Lecture 7b

Question 1

What is budgetary control?

Answer 1

the continuous comparison of the actual budgeting results, either to secure the objectives of the organisation or to provide a firm basis for the revision of policy

Question 2

What is a flexed budget?

Answer 2

A budget that adjusts of the changes in the level of activity or output

Question 3

What is the advantage of a flexed budget?

Answer 3

To show how the budget would have looked had we known the actual production level in advance

Question 4

What is the flexed budget formula?

Answer 4

Original budgeted figure × (Actual activity / Budgeted activity)

Question 5

Why don’t we flex fixed costs?

Answer 5

Fixed costs do not change with output in the short term.

Question 6

What is the formula to reconcile budgeted with actual profit?

Answer 6

Budgeted Profit + Favourable Variances - Adverse Variances = Actual Profit

Question 7

What is a Standard Cost?

Answer 7

The expected cost per unit under efficient operating conditions, including material, labour, and overhead.

Question 8

What are the types of Standards?

Answer 8

Basic: Long-term, rarely changed
Ideal: Perfect efficiency
Attainable: Realistic but challenging

Question 9

What are the 7 steps in the standard setting process?

Answer 9

1.Set standard cost
2. Compare with actual
3.Calculate variance
4. Analyze
5. Consider responsibility
6. Explain reasons
7. Take action