Decision making

Question 1

Recommended retail price

Answer 1

A selling price that is recommended by the manufacture or wholesaler

Question 2

Competitors price

Answer 2

Price charged by business competing in the same market

Question 3

Mark-up percentage

Answer 3

Determining selling prices by adding to the cost price a predetermined profit margin

Question 4

How to figure out selling price

Answer 4

Selling price = cost price x ( 1 + mark-up/100)

Question 5

How to figure out mark-up

Answer 5

Mark up = (selling price/cost price) -1 ) x100

Question 6

How to figure out cost price

Answer 6

Cost price = selling price / ( 1 + mark-up/100)

Question 7

Cost volume-profit analysis

Answer 7

An analysis tool that allows a business to determine a selling price or volume of sales that will let them achieve a specific profit goal

Question 8

Break even point

Answer 8

The level of sales where total revenue equals to total expenses and the business makes neither a net profit nor a net loss

Question 9

Variable cost

Answer 9

Costs that vary directly with the level of activity

Question 10

Fixed costs

Answer 10

Costs that do not vary directly with the level of activity

Question 11

Cost volume profit equation

Answer 11

Quantity to be sold = (total fixed costs + profit) / (selling price per unit - variable cost per unit)

Question 12

What is budgeting

Answer 12

The process of predicting/estimating the financial consequences of future events

Question 13

Budgeting process

Answer 13

Budgeted reports (prepared, predicting what is likely to occur)
Actual reports (prepared to detail what has happened in the current period)
Variance reports (prepared to highlight differences/problem areas)
Decisions (made to improve business performance for the next period)

Question 14

Cash budget

Answer 14

An accounting report which predicts future cash receipts and payments, determines the expected cash surplus or deficit and thus estimates the bank balance at the end of the budget period

Question 15

Preparing for a cash deficit

Answer 15

1) Increase effective advertising, adjust prices, expand services offered to increase cash fees
2) Cash capital contribution
3) Reducing cash payments for expenses
4) Deferring a purchase of a non-current asset or using credit facilities to purchase them
5) Reducing or deferring loan repayments
6) Reduce or half cash drawings
7) Organise (or extend if already in place) an overdraft facility

Question 16

Preparing for a cash surplus

Answer 16

1) Purchase more or newer non-current assets
2) Increase loan repayments
3) Increase cash drawings
4) Expand operating activities by increasing advertising, employing more staff, increasing the number of services offered etc.`

Question 17

Budgeted income statement

Answer 17

An accounting report which predicts revenues earned and expenses incurred, and thus the expected net profit for the budget period

Question 18

The budgeted income statement aids planning by:

Answer 18

Changing prices, advertising or the service offered to increase cash fees
Seeking cheaper supplies for an inventory of materials/supplies/parts
Examining rosters to ensure staffing levels are appropriate

Question 19

The budgeted income statement can be used as a decision making tool:

Answer 19

Revenue earning performance, the effectiveness of marketing/advertising
Expense control
Staff performance

Question 20

Variance reports

Answer 20

Accounting report that compares actual and budgeted figures, highlighting variances so that problems can be identified and corrective action taken

Question 21

Variance

Answer 21

Differences between the actual figure and a budgeted figure, expressed as ‘favourable’ or ‘unfavourable’

Question 22

Cash variance report
Favourable
Unfavourable

Answer 22

Compares actual and budgeted cash figures
Favourable - cash receipts are higher than expected/ cash payments are lower than expected or bank is higher than expected
Unfavourable - cash receipts are lower than expected/ cash payments are higher than expected, or bank is lower than expected

Question 23

Income statement variance report

Answer 23

Compares actual and budgeted revenue and expense figures
Favourable - Revenues are higher than expected/ expenses are lower than expected or profit is higher than expected
Unfavourable - Revenues are lower than expected/ expenses are higher than expected, or profit is lower than expected

Question 24

Uses of variance reports

Answer 24

Identifies potential problem areas where corrective action can be taken
Assessing whether benchmarks or KPIs have been achieved