Budgets (Cambridge (CIE) A Level Business): Exam Questions

Dayo's Bakery (DB)

Dayo started a bakery business five years ago in country W. She uses batch production to make a range of breads, pastries and cakes, which she sells to local restaurants and retail outlets. DB now employs 18 workers. Skilled bakers are difficult to find in country W, as many have moved to work for larger food manufacturers in the capital city. Dayo uses on-the-job training to develop new employees, but this takes time and has increased costs.

Dayo has set a mission to 'provide high-quality, locally sourced baked goods to the communities of country W'. She plans to open a third bakery location by the end of the year.

DB does not have enough working capital to open the third location without additional finance. Two options are available:

• Option A: A bank loan of $80 000 at an annual interest rate of 8%

• Option B: A business partner, Kofi, who would invest $80 000 in return for a 30% share of DB's annual profits

Table 1.1 shows DB's budgeted and actual financial data for the six months ended March 2024.

Table 1.1 DB budgeted and actual financial data (six months ended March 2024)

Denby

Denby makes cardboard boxes for food producers in country J. Its budget for the year was prepared on the assumption that it would produce 40 000 boxes.

Demand was stronger than expected and Denby actually produced 46 000 boxes.

Table 1.1 shows Denby's budgeted and actual figures for the year.

Table 1.1 Denby budgeted and actual figures

The finance director wants the budget flexed to the actual level of output before any variance is reported.

Merrick Laundry

Merrick Laundry washes and presses bed linen and towels for hotels in country R. It employs 140 people.

Merrick has used incremental budgeting for nine years. Each department's budget is the previous year's figure increased in line with inflation.

The marketing budget still includes $18 000 a year for advertising in printed hotel directories, although 84% of new customers now arrive through an online booking platform. The maintenance budget has not risen in real terms since 2019, and machine breakdowns rose from 14 to 31 last year.

Rashida, the finance director, wants Merrick to move to zero budgeting. The operations manager has warned that departmental managers are already stretched.

Tavener Roofing

Tavener Roofing installs roofs on new houses in country M. It sets budgets each quarter and reviews variances at the end of each one.

Tavener changed its roof tile supplier at the start of the quarter to one charging 15% less. Since then 1 in 9 roofs has needed tiles replaced after installation, and teams have spent time returning to completed jobs.

Table 1.1 shows Tavener's variances for the quarter ended June 2026.

Table 1.1 Tavener Roofing variances, quarter ended June 2026

Draycott

Draycott supplies and services commercial kitchen equipment for restaurants and hotels in country F. Nadia founded the business alone and it now employs 54 people across four departments.

Two years ago Draycott nearly closed. Spending on new vans went ahead without any check while a large customer delayed payment, and Nadia had to sell equipment to meet the wage bill. She introduced departmental budgets shortly afterwards.

Nadia is now unsure they are worth keeping. Each of the four managers spends around three days a quarter preparing budget submissions. Last year two departments underspent by $22 000 and $14 000, which Nadia believes shows they asked for more than they needed. Revenue is growing at about 30% a year, so figures agreed in January are often out of date by June.

Her accountant has suggested replacing budgets with a monthly review of management accounts.

Brayford Events

Brayford Events hires out marquees and staging for weddings and festivals in country T. Demand is highly seasonal, with 62% of annual revenue earned in four months.

Brayford sets one fixed budget each year. Last year's was built on 480 bookings; the business actually took 611. Every cost centre reported an adverse variance, and managers argued the figures told them nothing they could use.

Priya, the operations director, wants Brayford to move to flexible budgets so costs are compared at the level of bookings actually achieved.

Sam, the finance manager, is not convinced. Brayford's marquee crew of 26 are on annual salaries and are paid whether or not there is work, while transport and casual labour rise with each booking. Some costs, such as vehicle servicing, are partly fixed and partly variable. Brayford employs one part-time accountant, who already works two days a week.

Penhale

Penhale operates 22 hardware stores in country B. Head office sets each store's quarterly budget by taking the previous year's figures and adding 4%. Store managers receive a bonus if they meet their budget.

Store 7 is in a town that lost its bus route in February, and footfall fell by 19%. Its manager, Ilene, kept all staff on so customers were still served quickly. Store 14's manager met the budget by cutting staff hours.

Table 1.1 shows results for the two stores last quarter.

Table 1.1 Penhale results, quarter ended June 2026

Complaints at Store 14 rose from 9 to 47 in one quarter, and the two employees who left had each worked there for over ten years.

Marek, the finance director, argues that variances are the only fair way to compare 22 managers, because every store is measured in the same way.