Budgeting in Business
15 Grade 10 Business Studies questions on Budgeting in Business, with worked marking schemes. 15 questions are available on this topic in full.
Question 1
1 markWhich one of the following is a FIXED cost in the budget of a small bakery in Kisii?
A. Wheat flour bought for each day's baking
B. Wages paid to casual workers per loaf packed
C. Packaging bags used for the bread sold
D. Monthly rent paid for the bakery premises
(1 mark)
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1 markWekesa sets aside Sh 2,000 for emergencies each time he draws up the monthly budget for his shop. This allowance is important because it:
A. does away with the need to record what is actually spent
B. caters for unexpected expenses without upsetting the rest of the plan
C. guarantees that the prices of his supplies will not rise
D. increases the total income the shop expects to earn in the month
(1 mark)
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1 markA school farming club budgets Sh 24,000 for a tomato project but actually spends Sh 29,000 because the price of seedlings rose. The difference of Sh 5,000 is known as a:
A. surplus
B. dividend
C. variance
D. discount
(1 mark)
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3 marksA youth group in Homa Bay budgeted Sh 80,000 for a fish-vending project but ended the season having spent Sh 95,000. Suggest three causes of the difference between the budgeted and the actual amount.
(3 marks)
Marking scheme
Any THREE, 1 mark each: 1. A rise in the prices of inputs such as fuel, ice or fish after the budget was prepared. 2. Underestimation of costs when the budget was being drawn, for example forgetting transport or licence fees. 3. Unplanned or emergency expenditure such as repair of a broken freezer or replacement of spoilt stock. 4. Poor control, with members spending on items that were never in the plan. 5. Inflation raising the general level of prices during the season. 6. Buying larger quantities than were budgeted for because more fish was available.
Question 5
2 marksDistinguish between a surplus budget and a deficit budget.
(2 marks)
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1 markA mama mboga in Eldoret has been preparing a budget every month but keeps overspending. The MOST likely reason is that she:
A. prepared the budget at the start of the month
B. wrote the budget down instead of memorising it
C. included both her income and her expenditure
D. did not monitor her actual spending against the budget
(1 mark)
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6 marksDescribe three consequences a trader is likely to face for operating a business without a budget.
(6 marks)
Marking scheme
Any THREE described, 2 marks each: 1. Overspending — without set limits the trader spends as money comes in and may exhaust funds meant for restocking. 2. Cash shortages — there is no warning of lean months, so rent, wages or suppliers may go unpaid and the business loses goodwill. 3. Failure to meet goals — with no targets the trader cannot tell whether the business is doing well or poorly and drifts without direction. 4. Difficulty in raising finance — lenders have no written plan to assess, so credit is refused or given on harsh terms. 5. Misplaced priorities — money may go into luxuries or non-urgent purchases while essentials such as licences remain unpaid. 6. Loss of business — sustained poor money management may force the trader to close down.
Question 8
3 marksGive three reasons why a business may review its budget before the planned period ends.
(3 marks)
Marking scheme
Any THREE reasons, 1 mark each: 1. Prices of goods and services may change during the period, making the original figures unrealistic. 2. Actual income may turn out higher or lower than was estimated, so allocations must be adjusted. 3. Unexpected needs or emergencies arise and must be provided for. 4. A review reveals variances early enough for corrective action to be taken. 5. Business conditions such as demand, weather or competition may change, altering the assumptions on which the plan was based.
Question 9
4 marksOutline four steps followed when preparing a household budget.
(4 marks)
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1 markA dairy farmer in Nyandarua prepares a cash budget for the coming six months. A cash budget differs from other budgets in that it shows the:
A. value of the cows, land and equipment owned by the farm
B. profit the farm is expected to earn from the sale of milk
C. amounts owed by the farm to the suppliers of animal feeds
D. money expected to be received and paid out, and the balance left at the end of each month
(1 mark)
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1 markA trader in Kitui prepares a monthly budget showing expected income of Sh 60,000 and expected expenditure of Sh 72,000. The trader's budget is BEST described as:
A. balanced, because both income and expenditure have been planned
B. invalid, because a budget must always balance exactly
C. a surplus budget, because expenditure is larger than income
D. a deficit budget, because expenditure exceeds expected income
(1 mark)
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4 marksState four items of information that should appear in a personal budget prepared by a Grade 10 learner.
(4 marks)
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1 markWanjiku runs a chapati kiosk near a bus stage in Nakuru. She earns Sh 18,000 a month and lists rent, flour, cooking fat and charcoal before deciding what is left for savings. The MAIN reason she prepares this plan is to:
A. increase the amount of money she earns each month
B. prove to the county government that the kiosk is licensed
C. match her spending to the income she actually expects
D. avoid paying tax on the profit she makes from the kiosk
(1 mark)
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1 markA budget is BEST described as a:
A. record of all cash received and paid out during the past trading year
B. statement showing the profit or loss made by a business at the year end
C. financial plan showing expected income and expenditure for a future period
D. list of all the assets and liabilities owned by a business on a given date
(1 mark)
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6 marksExplain three benefits a small retail shop in Machakos would obtain from preparing a monthly budget.
(6 marks)
Marking scheme
Any THREE explained points, 2 marks each (1 for the point, 1 for the explanation): 1. Controls spending — the owner buys only what was planned for, so money is not wasted on unnecessary stock. 2. Anticipates shortages of cash — the budget shows in advance the months when takings will be low, so the owner can set money aside or arrange credit early. 3. Sets targets — expected sales and savings figures give the owner something concrete to work towards and to measure performance against. 4. Helps in obtaining credit — a lender or supplier can see a written plan of income and expenses and is more willing to advance goods or a loan. 5. Aids in setting priorities — rent, licences and restocking are provided for before less urgent spending. 6. Provides a basis for comparison — actual results can be measured against the plan so that weaknesses are corrected.
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