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Level 4 AAT Budgeting > Extra Shit To Remember > Flashcards

Extra Shit To Remember Flashcards

1
Q

Advantages of top down budgeting

A

Ensures best use of resources of the business
Operational managers may lack required skills
Senior managers greater control
Better grasp of bigger picture

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2
Q

Disadvantages of top down budgeting

A

Seniors lack local knowledge
Targets are unrealistic or unachievable
Poor use of senior managers time
De motivating to staff as they feel targets are imposed on them

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3
Q

Advantages of bottom up budgeting

A

Better local knowledge
Local managers will have better understanding of what is possible
Fred’s up seniors time
More motivating to staff
Lower managers get more involvement in company direction

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4
Q

Disadvantages of bottom up budgeting

A

Can be time consuming
Managers may lack required skills
Many conflicting views
Targets set could be too easy (budgetary slack)
Budgets may lack consistency between departments

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5
Q

What is negotiated budgeting?

A

Occurs in practice and is where the budgets are agreed between different levels of management. Department managers producing first draft which seniors review and amend. Then passed back and so on.

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6
Q

Advantages of incremental budgeting

A

Stable and changes are gradual over time
System is relatively simple to operate and easy to understand
Co-ordination between department

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7
Q

Disadvantages of incremental budgeting

A

Assumes activities and methods of working will continue the same way
No incentive to reduce costs
Encourages departments to spend full amount of their cost

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8
Q

Advantages of zero based budgeting

A

More efficient allocation of resources.
Eliminate budgetary slack
Cost effective ways to improve operations
Staff motivational by providing greater involvement

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9
Q

Disadvantages of zero based budgeting

A

Very time consuming as every single aspect needs to be justified
Managers may become demotivated at being forced to justify
Far more challenging to undertake than incremental
More difficult to administer the process and may affect communication

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10
Q

Advantages of rolling budget

A

Updating resource prices and demand levels gives up to date budget info
Always has lengthy time horizon
Encourages staff to look at changing internal and external variables

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11
Q

Disadvantages of rolling budgets

A

Involves time and effort as budget done on monthly basis
Constant change can demotivate staff
End of year can be hard to see which budgets to compare

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12
Q

What is activity based budgeting?

A

Find cost drivers and bases budget in these aspects

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13
Q

Advantages of activity based budgeting

A

Focuses managers attention on the true drivers, which could be controlled
Likely to be more accurate as looking at cost drivers
More efficient improvement programmes as whole cost of activity considered

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14
Q

Disadvantages of activity based budgeting

A

Time consuming and resource intensive

Not as easily understood by managers

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15
Q

What is priority based budgeting?

A

Modification of zero based
Focuses on priorities of company and allocated growth and savings accordingly
Based on ongoing review of activities
Elements of spending can be classed as essential/highly desirable/beneficial

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16
Q

What should the budgetary system encourage?

A 
Honesty and transparency 
Motivation of management team
Continuous improvement 
Goal congruence -common goal
Reduce rivalry and suboptimal performance
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17
Q

What is forecasting?

A

Method used to predict what will happen in the future

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18
Q

What could you use to forecast sales?

A

Sales experts
Market research
Time series analysis
Linear regression

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19
Q

What could you use to forecast expenses?

A

Production and purchasing managers
Market research
Time series analysis and linear regression
Price indices

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20
Q

What is a time series?

A

A series of figures recorded over a period of time

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21
Q

What is the additive model?

A

Trend + Seasonal variation = time series

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22
Q

What is the multiplicative model?

A

Trend x Seasonal variance = Time series

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23
Q

What is linear regression?

A

Method used to forecast future costs or sales by looking at what has happened in past.
Assumes there is a reliable linear relationship

24
Q

Assumptions and limitations of forecasting the trend using past data

A

Observations may not be typical of normal behaviour
Historic data may not predict future results
Assumes linear relationship
Predicting outside data range is less accurate
Reliability of trend depends on how well data fits
Many factors may affect variables

25
Q

What is the Retail Price Index used for?

A

To inflate or deflate costs at different points in time for more meaningful comparisons.

26
Q

4 ways to reduce uncertainty in budgets

A

Flexible budgets
Regular re-forecasting
Planning models -allows accurate predictions
Rolling budgets

27
Q

What is the product life cycle?

A

The stages through which an individual product develops over time.

28
Q

What are the 4 stages of product life cycle? And state what typical costs are

A

Introduction stage - high cost, low revenue
Growth stage - falling production cost with increased volume, increasing revenue
Maturity stage - high demand and sales but growth slows, reduced production costs
Decline stage - falling demand and market share means it is loss making

29
Q

Why do we use a product life cycle in budgeting?

A

Helps forecast sales and costs depending on what stage it is in.
Market trends can be forecast in stable markets where product has long life
Competitor can affect forecast if new
Promotional activity should be considered as will affect sales

30
Q

What are 3 problems with reliability of forecasts?

A

Historical data outdated
Unexpected events not factored in
Focus on historic data not future

31
Q

What is a standard cost?

A

Used to estimate costs they are expecting to incur in advance of costs being incurred

32
Q

What is ideal standard?

A

Perfect operating conditions with no allowance for waste, inefficiency or idle time
It is an impossible target
Demotviates

33
Q

What is an Attainable standard

A

Realistic but challenging

Gives staff incentive to work hard

34
Q

What is a basic standard?

A

Assumes nothing has changed

Become out of date therefore not meaningful

35
Q

What is a current standard?

A

Based on current levels

Up to date but no incentive to improve

36
Q

What are the uses of standard costs?

A

Planning - enables process of planning and to produce comprehensive cost budgets.
Control - forms basis of variance analysis

37
Q

Advantages of standard costing

A

Makes budgeting quicker and more accurate if accurate one found as multiplied to required level
Useful for setting selling prices which cover costs
Used to set targets for individual staff
Makes measuring performance easier
Helps to value inventory of costs changes frequently

38
Q

Disadvantages of standard costs

A

Time consuming to create and keep updated
If changes they can become out of date quickly
If wrong standard used it can demotivate staff
Difficult to establish standards if business does not have comprehensive cost info

39
Q

What are the main steps in order to identify the optimal use of limited resources? (5)

A

1) identify limiting factor
2) calculate contribution per unit
3) calculate contribution per unit of limiting factor
4) rank products
5) work out optimal production plan

40
Q

Advantages of subcontracting production

A

Greater volume of sales possible
May lower costs than providing ourselves if they achieve suitable economies of scale
Quality may be better - more specialised
Business can focus on core strengths

41
Q

Disadvantages of subcontracting production

A

Lose control over process and quality
Lead times may be longer
Business can become too reliant on subcontractors
May limit access to finance

42
Q

What is a flexible budget?

A

Drawn up at the beginning of the year and involves a series of budgets based on various different sale and production volumes

43
Q

What should be considered before investigating a variance?(5)

A 
The size of variance
 Controllability of variance 
Cost of investigating
Interrelationships with other variances
Trend
44
Q

What are the two profitability ratios?

A

1) margin on sales

2) return on capital employee (profit in relation to investment

45
Q

What is the return on capital employed formula?

A

Net profit
—————————- x 100
Capital employed

46
Q

What is the current ratio? And what does it show

A

Current assets
———————
Current liabilities

Shows whether current assets can cover current liabilities

47
Q

What does Quick ratio show and what is it?

A

Current assets - inventory
————————————-
Current liabilities

Shows truly if asssts cover liabilities by excluding inventory which could take time to sell

48
Q

What are the three areas of NFPI’s?

A

Customer satisfaction
Productivity/efficiency
Quality

49
Q

Examples of none financial performance indicators

A

Customer satisfaction

Number of customer complaints
Levels of repeat business
On-time deliveries made to customers
Customer waiting times
Market share

Productivity/efficiency

Number of units produced per labour hour
Batch set-up times
Number of suppliers used
Percentage of idle labour hours
Inventory holding days
Machine capacity utilisation
Daily output per employee
Days lost due to staff absenteeism

Quality

Number of sales returned due to defects
Reject rates of production units due to defects
Percentage of output that requires reworking
Training time per employee
The sorts of NFPl’s that you would measure would be dependent on the industry that yoi
looking at. For instance, a provider of accountancy training courses may look at pass rates!

50
Q

Benefits of nfpi’?

A

More forward looking leads to sustainable business
Long term targets will reduce focus on short term profit goals by reducing costs
Calculated quickly
Less scope for manipulation
Easily understood by non accountants
Managers can appraise many areas
Allows consideration of various important stakeholders eg customers

51
Q

Using both FPI’s and NFPI’s gives balanced scorecard provides all round view. What are the 4 areas
/perspectives

A

Financial
Customer
Internal business
Innovation and learning

52
Q

What would be the accounting treatment of repairs to delivery vehicles?

A

Allocate to distribution

53
Q

Accounting treatment of salaries of stores department staff

A

Activity based charge to prodcuts

54
Q

What are performance indicators important? WRITE THIS IN TASK 4

A

Important to monitor performance to check, control and compare budgets

55
Q

In task 8 before anything else you must compare the …

A

Operating profit of original, flexed and actual

56
Q

Health and safety course for direct production workers would be dealt with as what cost?

A

Charge to production on a labour hour basis

57
Q

Performance indicators for quality control

A

Quality measures

  • Units rejected at quality controls
  • Returns by customers
  • Number of customer complaints
  • Customer repeat business levels.

Level 4 AAT Budgeting (3 decks)

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