $400 GST) and advertising $300 (plus $30 GST). All of these
items will be paid during January, as well as the $200 of accrued advertising owing for the
month of December (plus $20 GST).
 The shop fittings are depreciated at the rate of 10% per annum on cost.
 Interest on the loan is calculated at a rate of 10% per annum and is payable on the last day
of March, June, September and December.
 A second-hand delivery van will be purchased during January for $10,000 (no GST) from Ace
Vehicles, with $6,000 being paid in January and the balance in February.
 The owner usually withdraws $600 cash per week from the business for personal use.
3. The treatment of advertising in the Budgeted Cash Flow Statement and Budgeted Income
Statement will be:
a)
Budgeted Cash Flow Statement Budgeted Income Statement
Operating Activities $ less Other Expenses $
Advertising (200) Advertising 300
Accrued advertising (300)

5. VCE ACCOUNTING
UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE
CHAPTER 21 – BUDGETING
© Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Page | 5
b)
Budgeted Cash Flow Statement Budgeted Income Statement
Operating Activities $ less Other Expenses $
Advertising (300) Advertising 500
Accrued advertising (200)
c)
Budgeted Cash Flow Statement Budgeted Income Statement
Operating Activities $ less Other Expenses $
Advertising (300) Advertising 300
Accrued advertising (200)
d)
Budgeted Cash Flow Statement Budgeted Income Statement
Operating Activities $ less Other Expenses $
Advertising (300) Advertising 300
4. The treatment of the interest expense in the firm’s financial reports will be:
a)
Budgeted Cash Flow Statement Budgeted Income Statement Budgeted Balance Sheet
Operating Activities $ less Other Expenses $ Current Liabilities $
Interest expense 50 Accrued interest 50
b)
Budgeted Cash Flow Statement Budgeted Income Statement Budgeted Balance Sheet
Operating Activities $ less Other Expenses $ Current Liabilities $
Interest expense (50) Interest expense 50 Accrued interest 50
c)
Budgeted Cash Flow Statement Budgeted Income Statement Budgeted Balance Sheet
Operating Activities $ less Other Expenses $ Current Liabilities $
Interest expense (50) Accrued interest 50
d)
Budgeted Cash Flow Statement Budgeted Income Statement Budgeted Balance Sheet
Operating Activities $ less Other Expenses $ Current Liabilities $
Interest expense 600 Accrued interest 600
5. The firm’s cost of sales for the month will be:
a) $12,250
b) $12,500
c) $13,750
d) $11,000

6. VCE ACCOUNTING
UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE
CHAPTER 21 – BUDGETING
© Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Page | 6
6. For the budgeted period, the firm’s GST Clearing ledger will be:
a)
GST Clearing
31 Jan Bank 470 1 Jan Balance 500
31 Jan Creditors control 1250 31 Jan Bank 1700
31 Jan Balance 1100 31 Jan Debtors control 620
2820 2820
1 Feb Balance 1100
b)
GST Clearing
1 Jan Balance 500 31 Jan Bank 470
31 Jan Bank 1700 31 Jan Creditors control 1250
31 Jan Debtors control 620 31 Jan Balance 1100
2820 2820
1 Jan Balance 1100
c)
GST Clearing
31 Jan Bank 1700 1 Jan Balance 500
31 Jan Debtors control 620 31 Jan Bank 490
31 Jan Creditors control 1250
31 Jan Balance 80
2320 2320
1 Feb Balance 80
d)
GST Clearing
31 Jan Bank 490 1 Jan Balance 500
31 Jan Creditors control 1250 31 Jan Bank 1700
31 Jan Balance 1080 31 Jan Debtors control 620
2820 2820
1 Feb Balance 1080

7. VCE ACCOUNTING
UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE
CHAPTER 21 – BUDGETING
© Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Page | 7
7. The Current Liabilities section of the firm’s Budgeted Balance Sheet look like:
a)
Budgeted Balance Sheet as at 31 January 2015
Current Liabilities $ $
GST clearing 1080
Creditors control 13750
Accrued interest 50 14880
b)
Budgeted Balance Sheet as at 31 January 2015
Current Liabilities $ $
GST clearing 1080
Creditors control 13750
Sundry creditor – Ace Vehicles 4000
Accrued interest 600 19430
c)
Budgeted Balance Sheet as at 31 January 2015
Current Liabilities $ $
GST clearing 1080
Creditors control 13750
Sundry creditor – Ace Vehicles 4000
Accrued interest 50 18880
d)
Budgeted Balance Sheet as at 31 January 2015
Current Liabilities $ $
GST clearing 1080
Creditors control 17750
Accrued interest 50 18880
On 30 September 2015, the Balance Sheet of a small business showed the following item:
Current Assets $
Prepaid insurance 1,500
Non-Current Assets
Term deposit 12,000
The prepaid insurance relates to a yearly premium that was taken out and paid for by the firm on 1
August 2015. The term deposit was taken out on 1 January 2013 and is earning 11% per annum.
Interest is paid quarterly on the last day of March, June, September and December.

8. VCE ACCOUNTING
UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE
CHAPTER 21 – BUDGETING
© Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Page | 8
8. In preparing the budgeted financial reports for the month of October 2015, the insurance
expense and prepaid insurance will be reported as:
a)
Budgeted Income Statement Budgeted Balance Sheet
less Other Expenses $ Current Assets $
Insurance 300 Prepaid insurance 1,200
b)
Budgeted Income Statement Budgeted Balance Sheet
less Other Expenses $ Current Assets $
Insurance 1,500 Prepaid insurance 0
c)
Budgeted Income Statement Budgeted Balance Sheet
less Other Expenses $ Current Assets $
Insurance 200 Prepaid insurance 1,300
d)
Budgeted Income Statement Budgeted Balance Sheet
less Other Expenses $ Current Assets $
Insurance 150 Prepaid insurance 1,350
9. In preparing the budgeted financial reports for the month of October 2015, the insurance
expense and prepaid insurance will be reported as:
a)
Budgeted Income Statement Budgeted Balance Sheet
plus Other Revenue $ Current Assets $
Interest 1,320 Accrued interest 1,320
b)
Budgeted Income Statement Budgeted Balance Sheet
less Other Expenses $ Current Assets $
Interest 110 Accrued interest 110
c)
Budgeted Income Statement Budgeted Balance Sheet
plus Other Revenue $ Current Assets $
Interest 110 Accrued interest 110
d)
Budgeted Income Statement Budgeted Balance Sheet
plus Other Revenue $ Current Liabilities $
Interest 110 Accrued interest 110

9. VCE ACCOUNTING
UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE
CHAPTER 21 – BUDGETING
© Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Page | 9
A firm is preparing a budget for October to December 2015. The Balance Sheet as at 30 September
2015 revealed the following:
Non-Current Assets $ $
Shop fittings 20,000
less Accumulated depreciation 6,000 14,000
Office furniture 7,000
less Accumulated depreciation 2,800 4,200
Shop fittings are depreciated at the rate of 15% per annum using the reducing balance method and
office furniture 20% per annum using the straight-line method.
10. The amount of depreciation shown for the shop fittings and office furniture in the firm’s
Budgeted Income Statement for the quarter ended 31 December 2015 will be:
Shop fittings Office furniture
a) $525 $350
b) $2,100 $1,400
c) $525 $210
d) $250 $350
11. The business had budgeted for sales of $16,400 (plus $1,640 GST) for the quarter. A fixed mark-
up of 60% is applied to stock. The budgeted cost of sales for the period is:
a) $9,840
b) $6,338
c) $10,250
d) $11,275
12. The firm’s cost of sales for the corresponding period last year were $5,200. A 120% mark-up
was applied. The sales for the business were:
a) $5,720
b) $11,440
c) $5,200
d) $10,400

10. VCE ACCOUNTING
UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE
CHAPTER 21 – BUDGETING
© Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Page | 10
13. In a Budget Variance Report, a favourable variance is always:
a) Where the actual result is worse than the budgeted result
b) Where the actual result is more than the budgeted result
c) Where the actual result is less than the budgeted result
d) Where the actual result is better than the budgeted result
14. In a Budget Variance Report, an unfavourable variance is always:
a) Where the actual result is better than the budgeted result
b) Where the actual result is worse than the budgeted result
c) Where the actual result is more than the budgeted result
d) Where the actual result is less than the budgeted result
15. The steps in the budgeting process are:
a) b) c) d)
Step 1 Compare actual
and budgeted
results
Compare actual
and budgeted
results
Compare actual
and budgeted
results
Prepare a new
budget
Step 2 Identify any
significant
variances
Take corrective
action
Identify any
significant
variances
Compare actual
and budgeted
results
Step 3 Prepare a new
budget
Identify any
significant
variances
Take corrective
action
Identify any
significant
variances
Step 4 Take corrective
action
Prepare a new
budget
Prepare a new
budget
Take corrective
action
16. Firm A prepares budgets on a monthly basis whereas Firm B budgets once every year. This
means that:
a) Firm A will be better able to identify significant issues and take corrective action before they
cause a major impact on the firm’s operations
b) Firm A will not be able to budget effectively because it is taking a short-term view of its
operations
c) Firm B will have greater control over its operations because it adopts long-term planning
d) Firm A will not be able to see the long-term trends affecting the business and corrective
action can’t be taken

11. VCE ACCOUNTING
UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE
CHAPTER 21 – BUDGETING
© Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Page | 11
Below is an extract of an incomplete Budget Variance Report for the Cash Flow Statement of a small
business.
Variance
Item Budget $ Actual $ $ F / U %
Cash sales 15,000 17,000 2,000
Collections from debtors 11,200 10,400 800
Telephone (100) (150) 50
Wages (5,600) (6,900) 1,300
Advertising (2,300) (2,900) 600
Rent (2,000) (2,000) 0
Purchase of vehicle 0 (6,000) 6,000
Capital contribution 4,000 0 4,000
Drawings (1,600) (2,000) 400
17. The variances for cash sales and collections from debtors are:
Cash sales Collections from debtors
a) Favourable Favourable
b) Unfavourable Favourable
c) Unfavourable Unfavourable
d) Favourable Unfavourable
18. The variance in cash sales is best explained by which of the following items?
a) Wages
b) Advertising
c) Rent
d) Wages and advertising
19. The percentage variance for telephone expenses paid is:
a) 100%
b) 50%
c) 150%
d) 33%
20. The variance for rent is:
a) Favourable
b) Neither favourable nor unfavourable
c) Unfavourable
d) Significant

12. VCE ACCOUNTING
UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE
CHAPTER 21 – BUDGETING
© Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Page | 12
21. The variances for the capital contribution and drawings are:
Capital contribution Drawings
a) Unfavourable Unfavourable
b) Unfavourable Favourable
c) Favourable Favourable
d) Favourable Unfavourable
22. The percentage variance for the capital contribution is:
a) 0%
b) 50%
c) 100%
d) Is not listed in the Budget Variance Report because no capital was contributed
23. The variance for the purchase of vehicle means that during the period:
a) The business budgeted to buy a vehicle but did not buy one
b) The business purchased a vehicle it did not budget for
c) The business purchased a vehicle but budgeted for a more expensive vehicle
d) The business charged a greater rate of depreciation than budgeted for
24. In last period’s Budget Variance Report, an item was listed under “interest”. The owner is
unsure whether this related to a cash inflow (interest revenue) or a cash outflow (interest
expense). The item will be a cash outflow (interest expense) if:
a) The actual amount was greater than the budgeted amount and the variance was favourable
b) The actual amount was greater than the budgeted amount and the variance was
unfavourable
c) The actual amount was less than the budgeted amount and the variance was unfavourable
d) The actual amount was more than the budgeted amount and the variance was favourable

13. VCE ACCOUNTING
UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE
CHAPTER 21 – BUDGETING
© Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Page | 13
Below is an extract of an incomplete Budget Variance Report for the Income Statement of a small
business.
Variance
Item Budget $ Actual $ $ F / U %
Cash sales 21,000 18,000 3,000
Credit sales 2,000 3,800 1,800
Cost of sales 11,500 13,200 1,700
Bad debts 300 1,000 700
Insurance 240 240 0
Depreciation – Vehicles 2,500 1,500 1,000
Wages 4,000 4,100 100
25. The percentage variance for cash sales is:
a) 16.7%
b) 14.3%
c) 30.0%
d) 85.7%
26. The variances for credit sales and bad debts are:
Credit sales Bad debts
a) Favourable Favourable
b) Unfavourable Favourable
c) Favourable Unfavourable
d) Unfavourable Unfavourable
27. Which of the following is not a valid explanation for the variance in bad debts?
a) Credit sales were much higher than expected
b) Credit terms were changed from 2/14, n30 to 10/30, n60
c) The firm hired debt collectors to collect amounts outstanding from debtors
d) The firm decided to stop performing background checks because it increased wages
28. Which of the following is not a possible explanation for the variance in cost of sales:
a) Cost of sales increased because sales increased
b) Suppliers increased the price of stock purchased
c) The firm reduced the mark-up on stock sold
d) The firm decided to use product costing for $1,700 of buying expenses rather than period
costing as planned
29. Other than the firm lowering the rate of depreciation, the reason for the variance in
depreciation of vehicles is:
a) The firm unexpectedly purchased an additional vehicle during the period
b) The firm unexpectedly sold a vehicle during the period
c) The firm sold a vehicle during the period as planned
d) The firm purchased an additional vehicle during the period as planned

14. VCE ACCOUNTING
UNIT 4 – CONTROL AND ANALYSIS OF BUSINESS PERFORMANCE
CHAPTER 21 – BUDGETING
© Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Page | 14
An extract from last period’s Budget Variance Report for the Income Statement showed:
Variance
Item Budget $ Actual $ $ F / U %
Discount 400 450 50 F 12.5%
Unfortunately the owner of the business can’t remember if the “discount” above was a revenue,
expense, cash inflow or cash outflow.
30. Based on the Budget Variance Report above, the “discount” is:
a) Revenue
b) Expense
c) Cash inflow
d) Cash outflow