EXAM Tips Flashcards
See article
https://www.firstintuition.co.uk/fihub/the-narrative-tasks-in-the-budgeting-assessment/
When forecasting costs using percentages… dont be thrown by being given an increased cost (eg £14500) that has 2 elements eg there has been a 4% rise in consumption and a 3% increase in tariff.
To get back original just work back one by one (any order) eg.
14500 / 104 * 100 (to take off the 4% consumption rise)
Then the result / 103 * 100 (to take off the tariff 3% rise)
Order doesn’t matter…. don’t need to know whats consumtion and tariff in the global figure
Kaplan - In all MABU exams you will need to prepare a cash forecast.
Might be asked to analyse a CFF into shorter control periods, allowing for tie lags
Prepare CFF from budget data to facilitate achievement of orgs objectives, making allowance for time lags or assumptions about changes in debtor creditor & inventory balances.
What to remember in CFF task
Depreciation should be stripped out.
If doing materials where it’s complicated take time. Draw out months along top and use equation P=Usage+CI-OI (adapted from OI+P-CI=CoS)…. and DON’T FORGET that won’t be PAYING in same month which is why you work out more months than doing CFF for…. first you work out the PURCHASES for each month and then need another row at bottom showing when the CASH for those purchases will go out for the CASH-flow.
(I got confused when couldn’t work out purchases for Feb ..because wasn’t given Sales for March to base the CI on… but of course I didn’t need to know the Feb purchases because CFF was up to Feb BUT Feb purchases don’t appear because they appear in March CFF 2 months credit later… The December purchases go in the Feb CF !!!)
When doing a limiting factor analysis/decision what to remember?
Don’t include Fixed OHs when calculating Contribution. (May be in as a red herring)
Kaplan exam tip:
The effect of the budgeting process & the final budget on the motivation of managers and employees
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When commenting on variances what approach?
Question may tend to say something like:
For each variance suggest any further investigations which may be required and any action which might be taken by the production manager.
Think about;
- Put the variance in words to make clear I understand.
Eg. “More material was used than expected which is an adverse variance” - Maybe quantify it as a percentage? or it’s significance? eg. Low % but still a large amount.
- List ‘possible’ causes of the variance to show knowledge & understanding.
eg. waste in production; poor quality materials, operatives need training. Even more so ‘could be OT but this shouldn’t be the case at low production volume’ - Action. eg.
Probably follows an investigation and an ‘If’.
Consider whether machine needs replacing.
Further investigation. Break down efficiency into idle time/inefficiency
Rent/Rates: This is prob price var (since Fixed).. not normally controllable .. is it a one-off inwhich case ignore or if not then does budget need altering since TAC might influence pricing of product.
Monthly control statement
notice ‘control’
if expaining what a variance is… remember 2 things
to state that it is the OVER/UNDER SPEND RESULTING from paying more/less per kg or higher/lower hourly rate or using more/less raw product whatever whatever… make clear know its the monetary value.
ALSO try to say “AT STANDARD PRICE” when talking about useage variance
and “THAN STANDARD PRICE” when talking re material price var.
similarly “THAN STANDARD RATE (Price)” about payrate variances.
And “AT STANDARD RATES (Price)” when talking about efficiency variance
Reasons for Adverse Material usage
- Wastage higher than allowed for in standard.
- Standard usage set too low.
- Higher level of rejects
- Theft of material
Reasons for Adverse direct labour Rate var
- High levels of OT compared with standard
- Standard wage rate set too low.
- Higher grade labour used
- Higher bonus payments
Reasons for favourable Material usage var
- Bulk discounts
- Standard price set too high
- Lower quality material purchased..cheaper
- Effective price negociations
Reasons for favourable direct lab Efficiency var
- More skilled labour was used
- The lerning effect
- Standard was set too high
- Material was easier to process faster
Interdependence examples
1. Fav mat price / Adv lab eff Poor material, difficult to process 2. Fav mat price / Adv mat usage Poor material, more waste 3. Adv lab price / Fav efficiency or material use etc
Need to practice choosing performance measures and commenting on figures - see Kaplan page 259/60
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MUST be able to come up with suitable performance measures for various businesses/departments and for different categories (ie. financial , non-financial, productivity, quality etc)
This should not be hard!
But just needs a bit of practice for different types of biz eg. Hotel; Bus company etc
Hotel Accommodation department (profit centre)
financial- Sales Rev per bed-night.
non-financial- Occupancy rates
Hotel Household department (cost centre)
financial- Cost per bed-night
non-financial- Hours worked:hours available
Don’t forget the easy one - customer complaint rate!
If it’s a mark it’s a mark .. dont need to be too clever?
Difficulties comparing performance measures across (for example) a hotel group.
- External (uncontrollble factors)
Diff in location, local competition - Interdependence between departments
Eg. Bed-nights achieved affect catering department
‘Average wait’ type ratios
eg
Average time to resolve billing queries
Average wait for a telephone repair
How to calc these?
Total bill queries (or phones returned for repair)
X 365
Task 4
Given a budget and asked to identify ‘key budget factor’
What are some example key factors as need to get the hang of picking these out…
- Capacity (Planned production is close to capacity of prduction lines (AAT practice 2)
watch out for.
i suggested moving production to a different period to save paying overtime. i calculated the saving based on the number of hours x the premium.
i should have calculated the number of hours at the full rate including premium because there was a guaranteed minimum weekly rate in the period i moved production to
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what extra costs might there be if bringing forward production to save paying overtime
storage costs
finance costs
really watch if building cash flow forecast eg i made an error
by putting in the cost of materials used from the production budget instead of the materials purchased
really watch if given a year budget and calculating a month. dont be caught out … stop and think. eg if its labour theres probably overtime to be considered.
dont go too fast eg. i was given variable overhead which was related to labour hours. because it included overtime i could have just done a traight calc based on number of units proportionally.
instead i divided the total OH by units and then multiplied by the number of labour hours in the target month - IDIOT!!! should have used either units or hours.
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watch rounding - when calculation labour cost i rounded hours and then multiplied by hourly rate… kaplan only rounded the final amount -ie we had x.67 hours at £30 ph then round
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revising buget energy price consumption and tariff changes can be a bit confusing but I found it works if you just cancel the 2 rises that were factored in one after the other and then factor in the new rises one after the other.
If one or other doesn’t change you can do 2 ways:
Just factor back in the same % you cancelled
or
Ignore that part completely.
Either method seems to work !!
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sick pay for production workers - what accounting treatment
charge to production via a labout hour overhead rate
for suggesting performance measures for budget if it involves labour … what not to forget to include?
employee satisfaction survey
don’t forget what reasons for variances
poor budget.
measurement error?
cost behaviour incorrectly identified ie fixed is actually semi var & increases with activity
David Malthouse about Task 8
State the obvious!
Spell it out - examiner needs to know you understand the variance - eg material variance …
eg. “This means we spent more money to produce 420K units than budgeted”
- Explain the variance
2. Come up with a reason and link to the question text
David Mallthouse re how to make budget motivating
- MAKE SURE ACHIEVABLE
Involve them 2 get ownership & ensure seen as doable
Bottom up, inclusion - MAKE SURE REWARDED
Bonus. shares
Promotion, payrise
Holiday, Training, Recognition - MAKE IT STRETCHING
Challenging
If working out a labour budget where efficiency is eg. 120% or 95% … how do you do it?
Just work out standard number of hours and then divide by the efficiency amount and times by 100.
(.. sense check result by seeing that the number should be bigger or smaller according to efficiency)
95
120
Could be tricky depending on question requirement ie. if told 100 hours and 4hr p/unit standard but working 120% eff … how many units? this time the eff fig goes on the bottom..
100 x 120 = 25 * 120% = 30 units
—– —–
4 100
when doing a long complex budgeting exercise working out production and labour with wasteage etc… good to go through all the bits of info provided at the end and make sure used everything..
… eg When asked for saving from change in inventory levels in a period - I calculated the saving in reduction of FG of the 2 products (using the £/unit/Q storage given) … but forgot to do the saving in reduction of Raw Material inventory … even though was given the £/kg/Q amount … if had run through all the items I might have realised I hadn’t used that item anywhere in the calculations
ref the big operating statement task … rounding when calculating the finished goods amount to put in… according to David Malthouse you can round the unit amount and then multiply by the CI units OR you can round AFTER the calculation and either answer will be correct.
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Task 4 FI south-african lecturer says to
- State the change
- Give it as a %
- State the impact
Task 1 - direct costs
Materials
Labour
Sub contractor costs
Patents/ Royalties
suggesting Performance measures
Really need to read the question.
Eg. Asked to suggest overall financial performance indicators for the firm (where mins p/u; salary and basic hours all squeezed) I suggested things like labour cost p/u; average hourly rate..
… but the answer was GPM; NPM; ROCE; asset turnover..
I had missed the word ‘OVERALL’ ….. even though the proforma hinted ‘no reference to above numbers required’
