MCQS of budgeting 2025

Here are some multiple-choice questions (MCQs) based on budgeting concepts for 2025:

1. What is the primary purpose of budgeting in an organization?

a) To maximize profits
b) To minimize taxes
c) To plan and control financial resources
d) To increase stock prices

Answer: c) To plan and control financial resources

2. Which of the following is a type of budget used in organizations?

a) Static budget
b) Dynamic budget
c) Deficit budget
d) Surplus budget

Answer: a) Static budget

3. A zero-based budget (ZBB) requires managers to:

a) Base the new budget on the previous year's budget

b) Justify all expenses from scratch
c) Focus only on operational costs
d) Ignore previous spending patterns

Answer: b) Justify all expenses from scratch

4. In a flexible budget, the amounts for expenses and revenues are:

a) Fixed
b) Adjusted based on actual levels of activity
c) Based on inflation rates
d) Set according to the company's historical data

Answer: b) Adjusted based on actual levels of activity

5. Which of the following is NOT typically a part of the budgeting process?

a) Forecasting future revenues

b) Setting financial goals
c) Preparing tax returns
d) Evaluating past performance

Answer: c) Preparing tax returns

6. What is capital budgeting mainly concerned with?

a) Managing short-term expenditures

b) Planning and evaluating long-term investments
c) Allocating operating expenses
d) Monitoring cash flow for the month

Answer: b) Planning and evaluating long-term investments

7. Which of the following budgeting techniques helps avoid inefficiencies by

allocating resources where they are most needed?

a) Incremental budgeting
b) Activity-based budgeting
c) Cash-flow budgeting
d) Rolling budget

Answer: b) Activity-based budgeting

8. Incremental budgeting involves:

a) Starting from zero and justifying every expense

b) Making adjustments based on last year’s actual figures
c) Planning for all unexpected expenses
d) Managing operational costs dynamically

Answer: b) Making adjustments based on last year’s actual figures

9. In the context of budgeting, a deficit occurs when:

a) Expenses are less than revenues

b) Revenues exceed expenses
c) Budgeted expenses exceed actual revenues
d) Both expenses and revenues are balanced

Answer: c) Budgeted expenses exceed actual revenues

10. A rolling budget is one that:

a) Replaces last year's budget with a new one every year

b) Is adjusted periodically to reflect changes in actual activity levels
c) Focuses only on capital expenditures
d) Remains unchanged throughout the year

Answer: b) Is adjusted periodically to reflect changes in actual activity levels

I hope this helps! Would you like more questions or any specific budgeting concepts
clarified?

11. What does a "budget variance" refer to?

a) The difference between actual financial performance and budgeted financial performance
b) The estimated future financial performance of the organization
c) The method used to create a budget
d) The percentage of revenue that exceeds budget

Answer: a) The difference between actual financial performance and budgeted financial
performance

12. Which of the following is true about participatory budgeting?

a) It involves only top management in the decision-making process

b) Employees at all levels are involved in the budgeting process
c) It uses historical data as the primary source for budget creation
d) It eliminates the need for regular budget revisions

Answer: b) Employees at all levels are involved in the budgeting process

13. What is a primary disadvantage of a static budget?

a) It allows for flexibility in budget adjustments

b) It requires constant updates based on actual performance
c) It may become outdated if actual activity levels change
d) It involves more participation from employees

Answer: c) It may become outdated if actual activity levels change

14. Which of the following would most likely be included in a cash flow
budget?

a) Long-term investment analysis

b) Projection of cash inflows and outflows over a specific period
c) Allocation of fixed assets
d) Detailed cost breakdown of individual projects

Answer: b) Projection of cash inflows and outflows over a specific period

15. In a rolling budget, how often is the budget updated?

a) Annually
b) Quarterly
c) Continuously, typically every month or quarter
d) Only when a major financial change occurs

Answer: c) Continuously, typically every month or quarter

16. The principle of "budgetary slack" refers to:

a) Underestimating revenues and overestimating expenses to make it easier to achieve budget

targets
b) Setting highly ambitious budget goals
c) Adjusting the budget to match market conditions
d) Allocating surplus funds for capital projects

Answer: a) Underestimating revenues and overestimating expenses to make it easier to

achieve budget targets
17. Which of the following is an advantage of zero-based budgeting (ZBB)?

a) It allows for a quick and easy setup process

b) It encourages efficient resource allocation by justifying every expense
c) It uses historical spending patterns as the base
d) It is ideal for non-profit organizations

Answer: b) It encourages efficient resource allocation by justifying every expense

18. Which type of budget would be best for a company experiencing rapid
changes in sales or production levels?

a) Static budget
b) Flexible budget
c) Incremental budget
d) Activity-based budget

Answer: b) Flexible budget

19. What does the term "budgetary control" refer to?

a) The process of creating a budget

b) Managing and monitoring expenditures according to the budget
c) Delegating budget responsibilities to departments
d) Forecasting future financial conditions

Answer: b) Managing and monitoring expenditures according to the budget

20. In a capital budgeting decision, the most common method to evaluate

projects is:

a) Payback period
b) Internal rate of return (IRR)
c) Net present value (NPV)
d) Break-even analysis

Answer: c) Net present value (NPV)

21. Which budgeting method primarily focuses on the costs and activities of
producing goods or services?

a) Zero-based budgeting
b) Activity-based budgeting
c) Incremental budgeting
d) Financial budgeting

Answer: b) Activity-based budgeting

22. Which of the following is a typical component of flexible budgeting?

a) Total revenues and expenses that remain fixed

b) The ability to adjust the budget based on actual performance
c) Allocation based solely on historical spending
d) Strict adherence to set limits with no adjustments

Answer: b) The ability to adjust the budget based on actual performance

23. In which situation would a zero-based budget (ZBB) be most useful?

a) When the company is following a stable business model with consistent revenues
b) When an organization is looking to significantly reduce costs and optimize operations
c) When the company only requires a simple budget for minor expenses
d) When a company has highly predictable, recurring expenses

Answer: b) When an organization is looking to significantly reduce costs and optimize

operations

24. What is the main challenge in preparing a budget for a project-based

organization?

a) Predicting revenue generation

b) Managing variable costs due to changes in project scope
c) Allocating long-term capital expenses
d) Establishing fixed costs for ongoing operations

Answer: b) Managing variable costs due to changes in project scope

25. What is the primary difference between a capital budget and an operating
budget?

a) A capital budget focuses on long-term investments, while an operating budget focuses on

day-to-day expenses
b) A capital budget allocates funds for recurring expenses, while an operating budget is for
one-time investments
c) A capital budget is prepared by the finance department, while an operating budget is
prepared by the marketing department
d) A capital budget is more focused on revenue, while an operating budget focuses only on
expenses

Answer: a) A capital budget focuses on long-term investments, while an operating budget

focuses on day-to-day expenses

26. Which of the following budgeting methods helps a company focus on its
most critical activities?

a) Activity-based budgeting
b) Incremental budgeting
c) Zero-based budgeting
d) Flexible budgeting

Answer: a) Activity-based budgeting

27. In a flexible budget, what happens when there is an increase in activity

levels (e.g., more units sold)?

a) The budget remains unchanged

b) The revenues and expenses are adjusted proportionally
c) Only the revenue figures change
d) The budget is recalculated based on a new set of assumptions

Answer: b) The revenues and expenses are adjusted proportionally

28. The main disadvantage of incremental budgeting is:

a) It encourages wasteful spending by basing the budget on past figures

b) It requires extensive market research to adjust for inflation
c) It doesn’t allow for flexibility in changing business conditions
d) It does not account for the company's profitability
Answer: a) It encourages wasteful spending by basing the budget on past figures

29. Which of the following is a key feature of a rolling budget?

a) It is updated only at the start of the fiscal year

b) It remains unchanged and is not adjusted based on performance
c) It continuously updates as new months or quarters are completed
d) It is based on past data only and does not account for future estimates

Answer: c) It continuously updates as new months or quarters are completed

30. Which of the following best describes capital budgeting?

a) It deals with setting budgets for everyday operating expenses

b) It focuses on planning and allocating funds for long-term investments
c) It helps track monthly revenue and expenditure levels
d) It is used to calculate short-term cash flow needs

Answer: b) It focuses on planning and allocating funds for long-term investments

31. What is the primary purpose of a cash flow budget?

a) To determine long-term capital investment strategies

b) To estimate future income from investments
c) To monitor and forecast the cash inflows and outflows within a specific period
d) To adjust for inflation in revenue projections

Answer: c) To monitor and forecast the cash inflows and outflows within a specific period

32. What is a typical characteristic of zero-based budgeting (ZBB)?

a) Previous year’s budget is used as a baseline

b) Every expense must be justified and approved, starting from zero
c) It focuses mainly on recurring operating expenses
d) It is based on inflationary adjustments from the previous budget

Answer: b) Every expense must be justified and approved, starting from zero

33. In which of the following scenarios would zero-based budgeting be most

effective?
a) When the organization experiences minimal changes year-over-year
b) When the organization seeks to streamline and optimize costs in each department
c) When expenses follow predictable patterns
d) When revenue growth is steady and predictable

Answer: b) When the organization seeks to streamline and optimize costs in each department

34. Which of the following would typically NOT be included in an operating

budget?

a) Direct labor costs

b) Revenue projections
c) Capital expenditures
d) Office supplies

Answer: c) Capital expenditures

35. What is the main focus of variable cost budgeting?

a) To allocate fixed costs over a specific period

b) To estimate and manage costs that change with production levels or activity
c) To project revenue growth
d) To plan for long-term investments

Answer: b) To estimate and manage costs that change with production levels or activity

36. What is the role of budgetary control in an organization?

a) To prepare annual income statements

b) To monitor actual performance and compare it with budgeted targets
c) To reduce the need for cost accounting
d) To ensure the budget is always followed without exceptions

Answer: b) To monitor actual performance and compare it with budgeted targets

37. Which of the following statements about incremental budgeting is true?

a) It involves a detailed justification of all expenses from scratch

b) It adjusts the previous year’s budget by a percentage increase or decrease
c) It is only suitable for large, complex organizations
d) It requires active participation from all department heads
Answer: b) It adjusts the previous year’s budget by a percentage increase or decrease

38. A participatory budget allows:

a) Only top-level management to create the budget

b) Employees at all levels to provide input and feedback on budget creation
c) A central authority to decide budget allocation without input
d) A focus only on capital expenditures and not on operating costs

Answer: b) Employees at all levels to provide input and feedback on budget creation

39. Which of the following is a disadvantage of rolling budgets?

a) They require constant updates and could lead to increased workload

b) They are ideal for stable businesses with little variance in activity levels
c) They involve setting fixed targets that don’t change over time
d) They discourage flexibility and adaptability

Answer: a) They require constant updates and could lead to increased workload

40. In the context of budgeting for capital expenditures, which of the following
is most likely to be included?

a) Rent for office space

b) Salaries of administrative staff
c) Purchase of new machinery or equipment
d) Daily office supplies

Answer: c) Purchase of new machinery or equipment

41. What does the break-even analysis in budgeting help determine?

a) The number of units that need to be sold to cover fixed and variable costs
b) The impact of interest rates on the organization’s cash flow
c) The profitability of capital investments
d) The level of expenses that can be sustained without profit

Answer: a) The number of units that need to be sold to cover fixed and variable costs
42. Which budgeting method uses historical data as a basis and makes small
adjustments for the next period?

a) Zero-based budgeting
b) Incremental budgeting
c) Flexible budgeting
d) Activity-based budgeting

Answer: b) Incremental budgeting

43. Which of the following is an advantage of zero-based budgeting (ZBB)?

a) It is quick and easy to implement

b) It encourages cost efficiency by requiring justification for all expenses
c) It relies on historical data, reducing the need for planning
d) It doesn’t require significant involvement from managers

Answer: b) It encourages cost efficiency by requiring justification for all expenses

44. Which type of budget is primarily concerned with forecasting a company’s

total revenues and operating expenses for a specific period?

a) Operating budget
b) Capital budget
c) Cash flow budget
d) Flexible budget

Answer: a) Operating budget

45. Which of the following best describes a capital budget?

a) It deals with short-term costs associated with daily operations

b) It focuses on expenses related to acquiring long-term assets
c) It is used to allocate funds for the maintenance of fixed assets
d) It forecasts employee wages and overhead costs

Answer: b) It focuses on expenses related to acquiring long-term assets

46. Which of the following statements is true about participatory budgeting?

a) Only top management is involved in setting the budget

b) It discourages employee involvement in financial decisions
c) It allows input from lower-level employees, creating a sense of ownership
d) It is used exclusively for capital expenditures

Answer: c) It allows input from lower-level employees, creating a sense of ownership

47. A flexible budget is most useful when:

a) The business operates in a highly predictable environment

b) The business has a stable activity level and fixed costs
c) The company experiences fluctuating levels of activity and needs a more adaptable budget
d) The organization uses historical data to set budgets without making adjustments

Answer: c) The company experiences fluctuating levels of activity and needs a more
adaptable budget

48. Which of the following is NOT a typical step in the budgeting process?

a) Setting financial goals and objectives

b) Developing a marketing strategy
c) Analyzing actual performance against budgeted targets
d) Monitoring cash flow and expenses regularly

Answer: b) Developing a marketing strategy

49. Which of the following best describes the incremental

budgeting approach?

a) Each budget item must be justified from scratch

b) It is based on forecasting future revenue and costs
c) It builds upon the previous year’s budget, making incremental adjustments
d) It focuses only on capital expenditure and excludes operating costs

Answer: c) It builds upon the previous year’s budget, making incremental adjustments
50. What is the role of a rolling budget in an organization?

a) It eliminates the need for constant adjustments based on performance

b) It adjusts and updates budget figures regularly as periods progress
c) It follows a strict annual format with no changes throughout the year
d) It focuses solely on future revenue projections, disregarding past data

Answer: b) It adjusts and updates budget figures regularly as periods progress