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CM USA Part 1: Financial Planning, Performance, and Analytics > CMA 1: Section - B > Flashcards

CMA 1: Section - B Flashcards

Planning, Budgeting, and Forecasting

1
Q

What are strategy, strategy formulation, and strategy implementation?

A

A strategy is a set of actions taken by managers of a company to increase the company’s performance. The strategy-making process includes both strategy formulation and strategy implementation.
Strategy formulation is the process of selecting strategies.
Strategy implementation is the process of putting the selected strategies into action.

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2
Q

What are the two theories about management’s role in reaching profit growth?

A
  1. The market theory gives management a passive role and views its function as making reactive decisions in response to environmental events as they occur.
  2. The planning and control theory views the role of management as an active one that emphasizes the planning function of management and its ability to control the activities of the business.
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3
Q

What are strategic plans and who makes strategic plans?

A

Strategic plans are broad, general, long-term plans (usually five years or longer) that are based on the objectives of the organization.
The company’s top management leads the strategic planning effort.

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4
Q

What are intermediate plans and who makes them?

A

A strategic plan is broken down into intermediate or tactical plans (one to five years), which are designed to implement specific parts of the strategic plan.
Upper and middle managers develop tactical plans.

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5
Q

What are short-term plans and who makes them?

A

Short-term or operational plans (one week to one year) are developed from the tactical plans.
Operational plans focus on implementing the tactical plans to achieve operational goals and include budgeted amounts.
Middle and lower-level managers develop operational plans.

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6
Q

What are the five steps in strategic planning?

A
  1. Defining the company’s mission, vision, values, and goals.
  2. Analyzing the organization’s external competitive environment to identify opportunities and threats.
  3. Analyzing the internal operating environment to identify strengths, weaknesses, and limitations.
  4. Formulating and selecting strategies.
  5. Developing and implementing the chosen strategies.
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7
Q

What are the four components of the mission statement?

A
  1. A statement of the company’s mission, or “reason to be.”
  2. Its vision, or a statement of a desired future state.
  3. A statement of the organization’s values.
  4. A statement of its major goals.
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8
Q

What is a goal and what are four characteristics of good goals?

A

A goal is a precise and measurable future state that the company wants to achieve.
1. Goals are precise and measurable.
2. Goals should be crucial and address important issues.
3. Goals should be challenging while at the same time be realistic.
4. Goas should specify when they should be achieved in order to create a sense of urgency.

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9
Q

What are opportunities and threats?

A
  1. Opportunities arise when companies can leverage external conditions to develop and implement strategies that will make them more profitable.
  2. Threats include conditions in the external environment that pose a danger to profitability.
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10
Q

According to Porter, what are the five forces that shape competition within an industry?

A
  1. The risk of entry by potential competitors.
  2. The intensity of rivalry among established companies within an industry.
  3. The bargaining power of buyers.
  4. The bargaining power of suppliers.
  5. The closeness of substitutes to an industry’s products.
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11
Q

What two situations must exist to have a competitive advantage?

A
  1. Distinctive competencies and the superior efficiency, quality, innovation, and customer responsiveness that result from them.
  2. The profitability that is derived from the value customers place on its products, the price that it charges for its products, and the costs of creating those products.
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12
Q

What are the four generic distinctive competencies?

A
  1. Superior efficiency.
  2. Superior quality.
  3. Superior innovation.
  4. Superior customer responsiveness.
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13
Q

What is the value that is created for customers?

A

A company creates value for customers when it produces and sells its product or performs and sells its service.
The value created is the difference between the utility (U) that the customer gets from the product and the company’s costs (C) to produce it.
U − C = Created Value

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14
Q

What is consumer surplus?

A

Consumer surplus is the difference between the customer’s utility and the price.
U − P = Consumer Surplus

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15
Q

What are the three factors that determine the durability of a company’s competitive advantage?

A
  1. Barriers to imitation, or factors that make it difficult for a competitor to imitate the company’s distinctive competencies, such as patents.
  2. The capability of competitors to imitate the company’s competitive advantage.
  3. How rapidly the industry is changing.
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16
Q

What does SWOT stand forin SWOT Analysis?

A

Strengths
Weaknesses
Opportunities
Threats

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17
Q

What are the four generic competitive strategies?

A
  1. Cost leadership
  2. Focused cost leadership
  3. Differentiation
  4. Focused differentiation
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18
Q

What are the four basic strategies for international operations?

A
  1. Global standardization
  2. Localization
  3. Transnational
  4. International
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19
Q

What are the five modes of entry for a company to enter into a foreign market?

A
  1. Exporting
  2. Licensing
  3. Franchising
  4. Entering into a joint venture with a host country company
  5. Setting up a wholly-owned subsidiary in the host country
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20
Q

What are horizontal and vertical integration?

A
  1. Horizontal integration is a corporate-level strategy that involves acquiring or merging with competitors to achieve competitive advantages such as economies of scale.
  2. In vertical integration, a company expands its operations either into an industry producing inputs to the company’s operations or forward into an industry that uses the company’s products.
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21
Q

What are the three decisions that a company must make about its organizational structure?

A
  1. How to group tasks into functions, and how to group functions into business units or divisions.
  2. How to allocate authority and responsibility to the functions and divisions.
  3. How to increase the coordination or integration between and among functions and divisions, and how to maintain and increase them as the structure evolves.
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22
Q

What are the four organizational structures for international operations?

A
  1. Localization is oriented toward responsiveness to the local markets.
  2. International generally combines centralized R&D and manufacturing with decentralized marketing in each major geographic area where a company operates.
  3. Global standardization is a low-cost strategy.
  4. Transnational attempts to achieve both local responsiveness and cost reductions.
23
Q

What is PEST analysis?

A

PEST analysis is a type of situation analysis.
“PEST” stands for Political, Economic, Social, and Technological factors that are examined in the process of doing strategic planning for an organization.

24
Q

What are the four categories of products in the BCG Growth-Share Matrix?

A
  1. Stars
  2. Cash cows
  3. Question marks
  4. Dogs
25
Q

What are some advantages of budgets?

A
  1. Promote coordination and communication among an organization’s units and activities.
  2. Provide a framework for measuring performance.
  3. Provide motivation for managers and employees to achieve the company’s plans.
  4. Promote the efficient allocation of organizational resources.
  5. Provide a means for controlling operations.
  6. Provide a means to check on progress toward the organization’s goals.
26
Q

What is a rolling, or continuous, budget?

A

A rolling budget is continuously being updated and always covers the same amount of time in the future.

27
Q

What are the three main methods of developing a budget?

A
  1. A participative budget is developed from the bottom up.
  2. An authoritative budget is developed from the top down.
  3. A consultative budget is a combination of the authoritative and participative budget development methods.
28
Q

What are the steps in the budgeting process?

A
  1. Budget guidelines are set and communicated.
  2. Initial budget proposals are prepared by responsibility centers.
  3. Negotiation, review, and approval.
  4. Revisions
  5. Reporting on variances
  6. Using variance reports
29
Q

What is budgetary slack?

A

The difference between the amount budgeted and the amount the manager actually expects.
It is the practice of underestimating planned revenues and overestimating planned costs to make the overall budgeted profit more achievable.

30
Q

What are five methods of setting standard costs?

A
  1. Activity analysis
  2. Historical data
  3. Target costing
  4. Strategic decisions
  5. Benchmarking
31
Q

What are three considerations in setting direct material standards?

A
  1. Required quality of materials.
  2. The quantity needed.
  3. The price per unit of materials.
32
Q

What is the master budget?

A

The master budget (also called the comprehensive budget) is the culmination and the goal of the budgeting process.
It is a summarized set of budgeted financial statements, including the budgeted balance sheet, budgeted income statement, and budgeted statement of cash flows.

33
Q

What are operating budgets and what do they include?

A

Operating budgets are used to identify the resources that will be needed to carry out the planned activities during the budget period, such as sales, services, production, purchasing, marketing, and R&D.

The operating budgets for individual units are compiled into the budgeted income statement.

34
Q

What are financial budgets and what is included in them?

A

Financial budgets identify the sources and uses of funds for the budgeted operations.
Financial budgets include the cash budget, budgeted statement of cash flows, budgeted balance sheet, and the capital expenditures budget.

35
Q

What is the capital expenditures budget?

A

The capital expenditures budget is the budget for long-term capital expenditures such as property, plant, and equipment.
Unlike the other budgets, the capital budget usually covers a period of several years and thus is often prepared years in advance of the budget year it affects.

36
Q

What is the order of thebudgets being prepared inthe annual budget process?

A
  1. The sales budget
  2. Production budgets
  3. Ending inventory budgets
  4. Cost of goods sold budget
  5. Nonmanufacturing budgets
  6. Cash budget
37
Q

What budgets are prepared from the production budget?

A
  1. Direct materials usage budget
  2. Direct materials purchases budget
  3. Direct labor costs budget
  4. Factory overhead budget
38
Q

What is a flexible budget?

A

A flexible budget is a budget that is prepared after the actual level of activity is known.
1. A flexible budget for a production department will be adjusted to the actual volume of units produced.
2. A flexible budget for an income statement will be adjusted to the actual volume of units sold.

39
Q

What is zero-based budgeting?

A

Under zero-based budgeting, the budget is prepared without any reference to, or use of, the current period’s budget or the likely operating results for the current period.
Every planned activity must be justified with a cost-benefit analysis.

40
Q

What are the six steps of the budget control loop?

A

1) Establish the budget or standards of performance.
2) Measure the actual performance.
3) Analyze and compare actual results with the budgeted results (this is the budget report).
4) Investigate unexpected variances.
5) Devise and implement any necessary corrective actions.
6) Review and revise the budget or standards if necessary.

41
Q

What is the formula to determine how many units need to be purchased or produced in a period?

A

Units needed for use in the current period
+ Units needed for this month’s ending inventory
= Total units needed this period
− Units in this period’s beginning inventory
= Units to produce or purchase this period

42
Q

What two forecasting models use regression analysis?

A
  1. Time series analysis
  2. Causal forecasting
43
Q

What is correlation?

A

Correlation is the degree of the relationship between two variables.

44
Q

What is the coefficient of correlation and what is the range of its values?

A

The coefficient of correlation (r) measures the relationship between two variables.
It is a range between +1 (perfect positive) and -1 (perfect negative).

45
Q

What is the coefficient of determination and what isits range of values?

A

It is the proportion of the total variation in the dependent variable (y) that can be explained by variations in the independent variable (x).
The value of the coefficient of determination (r2) range between 0 and 1.

46
Q

What is the t-statistic and what should its value be to indicate a significant relationship?

A

The t-statistic, or t-value, measures the degree to which the independent variable has a valid, long-term relationship with the dependent variable.
The t-value for the independent variable used in a simple regression should generally be greater than 2.

47
Q

What is multiple regression analysis?

A

Multiple regression analysis is used when more than one independent variable is known to impact sales (or the variable being forecast) and each one can be expressed numerically.

48
Q

What are the three methods of assigning probability values?

A
  1. Classical method
  2. Relative frequency, or objective, method
  3. Subjective method
49
Q

What do variance and standard deviation measure?

A

They both give a measure of the variability (or dispersion)
of the values around the mean.

50
Q

What are the two learning curve models?

A
  1. The cumulative average-time learning model
  2. The incremental unit-time learning model

‘Only the cumulative average-time learning model is tested on the CMA exam.’

51
Q

What is the formula to calculate the total time to produce all units?

A

Time required for the first unit × (2 × LC)n

Where:
LC = Learning curve percentage (in decimal format)
n = Number of doublings of units produced to date

52
Q

What is the formula to calculate the cumulative average time to produce all units?

A

Time required for the first unit × LCn
Where:
LC = Learning curve percentage (in decimal format)
n = Number of doublings of all units produced

53
Q

What are pro-forma financial statements?

A

Pro forma financial statements, prepared for internal use in the planning process, are financial statements containing projected amounts that are expected if a particular course of action is followed.
Pro forma financial statements are used in order to see what the financial statements of the firm will look like if something that is under consideration or forecasted actually happens.

CM USA Part 1: Financial Planning, Performance, and Analytics (6 decks)

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