Question

A budget prepared for a particular function or activity is known as:

• A. Master budget
• B. Functional budget
• C. Stationary budget
• D. Flexible budget

Hint:

Exam Tip:
Functional Budgets: Prepared for specific functions (Sales, Production, Purchase).
Master Budget: Combines all functional budgets.
Flexible Budget: Adjusts to activity levels.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
This question tests knowledge of budgeting in management accounting. Different types of budgets are prepared for different purposes.

Step 2: Defining Types of Budgets:
Let's define each type:
• Master Budget: A comprehensive budget that combines all other budgets (functional budgets) into a single document. It includes the budgeted income statement, budgeted balance sheet, and cash flow statement.
• Functional Budget: A budget prepared for a specific function or department within an organization (e.g., production budget, sales budget, purchase budget, research and development budget).
• Stationary Budget: This is not a standard term in budgeting. It might refer to a fixed budget that does not change with activity levels.
• Flexible Budget: A budget that adjusts or flexes with changes in the level of activity. It recognizes that costs change with activity levels.

Step 3: Analyzing the Definition:
The question states: "A budget prepared for a particular function or activity."
This matches the definition of a Functional Budget.
Functional budgets are prepared for each major function of the business, such as production, sales, purchasing, marketing, and research.

Step 4: Final Answer:
A budget prepared for a particular function or activity is known as a Functional budget. Therefore, option (B) is correct.