A Level Accounting: Budgeting and budgetary control (Cambridge 9706) – 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.

These questions follow the Cambridge International AS & A Level Accounting 9706 syllabus for 2026, 2027 and 2028, section 4.3 Budgeting and budgetary control (A Level content). All businesses and figures are invented and all amounts are in dollars. Start with the study guide or the revision notes. See the course hub and printable checklist.

Questions

1. State two advantages and two disadvantages of a budgetary control system to an organisation. [4]

2. State two advantages and two disadvantages of preparing budgets using spreadsheets. [4]

3. Ketton Furniture expects customer demand of 1,500 units a month. Its workshop can make 1,200 units a month and its supplier can deliver enough board for 1,300 units.

(a) State what is meant by a master budget. [2] (b) Identify the limiting factor, state the monthly sales budget and suggest two ways to ease the constraint. [4]

4. Tillbrook Bakery sells 800 (January), 900 (February), 1,000 (March) and 1,100 (April) loaves. Closing inventory of loaves is 10% of the next month’s sales, and opening inventory on 1 January is 80 loaves. Each loaf uses 3 kg of flour costing 2.50 per kg. Closing flour is 500 kg (January), 600 kg (February) and 650 kg (March); opening flour on 1 January is 450 kg.

(a) Prepare the production budget for January to March. [3] (b) Prepare the purchases budget in kg and dollars for January to March. [4]

5. Rowley Tools makes 600 (January), 700 (February) and 650 (March) units. Each unit needs 1.5 labour hours at 14 per hour. All sales are on credit: 50% is paid in the month after sale and 50% two months after. Sales were 22,000 (November), 20,000 (December), 24,000 (January), 28,000 (February) and 30,000 (March).

(a) Prepare the labour budget, showing hours and cost for each month. [3] (b) Calculate cash received from customers in each of January, February and March. [3] (c) Calculate closing trade receivables at 31 March. [2]

6. Ansford Joinery has 3,500 cash on 1 January. Sales are 18,000 (December), 20,000 (January), 25,000 (February) and 30,000 (March); 40% is paid in cash and 60% is received the following month. Credit purchases are 7,000 (December), 9,000 (January), 11,000 (February) and 12,000 (March), paid the month after. Wages are 6,000, 6,500 and 7,200 in January to March. Overheads paid are 5,000 each month. Equipment costing 15,000 is paid for in February and a loan repayment of 2,000 is made in March.

(a) Prepare the trade payables budget for January to March. [3] (b) Prepare the cash budget for January to March. [6] (c) Recommend what the business should do. [2]

7. Daresby Cycles has this opening position: non-current assets 40,000; inventory 6,000; trade receivables 9,000; cash 2,000; trade payables 5,000; share capital 40,000; retained earnings 12,000. For the next six months the budgets show revenue 120,000; purchases 67,500; closing inventory 7,500; expenses 30,000 including depreciation 4,000; equipment bought for cash 10,000; closing trade receivables 14,000; closing trade payables 6,500; closing cash 15,000. Ignore tax and dividends.

(a) Prepare the budgeted statement of profit or loss. [4] (b) Prepare the budgeted statement of financial position at the end of six months. [6]

8. Carrowby Tiles budgeted to make and sell 4,000 tiles at 30 each. Budgeted cost per tile: materials 8, labour 6, variable overhead 2. Fixed production overhead is 20,000 and fixed administration cost is 15,000. It made and sold 4,600 tiles. Actual: revenue 135,700; materials 38,640; labour 27,600; variable overhead 9,660; fixed production overhead 20,800; fixed administration 14,800.

(a) Prepare a flexible budget statement showing flexed budget, actual and each difference as favourable or adverse. [6] (b) Explain why the flexed budget is more useful than the original for judging performance. [2]

9. Using the data in question 8:

(a) Prepare a statement reconciling the flexible budgeted cost of production with the actual cost of production. [4] (b) Prepare a statement reconciling the flexible budgeted profit with the actual profit. [4] (c) Suggest one possible cause each for the materials and fixed production overhead differences. [2]

10. Yarnton Plastics plans to pay its production manager a bonus if costs stay below a budget set by head office with no consultation, 8% under last year’s costs.

(a) Explain two ways the proposal could produce undesirable behaviour. [4] (b) Recommend changes to the budgeting process, justifying your answer and referring to one non-financial factor. [4]

Answers

1. Advantages (any two): planning and co-ordination [1]; a benchmark that highlights large differences for action [1]. Disadvantages (any two): time and cost to prepare [1]; unrealistic targets or slack can demotivate or distort behaviour [1]. [4] Examiner insight: Short, distinct points are easier to credit than one long paragraph; two points that mean the same thing may be treated as one.

2. Advantages: formulas update linked budgets at once [1]; quick what-if testing [1]. Disadvantages: an unnoticed formula or input error spreads [1]; weak control over access, versions and changes [1]. [4] Examiner insight: Name the feature (linked formulas, what-if) rather than saying “it is easier” or “it is faster”, which gives the examiner little to credit.

3. (a) A master budget summarises all the functional budgets [1], usually as the budgeted statement of profit or loss, statement of financial position and cash budget [1]. [2] (b) Limiting factor: workshop capacity [1]. Sales budget 1,200 units [1]. Ways to ease: overtime or a second shift [1]; subcontract production or buy more machinery [1]. [4] Examiner insight: The limiting factor is the tightest constraint of the three, not the one you find first; state the resulting sales figure as well as naming the constraint.

4. (a) Production = sales + closing - opening. January 800 + 90 - 80 = 810 [1]; February 900 + 100 - 90 = 910 [1]; March 1,000 + 110 - 100 = 1,010 [1]. [3] (b) Flour used = production x 3: 2,430; 2,730; 3,030 [1]. Purchases kg = used + closing - opening: January 2,430 + 500 - 450 = 2,480; February 2,730 + 600 - 500 = 2,830; March 3,030 + 650 - 600 = 3,080 [2]. Cost at 2.50: 6,200; 7,075; 7,700 [1]. [4] Examiner insight: Closing inventory comes from the next month’s sales, so look ahead; showing each month’s working lets the examiner see where a slip occurred.

5. (a) Hours: 900; 1,050; 975 [1]. Cost at 14: 12,600; 14,700; 13,650 [2]. [3] (b) January: 50% x 22,000 + 50% x 20,000 = 21,000 [1]. February: 50% x 20,000 + 50% x 24,000 = 22,000 [1]. March: 50% x 24,000 + 50% x 28,000 = 26,000 [1]. [3] (c) Closing = 50% x 28,000 + 30,000 = 44,000 [1]. Check: opening 31,000 + sales 82,000 - receipts 69,000 = 44,000 [1]. [2] Examiner insight: Receipts follow the timing in the question, not the month of sale; the opening receivables figure is the amount still owed from earlier months.

6. (a) Opening 7,000, closing 9,000; 11,000; 12,000 [1]. Payments 7,000; 9,000; 11,000 [1]. Purchases 9,000; 11,000; 12,000 [1]. [3] (b) Receipts: cash sales 8,000; 10,000; 12,000 [1]; from December to February sales 10,800; 12,000; 15,000 [1]. Payments: suppliers 7,000; 9,000; 11,000 plus wages and overheads [1]; equipment 15,000 in February; loan 2,000 in March [1]. Net cash flow 800; (13,500); 1,800 [1]. Closing cash 4,300; (9,200); (7,400) [1]. [6] (c) The business is overdrawn in February and March [1], so it should arrange an overdraft or delay the equipment purchase or seek longer credit from suppliers [1]. [2] Examiner insight: A recommendation should refer to the figures (the size and months of the overdraft); a vague call to “manage cash better” tends to gain little.

7. (a) Cost of sales = 6,000 + 67,500 - 7,500 = 66,000 [1]. Gross profit = 120,000 - 66,000 = 54,000 [1]. Expenses 30,000 [1]. Profit for the period 24,000 [1]. [4] (b) Non-current assets 40,000 + 10,000 - 4,000 = 46,000 [1]. Inventory 7,500; receivables 14,000; cash 15,000 [1]. Total assets 82,500 [1]. Less payables 6,500 = net assets 76,000 [1]. Retained earnings 12,000 + 24,000 = 36,000 [1]; with share capital 40,000, equity 76,000 [1]. [6] Examiner insight: Net assets and equity should agree; if they do not, look for a missed depreciation charge or equipment purchase before submitting.

8. (a) Flexed budget at 4,600 tiles: revenue 138,000; materials 36,800; labour 27,600; variable overhead 9,200; fixed production overhead 20,000; fixed administration 15,000; profit 29,400 [3]. Actual profit 24,200 [1]. Differences: revenue 2,300 adverse; materials 1,840 adverse; labour nil; variable overhead 460 adverse; fixed production overhead 800 adverse; fixed administration 200 favourable [1]; profit 5,200 adverse [1]. [6] (b) The flexed budget is at the activity level actually achieved [1], so the differences reflect price, efficiency and spending, not volume [1]. [2] Examiner insight: Label every difference favourable or adverse; an unlabelled figure leaves the reader unsure of your meaning.

9. (a) Flexible budgeted cost of production 93,600 [1]. Materials 1,840 adverse and variable overhead 460 adverse [1]; fixed production overhead 800 adverse [1]. Actual cost of production 96,700 [1]. [4] (b) Flexible budgeted profit 29,400 [1]. Revenue (2,300), materials (1,840), variable overhead (460), fixed production overhead (800) [2]; fixed administration +200 gives actual profit 24,200 [1]. [4] (c) Materials: a supplier price rise or higher waste [1]. Fixed production overhead: higher rent, maintenance or other unplanned spending [1]. [2] Examiner insight: Selling and administration costs do not belong in the cost of production reconciliation, but they do belong in the profit one.

10. (a) Managers may push for easy budgets or build in slack [1]; a bonus tied to costs may lead to cuts in maintenance, training or quality [1]. No consultation means the target may seem unfair and reduce motivation [1]; an 8% cut may be unachievable [1]. [4] (b) Involve the manager in setting the budget [1]; set stretching but achievable targets and judge only controllable costs [1]. Justify: this improves acceptance and avoids damaging behaviour [1]. Non-financial factor, such as product quality or staff morale, should be monitored alongside cost [1]. [4] Examiner insight: Link each effect to the proposal in the question, then finish with a decision; evaluation answers that only list ideas tend to gain less than ones that weigh them.

Where marks are usually lost

• Production budgets that start from sales alone and omit the inventory adjustments.
• Cash budgets that include depreciation or use the month of the transaction rather than the month of cash movement.
• Missing the opening trade receivables or payables when timing spreads over two months.
• Flexing fixed costs, or leaving variable costs unchanged.
• Reconciliations with differences added or deducted in the wrong direction, or with no favourable or adverse label.
• Including selling and administration costs in the cost of production.
• Recommendations that ignore non-financial factors or lack a justified conclusion.

Frequently asked questions

Are these Cambridge 9706 budgeting questions from past papers? No. They are ten original questions with worked answers on section 4.3 Budgeting and budgetary control of Cambridge 9706, written for revision. Use them alongside the official past papers.

What are the most common mistakes in cash budget questions? Common errors include including depreciation, using the month of the transaction rather than the month the cash moves, and missing opening receivables or payables when payment is spread over two months.

Why must reconciliation differences be labelled? Label every difference favourable or adverse and add or deduct it in the right direction. An unlabelled figure leaves the examiner unsure of your meaning.

How should a budgeting recommendation be written? Refer to the figures in the question, include non-financial factors, and finish with a justified conclusion. A vague call to “manage cash better” tends to gain little.

Next steps

• Review the revision notes and study guide.
• Visit the course hub and printable checklist.
• Try all the free 10-minute diagnostics.
• Book a free trial class: trial.

Official syllabus

Cambridge International AS & A Level Accounting 9706 syllabus for 2026, 2027 and 2028, section 4.3 Budgeting and budgetary control, published by Cambridge International.