Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CIMA - P1 > 6. Budgets: Control and Performance > Flashcards

6. Budgets: Control and Performance Flashcards

1
Q

What is incremental budgeting?

A

Taking the current period and adding on an amount for anticipated inflation and growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the advantages of incremental budgeting?

A
  1. Stable and change is gradual
  2. Simple and easy to understand
  3. Easy co-ordination
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the disadvantages of incremental budgeting?

A
  1. Assumes activities will continue in the same way
  2. Budget can become out of date
  3. Budgetary slack is never reviewed
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is a rolling budget?

A

Every new budget extends the current budget by another period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the advantages of a rolling budget?

A
  1. Limit uncertainty as they are updated quickly
  2. Forced to regularly reassess assumptions
  3. Decisions based on a plan produced recently
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the disadvantages of a rolling budget?

A
  1. Large time and expenses

2. Benefits limited if assumptions don’t change much

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are the attributes of zero based budgeting?

A
  1. Starts at nil every period
  2. Establish every item as a decision package
  3. Justify each decision package individually, and review/rank based on benefits
  4. Allocate resources based on the ranking
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the advantages of zero based budgeting?

A
  1. Efficient allocation of resources
  2. Increased staff motivation
  3. Identifies and eliminates wastage
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the disadvantages of zero based budgeting?

A
  1. Difficult to define decision packages
  2. Time consuming
  3. Difficult for R&D to justify expenditure
  4. Lots of training needed
  5. Difficult to administer and communicate
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is activity based budgeting?

A

A method of budgeting based on an activity framework and utilising cost driver data in the budget setting and variance feedback process

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the advantages of activity based budgeting?

A
  1. Focuses on true drivers behind costs

2. Enables more efficient improvement programmes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the disadvantages of activity based budgeting?

A
  1. Time consuming and resource intensive

2. Not readily understood

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the 5 budgeting challenges faced by multinational companies?

A
  1. Home currency budget targets may fluctuate in other currencies due to exchange rates
  2. Performance results affected by exchange rates
  3. Local regulations and political restrictions affect decisions in different countries
  4. Difference in customer preferences incurs additional costs of adaptation
  5. Different local competitive environments
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is a controllable cost?

A

A cost which is controlled, typically by a cost, profit or investment centre manager

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is feedback control?

A

Actual results are compared to budgets/forecasts and relevant action is taken

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the two types of feedback that come from variance analysis?

A
  1. Negative feedback (i.e. correct substandard performance)

2. Positive feedback (i.e. revise future targets/standards)

17
Q

What is feed-forward control?

A

The forecasting of differences between forecast and planned/budgeted outcomes, and the implementation of action, before the event, to avoid such differences

18
Q

What are the 6 important elements of an effective control budget?

A
  1. Targets are achievable but stretching
  2. Clearly defined management responsibilities
  3. Reliable and timely information systems and budget reports
  4. Reports produced for individual managers
  5. Short reporting periods
  6. Effective feedback control
19
Q

What is what if/sensitivity analysis?

A

Changing the variables within your analysis to see what impact it has on results

20
Q

What are the aspects of budgeting that are important for staff motivation?

A
  1. Challenging targets
  2. Realistic, achievable targets
  3. Use targets for reward schemes
  4. Participative budget processes
21
Q

What are the 7 advantages of top down budgets?

A
  1. Considers corporate strategy
  2. Considers overall resource allocation
  3. Time efficient
  4. Co-ordination of plans and objectives
  5. More objective perspective
  6. Less budgetary slack can be built in
  7. No concern of inexperienced staff
22
Q

What are the 5 disadvantages of top down budgets?

A
  1. Lack of knowledge of operations
  2. Staff not committed to budgets
  3. Low staff motivation
  4. More central/senior management time required
  5. No communication between departments
23
Q

What are the 4 unethical behaviours that can arise in bottom up budgeting?

A
  1. Budgetary slack
  2. Producing unrealistic budgets to make budget holders look good
  3. Short term focus
  4. Personal goals influence decisions
24
Q

What are the 3 unethical behaviours that can arise in top down budgeting?

A
  1. Excessive pressure from the top
  2. Misleading budget holders, leading to demotivation
  3. Passing budget holders responsibility for costs they do not control
25
Q

What are the two behavioural problems that can arise from the difficulty of setting standards in the modern environment?

A
  1. Standards are ignored and their control benefits lost

2. Operations are made to fit the standards rather than developed further

26
Q

Who proposed beyond budgeting?

A

Hope and Fraser (2003)

27
Q

What are two techniques that can be used in beyond budgeting?

A

Rolling forecasts and market related targets

28
Q

What are the 8 benefits of beyond budgeting?

A
  1. Faster response time
  2. More innovation
  3. Lower costs
  4. Flexible performance targets
  5. Greater motivation for managers
  6. Greater motivation of front line staff
  7. Better relationships with customers and suppliers
  8. Improvements in information systems
29
Q

What are the 5 disadvantages of beyond budgeting?

A
  1. Complex process and co-ordination
  2. Difficulties in performance evaluation
  3. Lack of focus on internal goals
  4. Cost of investment of better information systems
  5. Difficulty in changing to decentralised model

CIMA - P1 (14 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions