Budgeting Flashcards
Why do business prepare budgets?
Look ahead and plan targets
Communicate ideas to staff
Coordination and cooperation among teams
Allocate resources
Delegate authority
Responsibility accounting
Systems of control
Setting targets and monitor performance
What is a forecast/budget?
Prediction
Quantified plan
What is the framework for budgeting?
Budget committee - prepare and administer budgets
Budget period - usually 1 yr
Budget manual - collection of instruments
What is the principle budget factor?
Limits an organisation’s activity
What are the 4 functional budgets?
Sales budget - volume x sales price
Production budget - sales units + closing inv - opening inv + expected wastage
Raw materials/purchases budget - (units x materials used) + expected wastage + closing inv - opening inv
Labour budget - units produced x labour hours
What are the steps in preparing a budget?
1) Sales budget
2) Production budget
3) Raw materials/labour/production overheads
4)Cost of sales budget
5) Income statement
6) Cash budget
7) Statement of Financial Position
What is included in the master budget?
Income statement
Cash budget
Statement of Financial Position
How do we calculate costs using the high-low method?
Total cost = Fixed costs + (Variable costs x activity levels)
Pick highest and lowest units
VC = difference in highest and lowest cost/difference in highest and lowest units
Substitute to find FC
Solve for TC
What is the coefficient of determination?
Measure of proportion of the change in one variable that can be explained by variations in the other.
Square coefficient of correlation
What components are involved in time series analysis?
Trend
Seasonal variation
Cyclical variation
Random variation
How do we find the trend using moving averages?
Take average of first 3
Remove 1st and take average of next 3
etc
What is the additive model?
Time series forecasted result = Long term trend + seasonal variation adjustment
What is the multiplicative model?
Time series forecasted result = Long term trend x seasonal variation adjustment
What are the advantages and disadvantages of time series analysis?
Based on identified patterns, continually updated
Assumes trends will continue, less reliable if outside ranges, assumes straight line trend exists
What are the alternate approaches to budgeting?
Incremental budgets - adjusting for changes
Rolling budgets - periodically extended and amended
Zero-based budgets - managers justify every item of expenditure
Bottom-up budgeting - produced by individuals work its way up
Top-down budgets - working way down
What are the leadership principles?
Purpose - customer relations
Values
Transparency
Organisation
Autonomy
Customers
What are the management processes?
Rhythm
Targets
Plans and forecasts
Resource allocation
Performance evaluation
Rewards
What are the 4 main characteristics of big data?
Volume
Velocity
Variety
Veracity
What are the problems of big data?
Lack of forecasting tools
Privacy
Security
Incorrect data
Lack of skilled data analysts
What are the 2 classifications of AI and what are the types?
Deterministic and probabilistic
Computer vision, generative and natural language processing
How can AI be used in budgeting and forecasting?
Cash flow forecasts
Budget software population
Expense tracking and insights
Scenario planning
Identifying seasonal variances
What are the problems with AI?
Too much trust in outputs
Data protection
Ethics
Copyright
Quality of data
Data bias
High investment costs
Accuracy
What are the types of data bias?
Selection bias
Self-selection
Observer bias
Omitted variable
Cognitive
Confirmation
Survivorship
