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AAT Professional Diploma > Budgeting Systems > Flashcards

Budgeting Systems Flashcards

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1
Q

What are the Major purposes of budgeting

Remember PRIME

A 
Planning
Responsibility
Integration
Motivation 
Evaluation and control
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2
Q

What is meant by “planning” as a budgeting purpose

A

Looking at future activities
Setting out detailed plans
Aims for achieving targets in each department
Improve business ability to deliver targeted performance

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3
Q

What is meant by “responsibility “ as a budgeting purpose?

A

Identify who is responsible for achieving set targets
Allows for focused recognition of targets achieved
Who to contact with issues achieving targets

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4
Q

What is meant by “integration” as a purpose of budgeting

A

Enable activity with each department to support the aims of the business as a whole
Improve communication and coordination between departments and areas

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5
Q

What is meant by motivation as a purpose of budgeting

A

Motivated staff having targets they can work to achieve

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6
Q

What is meant by evaluation and control as a purpose of budgeting

A

Evaluation of business results against predictions
Enabling better budgeting
Identify where business performance needs to be focussed on

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7
Q

How is a labour efficiency ratio calculated

A

This looks at actual output and if it took the budgeted amount of time to produce
Expected hours for actual prod/actual hours for actual prod x 100

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8
Q

How is a labour capacity ratio calculated?

A

This looks at hours worked against hours budgeted

Actual hours to make actual output/budgeted hours x 100

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9
Q

How is a labour production volume calculated also known as labour activity ratio.

A

This looks at budgeted volume against actual volume

Expected hours to make actual volume/budgeted hours x 100

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10
Q

How are sales margins, also known as return on sales calculated?

A

Gross or Net profit/sales x 100

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11
Q

How is return on Capital employed calculated ROCE

A

Net profit/capital employed x100

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12
Q

How is asset turnover calculated?

A

Sales/capital employed

Capital employed is total assets less current liabilities

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13
Q

What is the current ratio?

A

Analyses if short term liquid assets are enough to cover short term liabilities, above 1 is good.
Current assets/current liabilities

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14
Q

How is the quick ratio calculated, and what does it show

A

This takes inventory out of the calculation for liquidity as it can take time to sell.
Current assets- Inventory/current liabilities

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15
Q

Average receivables collection period, or Debtor days

A

Trade Receivables/sales x 365

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16
Q

Average payables period or creditor days

A

Trade payables/purchases or COS x 365

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17
Q

Average Inventory holding period

A

Closing inventory/cost of sales x 365

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18
Q

How is budgeted purchase price calculated

A

Cost per unit of purchases in period

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19
Q

What is budgeted production cost per unit

A

Cost of production/number of units produced

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20
Q

What are the stages of the product life cycle?

A

Introduction - new product, low sales, not much revenue
Growth - establishing product, increasing sales and revenue, still high advertising overheads
Maturity - Established product, stable sales and revenue, decreasing advertising cost
Decline - Being replaced by newer product, decreasing sales and revenue

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21
Q

What things should be included when giving narrative on a budget submission?

A

Include an opening line with indication if current year figures for comparison.
Work down line by line giving percentages on change and reasons for this.
Conclude with over all change as value and percentage

22
Q

What is meant by the balanced score card?

A

The balanced score card is a tool that looks at multiple perspectives to understand the business performance and long term success.

23
Q

What perspectives does the balanced score card look at?

A

Financial
Customer
Internal Business
Innovation and learning

24
Q

What KPI’s would be suitable when looking at the financial perspective

A

ROCE
Gross/net profit margin
Cash Flow
Dividend per share

25
Q

What KPI’s would be suitable when looking at the internal business perspective?

A

Machine Capacity utilisation
Defect rates in production
Lead times to meet orders
Staff productivity per hour

26
Q

What KPI’s would be suitable when looking at the innovation perspective

A

Training costs per employee
% Sales from new prodiucts
Research and Development expenditure
No. Hits on business website

27
Q

What KPI’s would be used when looking at the customer perspective?

A 
No. Repeat orders
No. Complaints
Warranty claims
Average delivery Times
Market share growth
28
Q

What is benchmarking

A

A comparison of business performance against other businesses within the same industry.

29
Q

How is the volume of sales to break even calculated?

A

Volume to break even = Fixed costs/Contribution per unit

30
Q

What is the contribution cost per unit?

A

Contribution is Selling price - Variable cost

31
Q

What is break even revenue

A

Break even revenue is break even units x Selling price

32
Q

How is the margin of safety in units and % calculated?

A

Units = Budgeted sales-break even sales

For % divide this by the budgeted sales volume and multiply by 100.

33
Q

How is volume required for target profit calculated?

A

(Fixed costs + Target Profit)/contribution per unit

34
Q

How is gross profitability margin calculated?

A

Gross profit/Sales revenue x 100

35
Q

How is net profit margin calculated /

A

Net profit (profit from operations)/Sales revenue x 100

36
Q

How is return on capital employed calculated?

A

Net profit/Capital employed x 100

37
Q

How do you calculate capital employed

A

Total assets less current liabilities.

38
Q

How is return on net assets calculated?

A

Net profit/net assets x 100

39
Q

How is asset turn over calculated?

A

Sales revenue/capital employed

40
Q

How is financial gearing calculated?

A

Debt/equity or debt/(equity-debt)

41
Q

How is interest cover calculated?

A

net profit (PBIT)/interest

42
Q

How is total fixed overhead variance calculated?

A

Fixed overhead absorbed les actual fixed overhead

43
Q

How is fixed overhead expenditure variance calculated?

A

Budgeted fixed overhead less actual fixed over head

44
Q

How is fixed overhead volume variance calculated?

A

Budgeted production volume less actual production volume valued at standard OAR rate.

45
Q

What key points should be included when reporting on variance analysis

A

It’s part of a control process for the business performance
Compares actual to flex budget to give a meaningful comparison
Will identify areas where action could be taken to improve business performance
Adverse = less profit
Favourable = more profit

46
Q

What is shadow costing?

A

This is when a business can source more of a scarce resource at a higher price than from their standard source.

47
Q

What is meant by Prime cost?

A

This is the direct cost of making 1 unit of production.

48
Q

how can the overall difference in profit between absorption and marginal costing be calculated?

A

Difference in profit = Movement in inventory x Fixed OAR

49
Q

What are the filing deadlines for statutory accounts?

A

Nine months - Limited company

Six months - public limited company

50
Q

What else is also required with statutory accounts

A

A directors report

An Auditors report (some businesses are exempt)

51
Q

What does IFRS 15 relate to?

A

Revenue from Contracts with customers

52
Q

What is the five step process to recognise revenue?

A
  1. Identify the contract with a customer
  2. Identify the performance obligations in the contract
  3. Determine the transaction price
  4. Allocate the transaction price to the performance obligations in the contract
  5. Recognise revenue when a performance obligation is satisfied.

AAT Professional Diploma (7 decks)

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