non-Financial & Financial performance

Question 1

What is budget variance

Answer 1

Budget variance refers to the difference between the budgeted or planned amount and the actual amount achieved. It is a measure used to assess how well an organization is managing its financial resources and executing its budgetary plans.

Question 2

What is the difference between favourable variance and unfavourable variance

Answer 2

Favourable variance means that the company spent under their budget.

Unfavourable variance means that the company spent above their budget

Question 3

What is a balance sheet

Answer 3

A measure of the assets and liabilities of a business.

Question 4

Define Liabilities

Answer 4

Liabilities refer to things that you owe or have borrowed; assets are things that you own or are owed.

Question 5

Describe working Capital

Answer 5

The day-to-day finance available for running a business.

Formula: current assets – current liabilities = working capital.

Question 6

Define Capital employed

Answer 6

Capital Employed, the total money that has been invested in the business such as shareholders’ funds

Question 7

Define Depreciation

Answer 7

Depreciation is the eventual reduction of value on an asset

Question 8

Define Debtors

Answer 8

People who owe the business money. They represent the total value of sales to their customers for which payment has not yet been received.

Question 9

Define Trade Creditors

Answer 9

Businesses to which the business owes money. A business is likely to have purchased goods from suppliers or services on credit so that payments are still outstanding. These debts must be paid within 12 months/a short period of time.

Question 10

Define Drawings

Answer 10

Money taken out of the business by the owner.

Question 11

What are the advantages of budgeting

Answer 11

Increased creditability for lenders
Plans for the future
Can identify inefficient/high costs
Act as a motivator for staff if budget is met

Question 12

What are the advantages of budgeting to stakeholders

Answer 12

Increased Investor confidence
Increased Employee confidence
Increased creditability with lenders

Question 13

What are the Disadvantages of budgeting

Answer 13

Can Be time consuming

Can make the financial terms of the business inflexible

if budget is inaccurate/unachievable it can cause bad decisions

Question 14

What are the disadvantages of budgeting to stakeholders

Answer 14

Employee Stress, unrealistic targets
Loss of stakeholders confidence if targets are not hit
Pressure to the business to meet goals

Question 15

Explain the straight line method of depreciation

Answer 15

The straight-line method of depreciation assumes that a fixed asset depreciates an equal amount to each year of its expected useful life.

Calculation: Original Cost - Residual Value / Expected life of the asset

Question 16

Define residual value

Answer 16

It is the value of an asset at the ends of its useful life.

Question 17

Why is it important for businesses to depreciate their assets

Answer 17

• Over time machines become worn out and obsolete. If they werent depreciated the business would be overvalued.
• If it was known that the business was window-dressing its accounts in such a way, it would affect the business’ reputation and may affect their ability to borrow money.
• There is also a legal requirement to devalue fixed assets in order to reflect their true worth.

Question 18

Define Window-Dressing

Answer 18

‘Window Dressing’ is the term used to describe techniques for improving a business’ balance sheet position, in particular its apparent liquidity.

Question 19

Why do businesses window-dress

Answer 19

• To please the shareholders of public limited companies – a high profit usually means a high share price.
• To show growth in terms of sales, value of fixed assets or dividends; for example, to impress potential investors.
• In order to raise finance from a bank or any other source.

Question 20

Why would a business not want to window-dress

Answer 20

• To reduce the risk of a hostile takeover.
• Can go against legislation
• also can reduce reputation such as for lending

Question 21

How can businesses window-dress

Answer 21

Manipulating sales
Not include depreciation
Write off bad-debts

Question 22

Why do assets depreciate

Answer 22

Technology moves on

Time

Wear and tear

Question 23

Define Customer attitude survey and its benefits

Answer 23

Can be undertaken either through quantitative or qualitative (opinion-based questions) methods to assess the views of customers on a range of issues such as product quality or customer service.

It allows the business to consider its strengths and weaknesses and looks for ways of better meeting customer expectations.

Question 24

Define Employee attitude surveys and its benefits

Answer 24

Similar to customer surveys, but the business will look to assess different issues, such as looking at staff satisfaction on range of issues such as their role, their pay etc.

It can help a business to, Assess the effectiveness of its policies and practice, identify low morale and facilitate a change

Question 25

Define Market share and its benefits

Answer 25

Market share is the percent of total industry sales a company/product has

Sales of a business/Total sales in a market x 100%

A business can use these figures to use the Boston matrix to assess their best strategy

Also can be used to measure the success of their strategy.

Question 26

Define productivity and its benefits

Answer 26

Labour productivity measures the output from each employee over a period of time. Productivity affects the costs of a business – If the staff are more efficient the unit costs are lower

Comparing productivity levels can help a business identify any problems

Firms can also compare their productivity with their competitors.

Question 27

Define Environmental record and its benefits

Answer 27

Refers to the impact of its operations and activities have on the wider world. Includes issues such as packaging, carbon emissions, waste disposal and being sustainable (ability of having little to no impact on the environment)

It creates a good business reputation
Can have a competitive advantage if in an market where sustainability is valued

Question 28

Define Budgeting

Answer 28

A budget is a financial plan for the future;
without such a plan, businesses and individuals often get
into financial trouble.

Question 29

Evaluate Budgeting

Answer 29

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• Regulate the spending of money and highlight losses, waste and inefficiency.
• Budgets provide clear targets to be met and should help employees to focus on costs.
• Can act as a motivator for staff if budget is met.
• It can help to identify where costs have been too high

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They can be time consuming for managers in small
businesses

• The budget must not be too inflexible as business opportunities might be missed.
• Poorly constructed budgets can lead to poor decision making.

Question 30

Define and give the benefits of zero budgeting

Answer 30

It involves managers starting with a clean sheet where they must justify all expenditure. This does the following:
* improves control
* helps with allocation of resources
* reduces unnecessary costs

Question 31

Define Costs of sales

Answer 31

All costs of production used. Any direct costs, such as raw materials,
wages, used in the production process.

Question 32

Define Profit and loss account

Answer 32

An accounting statement showing a business’ sales revenue over a trading period and all the relevant costs incurred in earning that revenue.

Question 33

What is the importance of working capital

Answer 33

Needed to fund the day-to-day finance

Working capital is needed to pay for raw materials and running costs

If a business has too little working capital it may struggle to finance increased production

Question 34

How is a balance sheet useful

Answer 34

• Shareholders are owners of the business, so they want to know how well it is doing.
• Gives a picture of the assets/what the business owns and the liabilities/what the business owes.
• Gives support to the businesses so they can lend

Question 35

Define Liquidity

Answer 35

Liquidity is the amount of cash a business can get quickly in order to settle its immediate debts.