Forgotten In Practice Flashcards
What does a master budget comprise off?
Budgeted income statement
Budgeted statement of financial position
Budgeted cash flow statement
Only
What is budget slack?
Deliberate overestimation of costs in a budget.
How do you calculate the material usage variance?
(Actual units x budget usage) - (actual units x actual usage) then multiply by budget cost.
Basically flex the usage to actual units and use budget price
How do you calculate material price variance?
(Actual units x actual usage) then times by each cost and compare.
How do you calculate standard direct labour cost of production?
Actual units x budget cost per unit
How do you calculate the labour cost variance?
(Actual units x budget cost per unit) - actual cost
When explaining reasons for variance what do you need to put?
State variance and it as a % of flexed budget.
Reason for change and price per unit of budget and actual.
What is a standard cost?
The expected cost per unit of production and would include all elements of cost such as materials, labour and overheads.
What benefits does standard costing have? (4)
1) Accurate standards will improve the accuracy of overall budgets.
2) Standard costs make flexing budgets easier and quicker.
3) Standard costs allow comprehensive variances to be calculated to help identify specific reasons that costs have changed.
4) It can help to set selling prices at a level that will achieve a budgeted profit.
How can a business avoid an adverse sales revenue variance? (4)
1) Increasing the level of marketing to allow a higher price to be charged
2) Improving the quality of the product to support a higher selling price
3) Offering better credit terms than competitors
4) increasing the level of market research undertaken
Formula for overhead absorption rate
Production overhead / activity level
Define cost driver
Factors which cause a particular overhead to rise or fall
What are the 5 purposes of budgeting?
1) Planning
2) Responsibility
3) Integration
4) Motivation
5) Evaluation and control
What does integration mean in terms of purpose of budgets?
Ensures communication and co-ordination between departments. Increases efficiency of operation.
What is the budgeting process?
1) Establish budget period eg financial year
2) Issue budget manual to staff involved - lists process and instructions on stages
3) Appoint budget committee - co-ordinates preparation and administration of budget.
4) Identify budget coordinator - usually accountant to head up process
5) Each budget holder draws up budget for their departments and budget coordinator collates them all.
