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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
Q

What external changes are likely to affect forecasting future events

A
  • 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
Q

What is sensitivity analysis

A

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
Q

What is meant by stress testing

A
  • 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
Q

What are the features of big data

A

4 Vs:
Volume: amount
Velocity: real time speed
Veracity: clean and reliable
Variety: sources and unstructured

28
Q

What are the uses of big data

A
  • Identify opportunities to increase effciency
  • Developing and maintain KPIs
  • Improving the quality fo forecasting
  • Monitoring external risks
  • Increasing revenues through better marketing

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