AQA A-Level Accounting: Budgeting (7127) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

This set covers section 3.9, Budgeting, of the AQA A-level Accounting (7127) specification, version 1.1 (October 2026), for A-level exams from June 2019 onwards. The course is untiered; this section is examined on Paper 2. All businesses and figures are invented.

First read the study guide or the revision notes. Course hub: AQA A-level Accounting; checklist: printable checklist.

Questions

1. Which one of the following appears in a cash budget but not in a budgeted income statement? [1]

A. Depreciation of equipment B. A loan received from the bank C. An irrecoverable debt written off D. Wages accrued at the end of the period

2. Explain one purpose of budgeting other than control. [2]

3. Ashby Kettles plans sales of 3 000 units in quarter 1, 3 600 in quarter 2 and 4 000 in quarter 3. Closing inventory of finished goods is 15% of the next quarter’s sales. Opening inventory for quarter 1 is 420 units. Calculate the production budget for quarters 1 and 2. [4]

4. Brockwell Candles plans production of 2 000 candles in January, 2 400 in February and 2 200 in March. Each candle uses 0.4 kg of wax costing £6 per kg. Closing wax inventory is 30% of the next month’s usage. Opening inventory on 1 January is 240 kg. Prepare the materials purchases budget, in kg and £, for January and February. [5]

5. Corran Tools plans to make 1 500 units in May. Each unit needs 2.5 direct labour hours. The 20 employees each work 160 normal hours a month at £15 per hour. Extra hours are paid at time-and-a-half. Calculate the labour budget for May. [4]

6. Galloway Paints makes all sales on credit: March £20 000, April £24 000, May £28 000. 40% of customers pay in the month after sale and take 2.5% discount allowed; 55% pay two months after sale; 5% are expected to become irrecoverable. Calculate the budgeted receipts from customers for May and June. [5]

7. Ivo Marsh, a sole trader, provides budget data for October to December 2026.

• Bank overdraft on 1 October: £1 200.
• Sales, all on credit, received the month after sale: September £19 000, October £20 000, November £26 000, December £30 000.
• Purchases, paid the month after purchase: September £12 000, October £15 000, November £18 000, December £14 000.
• Wages £3 400 a month, paid in the same month.
• General expenses £1 100 a month, paid the month after they are incurred.
• Depreciation £600 a month.
• A bank loan of £10 000 is received in November; loan interest of £150 is paid in December.
• New equipment costing £16 000 is paid for in November.
• Drawings £1 500 a month.

(a) Prepare a cash budget for each of the three months. [8] (b) The bank has agreed an overdraft limit of £5 000. Suggest two actions Ivo could take, using your answer to (a). [2]

8. Nia Brook, a sole trader, had this statement of financial position on 1 January 2027: fixtures at cost £24 000, accumulated depreciation £6 000; inventory £5 000; trade receivables £7 000; bank £2 000; trade payables £4 000; capital £28 000.

Budget for the quarter ending 31 March 2027:

• Credit sales £45 000; receipts from customers £43 000.
• Credit purchases £28 000; payments to suppliers £27 000.
• Closing inventory £6 000.
• Expenses paid £9 000, including £600 rent prepaid for April. Expenses of £400 will be owing at 31 March.
• Fixtures are depreciated at 10% a year on cost.
• Drawings £4 500.

(a) Prepare the budgeted income statement for the quarter. [5] (b) Prepare the budgeted statement of financial position at 31 March 2027. [7]

9. Orchard Pressings Ltd budgeted to sell 50 000 cartons of juice at £1.20 each. Budgeted variable costs per carton: materials £0.35, labour £0.25, variable overheads £0.10. Budgeted fixed overheads: £15 000. Actual results for 46 000 cartons: revenue £56 580, materials £16 560, labour £11 960, variable overheads £4 370, fixed overheads £14 600.

(a) Prepare a flexed budget for 46 000 cartons, showing profit. [3] (b) Calculate the variance for each item and for profit against the flexed budget, stating whether each is favourable or adverse. [4] (c) Reconcile the original budgeted profit with the actual profit. [1]

10. Using your answers to question 9, interpret the variances for the directors of Orchard Pressings Ltd. [4]

11. Fellgate Buses Ltd runs a regional bus network. For ten years its budgets have been set by adding 4% to the previous year’s figures for every department, including maintenance, marketing, driver training and administration. A new finance director proposes zero-based budgeting. Evaluate the proposal. [8]

Answers

1. B – a loan received is a cash inflow but is not income [1] [1] Examiner insight: A and C are non-cash and D is an accrual, so only B fits; one mark, no credit for two letters.

2. Co-ordination: the sales, production, purchasing and personnel budgets must agree [1], so that, for example, enough materials and staff are planned for the output the sales team expects [1]. [2] Examiner insight: The second mark needs the consequence explained; naming “co-ordination” alone earns one mark.

3. Quarter 1 closing inventory 15% × 3 600 = 540 [1]; production 3 000 + 540 − 420 = 3 120 units [1]. Quarter 2 closing inventory 15% × 4 000 = 600 [1]; production 3 600 + 600 − 540 = 3 660 units [1]. [4] Examiner insight: Using quarter 1’s closing figure as quarter 2’s opening inventory is the step most often missed; own-figure credit is usually allowed after an earlier slip.

4. Usage: January 800 kg, February 960 kg, March 880 kg [1]. Closing inventory: January 30% × 960 = 288 kg; February 30% × 880 = 264 kg [1]. January purchases 800 + 288 − 240 = 848 kg [1]; February 960 + 264 − 288 = 936 kg [1]; at £6: £5 088 and £5 616 [1]. [5] Examiner insight: Pricing usage instead of purchases loses the final mark.

5. Hours needed 1 500 × 2.5 = 3 750 [1]; normal hours 20 × 160 = 3 200, so overtime 550 hours [1]. Basic 3 200 × £15 = £48 000; overtime 550 × £22.50 = £12 375 [1]; total £60 375 [1]. [4] Examiner insight: Paying all 3 750 hours at £15 ignores the capacity limit and loses the last two marks.

6. May: from April sales 24 000 × 40% × 97.5% [1] = £9 360 [1]; from March sales 20 000 × 55% = £11 000 [1]; total £20 360 [1]. June: 28 000 × 40% × 97.5% = 10 920 + 24 000 × 55% = 13 200, total £24 120 [1]. [5] Examiner insight: The 5% irrecoverable debts must be left out completely; including them as a receipt loses the accuracy mark in each month.

7. (a)

£	October	November	December
Receipts from customers	19 000	20 000	26 000
Bank loan	–	10 000	–
Total receipts	19 000	30 000	26 000
Purchases	12 000	15 000	18 000
Wages	3 400	3 400	3 400
General expenses	1 100	1 100	1 100
Equipment	–	16 000	–
Loan interest	–	–	150
Drawings	1 500	1 500	1 500
Total payments	18 000	37 000	24 150
Opening balance	(1 200)	(200)	(7 200)
Closing balance	(200)	(7 200)	(5 350)

Receipts lagged [1]; loan [1]; purchases and expenses lagged [1]; wages, equipment, interest, drawings [1]; depreciation excluded [1]; opening balance [1]; balances carried forward [1]; all closing balances correct [1]. (b) The limit is breached in November and December. Delay the equipment purchase beyond December, or lease it, so November’s outflow falls by £16 000 [1]; negotiate a larger loan or a higher limit before November [1]. [10] Examiner insight: Including the £600 depreciation loses a mark and also every later closing balance, unless own-figure credit applies.

8. (a)

	£	£
Revenue		45 000
Cost of sales (5 000 + 28 000 − 6 000)		(27 000)
Gross profit		18 000
Expenses (9 000 − 600 + 400)	8 800
Depreciation (24 000 × 10% × 3/12)	600	(9 400)
Profit for the quarter		8 600

Cost of sales £27 000 [1]; gross profit £18 000 [1]; expenses £8 800 [1]; depreciation £600 [1]; profit £8 600 [1]. (b)

	£	£
Fixtures (24 000 − 6 600)		17 400
Inventory	6 000
Trade receivables (7 000 + 45 000 − 43 000)	9 000
Prepayment	600
Bank (2 000 + 43 000 − 27 000 − 9 000 − 4 500)	4 500	20 100
Trade payables (4 000 + 28 000 − 27 000)	5 000
Accrual	400	(5 400)
Net assets		32 100
Capital: 28 000 + 8 600 − 4 500		32 100

Fixtures £17 400 [1]; trade receivables £9 000 [1]; bank £4 500 [1]; inventory and prepayment [1]; trade payables and accrual [1]; net assets £32 100 [1]; capital £32 100 [1]. [12] Examiner insight: The bank figure comes from cash flows, not profit; an unbalanced statement often means an expense was entered on the cash basis.

9. (a) Revenue 46 000 × £1.20 = £55 200 [1]; materials £16 100, labour £11 500, variable overheads £4 600, fixed £15 000 [1]; flexed profit £8 000 [1]. (b) Revenue £1 380 F [1]; materials £460 A and labour £460 A [1]; variable overheads £230 F and fixed overheads £400 F [1]; profit £1 090 F (actual £9 090) [1]. (c) Budgeted profit £10 000 − volume variance £2 000 A (8 000 − 10 000) + flexed variances £1 090 F = £9 090 [1]. [8] Examiner insight: Flexing the fixed overheads is a common slip and loses the profit mark in (a) and the fixed overhead mark in (b).

10. Revenue is favourable because the price averaged £1.23, not £1.20 [1]; the higher price may explain why 4 000 fewer cartons were sold, costing £2 000 of profit [1]. Materials cost £0.36 a carton, perhaps a supplier price rise or more wastage, and labour £0.26, perhaps overtime or slower work; both need investigating [1]. Overall profit fell by £910, mainly through lower volume, so the directors should judge whether the price rise was worth it [1]. [4] Examiner insight: Interpretation needs causes linked to the figures and a judgement; restating the variances from question 9 earns nothing.

11. ZBB would make each department justify all its spending, so ten years of automatic 4% rises would be challenged [1]. Waste carried forward, perhaps in administration, could be removed [1]. Spending could be redirected to current priorities, such as maintenance for safety [1]. However, ZBB is slow and costly, and managers need training to prepare it [1]. Some costs, such as fuel, are essential and gain little from review [1]. Managers may favour easily measured activities and cut driver training, whose benefits are long-term [1]. Morale may fall if departments must defend their existence [1]. Judgement: Fellgate should use ZBB for discretionary budgets such as marketing and administration, perhaps every few years, and keep incremental budgeting for routine costs [1]. [8] Examiner insight: Without a reasoned conclusion full marks are out of reach, and points not tied to the bus company score less.

Where marks are usually lost

• Putting depreciation, irrecoverable debts or provisions into a cash budget.
• Receiving credit sales in the wrong month, or ignoring discount allowed.
• Pricing materials usage instead of purchases.
• Recording expenses on the cash basis in a budgeted income statement.
• Flexing fixed overheads.
• Ending an evaluation without a judgement.

Next steps

• Revision notes and study guide.
• Review preparation of financial statements of sole traders for the statement formats.
• Go back to the AQA A-level Accounting hub and checklist.
• Try all free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

AQA A-level Accounting (7127) specification, version 1.1, October 2026, A-level exams June 2019 onwards (AQA), section 3.9 Budgeting.