AMA Q22 - Chapter 4

Question 1

What is the most common key budget factor for sales and resource budgets?

Answer 1

Sales demand. Sales demand limits production activity, which limits purchase and labour requirements

Question 2

What is a Key Budget Factor

Answer 2

The limiting factor that limits business activity for a given period

Question 3

What is the process to preparing a sales or resource budget?

Answer 3

1. Finding the key budget factor
2. aligning physical plans with predicted activity level
3. turning these physical levels into financial ones (cost)
4. combining all resource budgets to create a master one

Question 4

Two parts of the revenue budget

Answer 4

1. Show the workings to the budgeted sales units
2. Show the workings to the budgeted revenue (budgeted income_

Question 5

What are the two factors that affect production budgets?

Answer 5

1. Changes in inventory levels of finished goods
2. The level of defected finished goods

Question 6

Formula for production quantity

Answer 6

sales quantity
(opening inv. of finished goods)
closing inv. of finished goods
production quantity
+ predicted quantity of defective goods

Question 7

Materials usage formula

Answer 7

quantity of materials required to meet production
+ anticipated wasted material

Question 8

Materials purchase budget calculation

Answer 8

quantity of materials used
- opening inv
+ closing inv

Question 9

Difference between materials to be purchased and materials used?

Answer 9

first has opening inv. deducted, the second has it added and closing deducted

Question 10

What is a control period?

Answer 10

Any period smaller than the main budget period (i.e. months, weeks, or days)

Question 11

Fixed Budget

Answer 11

a budget that sets an achievable target for the entire organisation over a year

Question 12

Flexible Budget

Answer 12

Designed to change depending on activity levels by recognising cost behaviours

Question 13

Flexed Budget

Answer 13

Prepared at the actual activity level that was achieved during the period. Useful for businesses where output is unpredictable

Question 14

How to deal with uncertainty in budgeting: 4 ways

Answer 14

planning models - sensitivity analysis
regular re-forecasting (time series)
Re-budgeting
Rolling budgets

Question 15

Two ways of determining cash receipts and payments in the future

Answer 15

1. Using operating statement and balance sheet nominals
2. Just using operating statement and allowing for time lags