Budgeting Concepts

Question 1

What are the Limitations of linear regression?

Answer 1

1. Assumes straight line relationship
   2.only measures relationship between 2 variables when there are many in reality
2. Forecasts only reliable within range of data.
3. Assumes past can be used to pror future.

Question 2

What is the definition of the Trend in the Time Series?

Answer 2

The underlying increase or decrease in demand.

Question 3

What is the definition of Seasonal variations in the Time Series?

Answer 3

Short-term repeated fluctuations from the trend.

Question 4

What is the definition of Cyclical variations in the Time Series?

Answer 4

Recurring patterns over a longer period of time, not generally a fixed nature.

Question 5

What are the 3 advantages of time-series forecasts?

Answer 5

1. Reflect underlying pattern
2. Simple and cheap method of forecasting
3. Can be developed to a more complex model.

Question 6

What is the Sensitivity Analyis?

Answer 6

A modeling and risk procedure in which changes are made to significant variables in order to determine effect of these changes on planned outcome (budget).

Question 7

What do we use Stress Testing in budgets for?

Answer 7

Is a computer-generated simulation technique, often used in banking, to assess impacts of ‘what if’ events on key financial measures.

Question 8

What are the 4 V’s of Big Data?

Answer 8

1. Volume
2. Velocity- speed real time
3. Variety
4. Veracity- keep info clean.

Question 9

What are the 5 uses of Big Data?

Answer 9

1. Identify opportunities for increasing efficiency and reducing cost.
2. Developing and maintaining broader range of KPIs
3. Improving quality of forecasting.
4. Monitor of external risks
5. Increasing revenues through better marketing.

Question 10

What are 5 functional budgets that should be drafted and by whom?

Answer 10

1. Sales budget and selling overhead cost should be drafted by the sales manager
2. The material purchases budget should be drafted by the purchasing manager
3. The direct production cost budgets should be drafted by the production manager
4. Various cost centre managers should prepare individual production, administration and distribution cost centre budgets for their own cost centre
5. Cost accountant should analyse budgeted overheads to determine the overhead absorption rates for the next budget period.

Question 11

What are the seven functions of a budget committee?

Answer 11

1. Co-ordination of budget, issue of budget manual
2. Issuing of timetables for preparation of functional budgets
3. Allocation of responsibilities for preparation of functional budgets
4. Provision of information to assist in preparation of budgets
5. Communication of final budgets to appropriate managers
6. Comparison of actual results with budget and investigation of variances
7. Continuous assessment of the budgeting and planning process in order to improve planning and control function.

Question 12

What are scattergraphs (Linear regression)?

Answer 12

Scattergraphs are graphs which are used to exhibit data in order to compare the way in which two variables vary with each other. They can be used to identify the general relationship.

Question 13

What is meant by Correlation ?

Answer 13

Degree to which change in one variable is related to change in another - interdependence between variables.

Question 14

Name 6 Forecasting problems:

Answer 14

1. Further in the future, more unreliable it is
2. Less data available on which to base forecast, less reliable forecast will be.
3. Pattern of a trend and seasonal variations may not continue in the future
4. Random variations may upset pattern of trend and seasonal variation
5. Data outliers are observations which are abnormal and as a result can significantly distort results.
6. Missing data can also distort results.