Lecture 10

Question 1

What is the purpose of a budget system?

Answer 1

Long range planning
Strategy
Budget preparation
Forecast as leading to planning

Question 2

What is long-range planning?

Answer 2

• Senior managers set a vision statement
• prepare a list of objectives

Question 3

What is an example of long-range planning?

Answer 3

Vision: be a market leader
Objective: take 10% market share from competitors

Question 4

What is strategy?

Answer 4

Describes the courses of action to be taken in achieving stated objectives

Question 5

What is a budget?

Answer 5

• Detailed plan that sets out (in money terms) plans for income and expenditure in a future period
• prepared in advance based on agreed objectives and strategy

Question 6

What are forecasts?

Answer 6

Involved making predictions
- could be in words or in figures

Question 7

What is the budget committee’s role?

Answer 7

• senior managers who are responsible for designing strategy
• receives initial budgets from functional managers
• suggest changes if needed to meet strategy
• have regard to motivation

Question 8

What is the accounting department’s role?

Answer 8

• work with operations mangers to begin budget preparation
• advise and assist in budget preparation
• accounting staff must understand business operation

Question 9

What is the sequence of the budgetary process?

Answer 9

1. Communicate objectives and strategy
2. Communicate procedures
3. Determine the limiting factor
4. Prepare an initial set of budgets
5. Negotiate budgets with line managers
6. Coordinate and review budgets
7. Accept budgets in final form
8. Ongoing review

Question 10

What is bottom-up budget started by?

Answer 10

By inviting those who will implement the budget to be involved in setting the budget

Question 11

What is top-down budget set by?

Answer 11

By setting by management and imposed on those who will implement the budget

Question 12

What are the benefits of budgeting?

Answer 12

Planning
Control
Communication and co-ordination
Basis for performance evaluation

Question 13

What are the 3 questions one should consider when preparing a performance report?

Answer 13

1. To whom should the report be addressed?
2. What should be reported?
3. How frequently should the report be presented?

Question 14

Preparing performance reports - who should the report be addressed to?

Answer 14

• The manager in charge of the responsibility centre
• the level of detail will be influenced by the manger tail position of the person to whom it is addressed

Question 15

Preparing performance reports - what should be reported?

Answer 15

Those items that are controlled by the manager of the particular responsibility centre

Question 16

Preparing performance reports - how frequently should the report be presented?

Answer 16

Should be related to management’s info needs

Question 17

What is performance evaluation?

Answer 17

Measurement of short term performance against the budget

Question 18

What are the key issues to consider when considering performance evaluation?

Answer 18

1. What to measure
2. How to measure
3. What are the possible behavioural aspects?

Question 19

Performance evaluation - what to measure? (Provide examples)

Answer 19

Items which are capable of being regulated by a manager within a defined boundary of responsibility

E.g.
controllable costs
Faulty products
Delays in providing a service etc.

Question 20

What is a controllable cost?

Answer 20

A cost which is capable of being regulated by a manager within a defined boundary of responsibility

Question 21

What is a non-controllable cost?

Answer 21

One which is not capable of being regulated by a manager within a defined boundary of responsibility

Question 22

What is an avoidable cost?

Answer 22

One which may be eliminated by not taking a particular action

Question 23

What is an unavoidable cost?

Answer 23

A cost which will not be eliminated by taking a particular action

Question 24

What are the two types of non-financial performance measures?

Answer 24

Quantity measures
Quality measures

Question 25

What are some exmaples of non-financial performance measures?

Answer 25

Demand for products
- number of enquiries per ad placed
- % of customers who remember the ad

Delivering products
- error free deliveries as a percentage of total deliveries
- number of complaints as a percentage of units sold
- time between receiving customer order and supplying the goods or service