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BEC V > 4. Planning Techniques > Flashcards

4. Planning Techniques Flashcards

1
Q

Budgeting: what is the master budget?

A
  • a comprehensive plan for the overall activities of a company
  • developed for a specified level of activity
  • a static budget
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2
Q

Budgeting: what is a static budget?

A

a budget that does not change when actual sales differ from planned sales.

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3
Q

Budgeting: what are 3 components of a master budget?

A
  1. Operating budget
  2. Financial budget
  3. Capital expenditures budget
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4
Q

Budgeting: Operating budget: what does it do?

A

Forecasts the results of operations: sales, production expenses, and selling and administrative expenses.

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5
Q

Budgeting: Operating budget: what are 4 principal budget?

A
  • Sales budget
  • Production budget
  • Production cost budget (direct materials, labor, OH budget)
  • Selling and administrative expense budget
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6
Q

Budgeting: Financial budget: what does it do?

A

Forecasts cash flows and projects the financial statements that will result from operations.

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7
Q

Budgeting: Financial budget: what budgets does it include?

A
  • Cash budget
  • Budgeted (or pro-forma) income statement
  • Budgeted (or pro-forma) balance sheet
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8
Q

Budgeting: Capital expenditures budget: what does it do?

A

Projects expenditures related to the acquisition or construction of capital (fixed) assets.
*Often multiple fiscal periods

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9
Q

Budgeting: Operating budget: 1st step?

A

Sales forecasts:
based on information obtained from both internal and external sources and provides estimates of sales in dollars and in units.

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10
Q

Budgeting: Operating budget: 2nd step - sales budget: what does it do?

A

Forecasts planned sales in dollars and in units, usually on a monthly or quarterly basis.

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11
Q

Budgeting: Operating budget: 3rd step - production budget: what does it do? Based on?

A 
Projects the production quantities needed to support sales and provide for the specified quantity of ending inventory.
Based on:
*unit sales info from the sales budget
*current inventory level
*desired ending inventory level
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12
Q

Budgeting: Operating budget: 4th step - production costs budget: Prepared for? Based on?

A

For: a direct materials budget, a direct labor budget, an overhead budget.
Based on:
*unit production info from production budget
*for direct materials, info about current and desired ending inv levels

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13
Q

Budgeting: Operating budget: 5th step - selling and admin expense budget: what does it do? Based on?

A

Lists the budget expenses for areas outside of manufacturing.
Based on individual dept managers as approved by management or by use of the percentage of sales method (the expense amount by expressing the expense as a “percentage of sales”)

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14
Q

Budgeting: Financial budgets: what does it do?

A

Projects cash receipts, cash disbursements, and ending cash balance.

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15
Q

Budgeting: Financial budgets: how does it project?

A

By analyzing;
*Anticipated operating receipts: from sales budget, historical info about customer pmt characteristics
includes;
- cash sales and credit sales/AR collections

*Anticipated operating expenditures: from production costs budgets, selling and admin expense budget, company’s vendor and employee policies
includes;
- cost and expenses, purchase on account/AP disbursements

*Anticipated capital expenditures; provides info on planned expenditures for capital assets

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16
Q

Budgeting: Financial budgets: 2nd step?

A

The amount of cash that must be borrowed or may be invested is determined.
Based on minimum cash balance requirements specified by management.

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17
Q

Budgeting: Financial budgets: 3rd step?

A

Budgeted financial statements (pro forma income stmts and pro forma balance sheet) - project the result of operation and financial position at the end of the period.
*use info from operating budget, cash budget, capital expenditures budget

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18
Q

Budgeting: what is participative budgets? Benefits?

A

Allow subordinates to participate in establishing budget targets.

  • can increase the accuracy of the budget by providing additional information that subordinates bring to the table
  • can increase perceptions of ownership of the budget targets on behalf of the subordinates
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19
Q

Budgeting: what is strategic budgeting? What are issues considered?

A

A long-range view to planning based on the identification of action plans to achieve the company’s goals and, ultimately, its mission.

  • A comprehensive internal/external analysis
  • Competitive/economic analysis
  • An assessment of various type of risk
20
Q

Budgeting: what is a rolling budget? Who often uses it?

A

An incremental budget that adds the current period and drops the oldest period.
*Kaizen type companies - deemphasize past performance - results are “expected” to continuously improve

21
Q

Budgeting: what is Zero-base budgeting?

A

A process of starting over each budget period and justifying each item budgeted

  • Requires additional work
  • May be more accurate
  • Forces managers to carefully think about expenditures
22
Q

Budgeting: what is budgetary slack?

A

Occurs when managers attempt to build in a cushion for spending and revenue in case targets are not met.

23
Q

Budgeting: what is Flexible budget?

A

Adjusts revenues and some costs when actual sales volume is different from planned sales volume.
- Reflect the actual level of sales activity.

24
Q

Budgeting: Flexible budget: what are common adjustments?

A
  • Revenue is adjusted by multiplying the actual quantity times the sales price
  • Total variable costs are adjusted by multiplying the actual quantity times the variable cost per unit
  • Total fixed costs remain the same as long as volume remains within a relevant range
25
Q

Budgeting: what are differences between the flexible budget and the master budget called?

A

Sales activity variance or volume variances.

26
Q

Forecasting techniques: what is probability analysis?

A

Determine the likelihood of a specific event occurring when several outcomes are possible.

27
Q

Forecasting techniques: what is probability of a particular outcome? The sum of the probabilities associated with the possible outcome?

A

Always between 0 (never) and 1 (always).

Always 1 (A sum less than one indicates that an outcome has been omitted from the analysis or a probability has been improperly assessed.)

28
Q

Forecasting techniques: what is the expected value? How is it computed?

A

Long-run average outcome.

By calculating the weighted average of the outcomes = Value of each outcome x its probability and add all.

29
Q

Forecasting techniques: what is joint probability? How is it computed?

A

The probability of an event occurring given that another event has already occurred.
*The probability of the first event x The conditional probability of the second event

30
Q

Forecasting techniques: Joint probability: what are steps?

A
  1. For each combination of events, the probability of the first event x the conditional probability of the second event
  2. Sum the results from step 1
  3. Determine the probability of a particular event combination occurring = each result for each event combination / the total of all event combinations
  4. Sum the probabilities for each event combinations to ensure the total is 1 (or 100%)
31
Q

Forecasting techniques: what is variance analysis?

A

Measures the dispersion of values around the expected value (the mean or average value).

32
Q

Forecasting techniques: Variance analysis: what does smaller variance mean? How does it look on a graph?

A

Associated with less risk.

More tightly clustered.

33
Q

Forecasting techniques: what is correlation analysis?

A

Measures the strength of the relationship between two or more variables.

34
Q

Forecasting techniques: correlation analysis: what are 2 types of variables?

A
  • A dependent variable: A value that changes in response to changes in related value
  • An independent variable: Values that change, but not in response to changes in other variables in the equation
35
Q

Forecasting techniques: correlation analysis: what is R?

A

The correlation coefficient: measures the strength of the relationship between the dependent and independent variables.
*can have values from -1 to 1.
1 = perfect positive correlation (x increases, so does y)
-1 = perfect negative correlation (x increases, y decrease)
0 = no correlation (y value can’t be predicted from x)

36
Q

Forecasting techniques: correlation analysis: what is R2 (R-squared)?

A

The coefficient of determination: indicates the degree to which the behavior of the independent variable predicts the dependent variable.

37
Q

Forecasting techniques: correlation analysis: How is R2 (R-squared) computed?

A

Squaring the correlation coefficient.

Value from 0 to 1.

38
Q

Forecasting techniques: correlation analysis: R2 (R-squared): what does it mean when R2 is closer to 1?

A

The better the independent variable predicts the behavior of the dependent variable.

39
Q

Forecasting techniques: Regression analysis: what is it?

A

Predicts the value of one factor (the dependent variable) based on the value of one or more other factors (the independent variables).

40
Q

Forecasting techniques: Regression analysis: what is simple regression and multiple regression?

A

Simple: one independent variable
Multiple: several independent variable

41
Q

Forecasting techniques: Regression analysis: what type is often used in cost accounting to evaluate the strength of the relationship between cost and cost drivers?

A

Linear regression analysis.

42
Q

Forecasting techniques: Regression analysis: does it establish cause and effect?

A

No, only indicates a relationship.

43
Q

Forecasting techniques: Regression analysis: equation?

A

y = A + Bx

A = the y-intercept
B = the slope of the line
x = qty of the independent variable
x axis = independent variable
y axis = dependent variable
44
Q

Forecasting techniques: Regression analysis: Cost equation?

A

y = A + Bx

y = total costs (dependent variable)
A = fixed costs (the y-intercept)
B = variable cost per unit (slope of the line)
x = number of units (independent variable)

Or
Total costs = fixed costs + (variable cost per unit x # of units)

45
Q

Forecasting techniques: Regression analysis: what does coefficient of determination measure?

A

Goodness of fit.

BEC V (7 decks)

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