EXAM Tips

Question 1

See article

Answer 1

https://www.firstintuition.co.uk/fihub/the-narrative-tasks-in-the-budgeting-assessment/

Question 2

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.

Answer 2

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

Question 3

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

Answer 3

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.

Question 4

What to remember in CFF task

Answer 4

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 !!!)

Question 5

When doing a limiting factor analysis/decision what to remember?

Answer 5

Don’t include Fixed OHs when calculating Contribution. (May be in as a red herring)

Question 6

Kaplan exam tip:

The effect of the budgeting process & the final budget on the motivation of managers and employees

Answer 6

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Question 7

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.

Answer 7

Think about;

1. Put the variance in words to make clear I understand.
   Eg. “More material was used than expected which is an adverse variance”
2. Maybe quantify it as a percentage? or it’s significance? eg. Low % but still a large amount.
3. 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’
4. 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.

Question 8

Monthly control statement

Answer 8

notice ‘control’

Question 9

if expaining what a variance is… remember 2 things

Answer 9

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

Question 10

Reasons for Adverse Material usage

Answer 10

1. Wastage higher than allowed for in standard.
2. Standard usage set too low.
3. Higher level of rejects
4. Theft of material

Question 11

Reasons for Adverse direct labour Rate var

Answer 11

1. High levels of OT compared with standard
2. Standard wage rate set too low.
3. Higher grade labour used
4. Higher bonus payments

Question 12

Reasons for favourable Material usage var

Answer 12

1. Bulk discounts
2. Standard price set too high
3. Lower quality material purchased..cheaper
4. Effective price negociations

Question 13

Reasons for favourable direct lab Efficiency var

Answer 13

1. More skilled labour was used
2. The lerning effect
3. Standard was set too high
4. Material was easier to process faster

Question 14

Interdependence examples

Answer 14

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

Question 15

Need to practice choosing performance measures and commenting on figures - see Kaplan page 259/60

Answer 15

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Question 16

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)

Answer 16

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?

Question 17

Difficulties comparing performance measures across (for example) a hotel group.

Answer 17

1. External (uncontrollble factors)
   Diff in location, local competition
2. Interdependence between departments
   Eg. Bed-nights achieved affect catering department

Question 18

‘Average wait’ type ratios
eg
Average time to resolve billing queries
Average wait for a telephone repair

How to calc these?

Answer 18

Total bill queries (or phones returned for repair)

X 365

Question 19

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…

Answer 19

1. Capacity (Planned production is close to capacity of prduction lines (AAT practice 2)

Question 20

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

Answer 20

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Question 21

what extra costs might there be if bringing forward production to save paying overtime

Answer 21

storage costs

finance costs

Question 22

really watch if building cash flow forecast eg i made an error

Answer 22

by putting in the cost of materials used from the production budget instead of the materials purchased

Question 23

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.

Answer 23

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Question 24

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

Answer 24

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Question 25

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 !!

Answer 25

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Question 26

sick pay for production workers - what accounting treatment

Answer 26

charge to production via a labout hour overhead rate

Question 27

for suggesting performance measures for budget if it involves labour … what not to forget to include?

Answer 27

employee satisfaction survey

Question 28

don’t forget what reasons for variances

Answer 28

poor budget.

measurement error?

cost behaviour incorrectly identified ie fixed is actually semi var & increases with activity

Question 29

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”

Answer 29

1. Explain the variance

2. Come up with a reason and link to the question text

Question 30

David Mallthouse re how to make budget motivating

Answer 30

• 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

Question 31

If working out a labour budget where efficiency is eg. 120% or 95% … how do you do it?

Answer 31

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

Question 32

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..

Answer 32

… 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

Question 33

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.

Answer 33

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Question 34

Task 4 FI south-african lecturer says to

Answer 34

1. State the change
2. Give it as a %
3. State the impact

Question 35

Task 1 - direct costs

Answer 35

Materials
Labour
Sub contractor costs
Patents/ Royalties

Question 36

suggesting Performance measures

Answer 36

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’