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IIA CIA Exam
Certified Internal Auditor Exam (Page 29 )

Updated On: 12-Jan-2026
Page 29 of 342
PDF with 1702 Questions

A master budget

  1. Shows forecasted and actual results.
  2. Contains only controllable costs.
  3. Can be used to determine manufacturing cost variances.
  4. Contains the operating budget.

Answer(s): D

Explanation:

The operating budget sequence is part of the master budget process that begins with the sales budget and culminates in the pro forma income statement.



A flexible budget is a quantitative expression of a plan that

  1. Is developed for the actual level of output achieved for the budget period.
  2. Is comprised of the budgeted income statement and its supporting schedules for a budget period.
  3. Focuses on the costs of activities necessary to produce and sell products and services for a budget period.
  4. Project costs on the basis of future improvements in existing practices and procedures during a budget period.

Answer(s): A

Explanation:

A flexible budget is a series of budgets prepared for many levels of activity. It is designed to allow adjustment of the budget to the actual level of activity before comparing the budgeted activity with actual results.



The procedure employed in zero-based budgeting is to

  1. Budget from the ground up whereby every proposed expenditure for every unit is reviewed as though the budget was being prepared for the very first time.
  2. Review the prior period's budget along with actual results for that period and the aati ns for the coming period to develop more realistic budget amounts for the coming period.
  3. Require managers to establish priorities by including a description of what activities or changes would occur if the budget were increased and decreased by a fixed percentage amount.
  4. Ascertain the outputs that are desired and work backward to determine the amount of inputs that will be required to generate the desired outputs.

Answer(s): A

Explanation:

Zero-based budgeting treats the budget as if it were being initiated for the first time. Thus, all costs are reexamined each period. Beginning with the smallest budgetary subunits, managers must determine objectives, operations, and cost for all activities. Alternative methods of conducting each activity are considered, different levels of service are evaluated for each activity, means of measuring work and performance are determined, and activities are ranked in order of importance to the organization.



Comparing actual results with a budget based on achieved volume is possible with the use of a

  1. Monthly budget.
  2. Master budget.
  3. Rolling budget.
  4. Flexible budget.

Answer(s): D

Explanation:

A flexible budget is essentially a series of several budgets prepared for many levels of sales or production. At the end of the period, management can compare actual costs or performance with the appropriate budgeted level in the flexible budget. New columns can quickly be made by interpolation or extrapolation, if necessary. A flexible budget is designed to allow adjustment of the budget to the actual level of activity} before comparing the budgeted activity with actual results.



The master budget

  1. Shows forecasted and actual results.
  2. Reflects controllable costs only.
  3. Can be used to determine manufacturing cost variances.
  4. Contains the operating budget.

Answer(s): D

Explanation:

All other budgets are subsets of the master budget. Thus, quantified estimates by management from all functional areas are contained in the master budget_ These results are then combined in +a formal quantitative model recognizing the organization's objectives, inputs, and outputs.



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