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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