Budgeting Flashcards

1
Q

What does PRIME stand for ?

A

It relates to reasons for preparing budgets.

Planning.
Responsibility.
Integration and coordination.
Motivation.
Evaluation and control.

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2
Q

What is the formula for calculating total costs?

A

Total costs = FC + (VC per unit x output)

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3
Q

What are functions of the budget committee?

A

Coordination and allocation of responsibility for preparing budgets.
Approval and issuing of the budget manual.
Timetabling.
Provision of information to aid the budgeting process.
Communication of the final budgets.
Monitoring of actual and budgeted results to assess the effectiveness of the budgeting process.

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4
Q

What is the formulate for linear relationships ?

A

Y = a+ BX

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5
Q

What is the coefficient of determination ?

A

R^2

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6
Q

How can season variations be estimated?

A

The additive model : TS = T(time)+SV(seasonal variation)
The multiplicative model: TS = T x SV

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7
Q

What are the benefits of big data?

A

Forecasting demand.
Identifying customer preferences.

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8
Q

What are the problems with big data?

A

Privacy.
Security.
Incorrect data,
Lack of forecasting tools and skilled analysts.

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9
Q

What are the main types of bias?

A

Self selection.
Omitted variable.
Cognitive bias.
Confirmation bias.
Anchoring.

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10
Q

What are the advantages and disadvantages of top down budgeting?

A

Advantages:
Enhances coordination with strategic objectives.
Effectively uses senior management experiences.
Reduces time spent on budgets.

Disadvantages:
Dissatisfaction, defensiveness and low morale of employees.
Budgets may be unachievable.
The acceptance of organisational goals and objectives could be limited.

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11
Q

What are the advantages and disadvantages of bottom up budgeting?

A

Advantages:
Increased commitment to objectives.
Based on up to date information.
Morale and motivation improved.

Disadvantages:
Time consuming negotiations are required.
Managers may introduce budget slack.
Changes implemented by senior management may cause dissatisfaction.

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12
Q

What are alternative approaches to budgeting?

A

Incremental budgeting.
Zero based budgeting.
Rolling budgets.

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13
Q

What are the advantages and disadvantages of incremental budgeting ?

A

Advantages:
Easy to prepare.

Disadvantages:
Inefficient.
Budgetary slack is protected and carried forward.

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14
Q

What are the advantages and disadvantages of Zero based budgeting?

A

Advantages:
Obsolete or inefficient operations can be identified and removed.
Results in more efficient allocation of resources.
Useful when applied to discretionary costs such as marketing and training costs.

Disadvantages:
Time consuming.
Expensive.
May emphasise short term benefits to detriment of longer term goals.

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15
Q

What are the advantages and disadvantages of rolling budgets?

A

Advantages:
Budget is more realistic than certain.
Planning a control will be made on a more event plan.
Managers are forced to assess the budget more regularly.

Disadvantages:
Involves more time, effort and money in budget preparation.
May demotivate managers if they cannot see the benefit of regular revisions.

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