University Budgeting

What is the primary goal of budgeting?

• Increase net income
  

• Manage financial resources

• Balance costs
  

• Avoid unnecessary expenses

Answer explanation

Budgeting ensures efficient allocation of funds, preventing overspending and supporting financial stability.

Which cost best represents the change in a university's total costs due to a change in the number of lecture sessions?

• Semi-variable cost

• Variable Cost

• Steplike cost

• Fixed cost

Answer explanation

Step costs remain constant over a certain range of activity but increase once a threshold is crossed. In the context of a university, this could happen when:

Hiring additional faculty

Expanding classroom space

Administrative support

What is a cost driver?

• A factor that influences costs

• A budgeting method

• A financial grant

• A department managing expenses

Answer explanation

A cost driver is any factor that directly influences the cost of an activity such as:

the number of students or staff

the number of lecture sessions,

or machine usage

Identifying cost drivers helps organizations manage expenses efficiently by understanding what causes costs to rise or fall.

Which of the following is a variable cost, when number of number of students are considered as a cost driver?

• Loan repayment

• Faculty salaries

• Library rent

• Laboratory supplies

Answer explanation

Laboratory supplies increase as more students enroll because additional materials (such as chemicals, test tubes, or lab kits) are needed.

A variable cost changes in direct proportion to the activity level—in this case, the number of students.

What does variance analysis compare?

• Faculty performance vs. salaries

• Tuition fees vs. student enrollment

• Revenue vs. expenses

• Planned vs. actual financial results

Answer explanation

Variance analysis is a financial tool used to compare planned (budgeted) financial results against actual outcomes to identify discrepancies. This helps organizations assess financial performance, control costs, and make informed decisions.

Which budgeting method is most focused on performance outcomes?

• Zero-based budgeting

• Performance-based budgeting

• Incremental budgeting

• Line-item budgeting

Answer explanation

Performance-based budgeting (PBB) allocates funds based on measurable outcomes and results rather than historical spending. This method ensures that resources are directed toward activities that achieve specific goals, improve efficiency, and enhance accountability. It is commonly used in government and educational institutions to link funding with performance metrics.

If the university expands its online courses, which cost will increase the most?

• Fixed costs

• Step costs

• Sunk costs

• Semi-variable costs

Answer explanation

Semi-variable costs include both fixed and variable components. When a university expands its online courses, certain costs will increase with usage (e.g., server capacity, software licensing fees, and additional IT support), while some fixed costs remain unchanged (e.g., initial platform setup).

A university budgeted $50,000 for IT, but actual spending was $60,000. What type of variance is this?

• Spending variance

• Efficiency variance

• Revenue variance

• Volume variance

Answer explanation

A spending variance occurs when actual costs exceed or fall short of the budgeted amount for a specific expense category. In this case, the university budgeted $50,000 for IT but spent $60,000, resulting in a negative (unfavorable) spending variance of $10,000.

Which cost will increase in steps rather than continuously?

• Faculty salaries

• Security services

• Utilities

• Student dorms expansion

Answer explanation

Step costs remain fixed within a certain range but increase in steps when activity levels surpass specific thresholds.

Faculty salaries fit this pattern because universities do not hire a new professor for every additional student. Instead, they add faculty only when enrollment reaches a point where existing staff can no longer accommodate the demand.

Which principle is key to evaluating financial trade-offs in university management?

• Opportunity cost

• Cost minimization

• Revenue maximization

• Sunk cost principle

Answer explanation

Opportunity cost refers to the value of the best alternative foregone when making a financial decision. In university management, evaluating financial trade-offs involves considering what benefits are lost when allocating resources to one area over another (e.g., investing in new research facilities vs. expanding student scholarships).