04 - Preparing Budgets

Question 1

What is a standard cost?

Answer 1

An estimate of a cost which is expected to be incurred, often set as a target

Question 2

What is an ideal standard?

Answer 2

A target where the conditions are perfect and there is no waste in production. Often un-achievable as nothing is ever perfect

Question 3

What is attainable standard?

Answer 3

A target that is challenging but attainable, they need to be constantly monitored to ensure that they remain challenging

Question 4

What is basic standard?

Answer 4

A target that assumes nothing has changed since the standard was first set, these often become outdated very quickly and need to be updated often

Question 5

What is a current standard?

Answer 5

A target based on current levels of efficiency and assumes that current cost will be maintained. Although it is often accurate, it does not encourage growth or improvement

Question 6

What is a principle budget factor (PBF)?

Answer 6

The factor in which limits the growth in sales that a business can achieve, usually sales volume.