5. Budgeting Concepts Flashcards

1
Q

What is budgeting manual

A

A colleciton of instructions governing the responsibilities, procedures and records relating to the use and preparations of budgetary process

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2
Q

What are the functions of the budget comittee

A
  • Co-ordination
  • Issueing timetables
  • Allocation of responsbilities
  • Provision of information
  • Communication of budgets
  • Comparison of actual
  • Continuous assessment
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3
Q

What is meant by departmental/funcitonal budget

A
  • Budget of income/expenditure applicable to particular funciton
    eg.
    production cost, marketing, R&D budget
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4
Q

Principle budget factor

A
  • The factor that limits the activities of an organisation
    eg.
    sales demand, machine capacity, availability of raw materials, availability of cash
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5
Q

What is the formula to prepare budgets for production and purchases

A

Sales + closing inventory (FG)- opening inventory (FG) = production
= usage
+ Closing inventory (RM) - opening inventory(RM) = purchases

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6
Q

What is the formula to work out cash recieved from reciveables

A

Recievables bought forward forward + sales - (recievables carried forward) = cash recieved

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7
Q

What is the formula for total cost fucntion for high low method

A

Y =a + bx

Y= total cost
a =fixed cost (intercept)
b= variable cost per unit (gradient)
x= output

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8
Q

What is the limitation of high low method

A

Uses onl two historical sets of data for predicting future value

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9
Q

Explain the formula for linear regression

A

Y= a + bx

  • y= dependent variable y
    independent variable =x
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10
Q

WHat is meant by regression analysis/ methhod of least squares

A

Accruate technique for estimating a line of best fit

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11
Q

Formula for method of least squares

A

b= nExy - ExEy/NEx^2 - (Ex)^2

b = (number of x )(sum of xy) - (sum of x)(sum of y)/
(number of x)(sum of (x squared)) - (sum of x) squared)

A= y - bx
a = average of y - v x average x

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11
Q

When is the reliability of regression line strong

A

If the points of data are close
- depends of degree of correlation

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12
Q

What are the degrees of correlation

A
  • Perfectly correlated positive(+), negative (-)
  • Partly correlated
  • Uncorrelated
  • Non linear correlationW
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13
Q

What is meant by coefficient of determination

A

If two variables are well correlated this may be due to chance or due to reason

= Correlation coefficient squared

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14
Q

What is the term for using line of best fit line to predict values

A
  • Interpolation: predicting value within two observed points
  • Extrapolation: using line of best fit to predict data outside two observed points
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15
Q

What are the limitations of linear regression

A
  • Assumes straight lien relationship
  • Only measures between two variables
  • Forecasts are only reliable as interpolation
  • high values of r/ r^2 does not neccessarily mean causation
  • assumes past will predict future
  • inflation is ignored unless data is adjusted using index
16
Q

What are the components of time series

A
  • Trend: underlying increase or decrease in demand
  • Seasonal variations: short term repeated fluctuations in trend
  • Cyclical variations: recurring patterns over a longer period of time
  • Random variations: non-recurring variations caused by unforeseen circumstances
17
Q

What are the two models for time series

A
  • Additive model: assumption that seasonal variation is fixed and componenets are independent
  • Multiplicative: seasonal variation is constant proportion of the trend
18
Q

What is the formula for additive model

A

TS = T + SV

SV = TS - T

TS = time series , T= trend

19
Q

What is formula for multiplicative model

A

TS = T x SV

SV = TS/TW

20
Q

What are the three ways to find trend

A
  • High low
  • Linear regression
  • Moving averages
21
Q

What is meant by moving averages

A

Average of the results of a fixed number of periods

22
Q

What are the advantages and disadvantages of time series

A

Advantages:
- Reflects underlying patterns
- SImple and cheap
- Can be developed into a more complex model

Disadvantages:
- Assumes all changes are time related
- Equal weight given to all data regardless of age
- How reliable is past data?
- Extrapolation is risky

23
Q

What are the problems with forecasting

A
  • Not enough data to base forecast
  • Pattern may not continue
  • Random variations
  • Data outliers
  • Missing data
24
What external changes are likely to affect forecasting future events
- Political (interest rates, inflation, exchange rates) - Environmental - Social changes (changes in taste, social acceptance) - Technological changes (faster machinary) - Technological advances ( advanced manufacturing reducing labour costs)
25
What is sensitivity analysis
A modelling and risk assessment procedure in which changes are made to significant variables to determine effect of changes on planned outcome eg. what if analysis
26
What is meant by stress testing
- Computer generated simulation technique used in banking to assess impact of what if to quantify risks - using extreme one off events eg. cybersecurity attack
27
What are the features of big data
4 Vs: Volume: amount Velocity: real time speed Veracity: clean and reliable Variety: sources and unstructured
28
What are the uses of big data
- Identify opportunities to increase effciency - Developing and maintain KPIs - Improving the quality fo forecasting - Monitoring external risks - Increasing revenues through better marketing