Funds flow statement, cash flow statement as per AS 3, budgets and budgetary control, marginal costing and break-even analysis - Question Bank

1. In marginal costing, the profit is directly related to:
A) Sales volume
B) Fixed costs
C) Total variable costs
D) Contribution margin
2. What is the primary purpose of a performance budget?
A) To control cash inflows and outflows
B) To plan future operations based on expected results
C) To measure the performance of various departments or functions
D) To prepare a consolidated financial statement
3. A flexible budget adjusts for changes in:
A) Fixed costs
B) Selling price
C) Activity level
D) Product mix
4. Which of the following is typically NOT included in a cash budget?
A) Cash sales
B) Collection from debtors
C) Depreciation expense
D) Payment to creditors
5. Under AS 3, cash flows arising from the acquisition and disposal of property, plant, and equipment are classified as:
A) Operating activities
B) Investing activities
C) Financing activities
D) Contingent activities
6. Which of the following is a key difference between Funds Flow Statement and Cash Flow Statement?
A) FFS includes non-fund items, CFS does not
B) CFS includes non-cash items, FFS does not
C) FFS focuses on working capital changes, CFS focuses on cash receipts and payments
D) CFS is mandatory, FFS is optional
7. In break-even analysis, a decrease in selling price per unit (with other factors constant) will:
A) Decrease the break-even point
B) Increase the break-even point
C) Not affect the break-even point
D) Make the break-even point impossible to calculate
8. If a company's contribution margin ratio is 40% and its fixed costs are $100,000, what is the break-even sales revenue?
A) $250,000
B) $40,000
C) $140,000
D) $60,000
9. Which of the following is a key component of marginal costing, representing the difference between sales revenue and variable costs?
A) Profit
B) Contribution Margin
C) Net Income
D) Gross Profit
10. A budget that is prepared for a specific period and then replaced by a new budget for the next period is a:
A) Rolling Budget
B) Fixed Budget
C) Flexible Budget
D) Master Budget
11. Which type of budget requires justification for all expenditures, not just incremental amounts?
A) Incremental Budget
B) Activity-Based Budget
C) Zero-Based Budget
D) Performance Budget
12. A long-term budget that covers the planned capital expenditures of a company is called a:
A) Operating Budget
B) Capital Budget
C) Cash Budget
D) Sales Budget
13. Cash flows from interest and dividends received are typically classified as which type of activity in a Cash Flow Statement?
A) Operating Activities
B) Investing Activities
C) Financing Activities
D) Mixed Activities
14. Under the indirect method of cash flow from operations, a decrease in inventory is:
A) Added to net profit
B) Deducted from net profit
C) Ignored
D) Treated as an investing activity
15. Which of the following is a source of funds in a Funds Flow Statement?
A) Redemption of debentures
B) Purchase of machinery
C) Payment of dividend
D) Write-off of preliminary expenses
16. A Funds Flow Statement shows changes in:
A) All assets and liabilities
B) Only current assets and current liabilities
C) Working capital and its components
D) Cash and cash equivalents
17. Which of the following is a disadvantage of marginal costing?
A) It simplifies decision-making regarding pricing and product mix
B) It ignores fixed costs, leading to potential underpricing
C) It is not suitable for external reporting under GAAP/IFRS
D) It assumes variable costs are truly constant
18. The margin of safety is the difference between:
A) Actual sales and break-even sales
B) Fixed costs and variable costs
C) Total revenue and total variable costs
D) Budgeted profit and actual profit
19. If the selling price per unit decreases while variable cost per unit and total fixed costs remain the same, the break-even point in units will:
A) Decrease
B) Increase
C) Remain unchanged
D) Become indeterminate
20. The term 'contribution margin' represents the amount of revenue available to cover:
A) Variable costs and generate profit
B) Fixed costs and generate profit
C) Only fixed costs
D) Only variable costs
21. In marginal costing, fixed manufacturing overheads are:
A) Inventoriable
B) Expensed in the period incurred
C) Allocated to products based on direct labor hours
D) Treated as a variable cost
22. A cash budget helps in:
A) Determining inventory levels
B) Planning for future cash needs and excesses
C) Evaluating the profitability of products
D) Controlling overhead expenses
23. Which of the following is a primary advantage of budgetary control?
A) Eliminates the need for internal audits
B) Ensures profits are always maximized
C) Facilitates planning, coordination, and control
D) Guarantees that all budgets will be met
24. The difference between the budgeted cost and the actual cost for a given level of activity is known as:
A) Budgetary variance
B) Variance analysis
C) Cost variance
D) Performance appraisal
25. Which budget is often called the 'cornerstone' of the master budget and forms the basis for many other budgets?
A) Production Budget
B) Cash Budget
C) Sales Budget
D) Expense Budget
26. A budget that remains constant irrespective of the volume of output is called a:
A) Flexible budget
B) Fixed budget
C) Performance budget
D) Rolling budget
27. Which of the following is a financing activity in a cash flow statement?
A) Purchase of land
B) Payment of dividends
C) Sale of goods
D) Interest received
28. When preparing a cash flow statement using the indirect method, an increase in accounts receivable indicates:
A) More cash collected than sales revenue
B) Less cash collected than sales revenue
C) No impact on cash flow
D) Cash inflow from operations
29. Which of the following is a common non-fund item that is added back to net profit in the operating activities of a cash flow statement?
A) Increase in accounts payable
B) Loss on sale of asset
C) Dividend paid
D) Purchase of machinery
30. A company's ability to meet its short-term obligations is best assessed by which statement?
A) Funds Flow Statement
B) Profit and Loss Account
C) Cash Flow Statement
D) Balance Sheet
31. If fixed costs increase, the break-even point will:
A) Decrease
B) Increase
C) Remain the same
D) Become zero
32. The Break-Even Point (in sales revenue) can be calculated as:
A) Fixed Costs / Contribution Margin per unit
B) Total Fixed Costs / Contribution Margin Ratio
C) Total Variable Costs / Contribution Margin Ratio
D) Total Sales / Contribution Margin per unit
33. Which of the following is the formula for the Break-Even Point (in units)?
A) Fixed Costs / Contribution Margin per unit
B) Total Sales / Contribution Margin Ratio
C) Fixed Costs / Sales
D) Contribution Margin per unit / Fixed Costs
34. The formula for Contribution Margin Ratio is:
A) (Sales - Variable Costs) / Sales
B) Variable Costs / Sales
C) Fixed Costs / Sales
D) (Sales - Fixed Costs) / Sales
35. The difference between the selling price per unit and the variable cost per unit is called:
A) Contribution Margin per unit
B) Profit per unit
C) Fixed Cost per unit
D) Total Contribution
36. In marginal costing, which costs are treated as product costs and included in the inventory valuation?
A) Only variable costs
B) Only fixed costs
C) Both variable and fixed costs
D) Prime costs
37. Marginal costing is also known as:
A) Absorption costing
B) Direct costing
C) Full costing
D) Standard costing
38. In Zero-Based Budgeting (ZBB), every activity must be justified:
A) On a historical basis
B) As a percentage of the previous year's budget
C) For its own sake
D) From scratch, regardless of previous budgets
39. Which of the following is NOT a component of a Master Budget?
A) Sales Budget
B) Production Budget
C) Financial Budget
D) Variance Report
40. The process of comparing actual results with budgeted results and taking corrective action is known as:
A) Budget preparation
B) Budgetary control
C) Budget variance analysis
D) Forecasting
41. Which type of budget is revised during the budget period to take into account changes in activity levels or other relevant factors?
A) Fixed Budget
B) Flexible Budget
C) Master Budget
D) Zero-Based Budget
42. A fixed budget is prepared for:
A) A range of activity levels
B) A single level of activity
C) Multiple levels of activity
D) Variable costs only
43. What is the primary purpose of a budget?
A) To record historical financial data
B) To provide a framework for planning and controlling future operations
C) To analyze past performance
D) To determine the market value of assets
44. Which of the following is a common adjustment made to net profit to arrive at cash flow from operating activities under the indirect method?
A) Add back depreciation
B) Subtract increase in accounts receivable
C) Add decrease in inventory
D) Subtract cash paid for dividends
45. Under the direct method of preparing the Operating Activities section of a Cash Flow Statement, which of the following is directly reported?
A) Profit before tax
B) Depreciation expense
C) Cash receipts from customers
D) Gain on sale of fixed assets
46. Which of the following activities in a Cash Flow Statement typically involves the purchase or sale of long-term assets and investments?
A) Operating Activities
B) Investing Activities
C) Financing Activities
D) Non-cash Activities
47. The Cash Flow Statement, as per AS 3, classifies cash flows into which of the following categories?
A) Operating, Investing, and Financing
B) Operating, Trading, and Non-operating
C) Current, Non-current, and Deferred
D) Inflow, Outflow, and Net
48. Which of the following is considered a 'fund' in the context of a Funds Flow Statement?
A) Fixed assets
B) Depreciation
C) Investments
D) Working capital
49. In a Funds Flow Statement, an increase in current assets (other than cash) is treated as:
A) A source of funds
B) An application of funds
C) Neither a source nor an application of funds
D) A non-fund item
50. Which of the following is NOT a primary objective of a Funds Flow Statement?
A) To ascertain the causes of changes in working capital
B) To show the inflow and outflow of funds during a period
C) To measure the profitability of a company
D) To analyze the financing and investing activities of a firm
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