Other topics? Flashcards
Beyond budgeting
Uses techniques such as rolling forecasts, market related targets, and stakeholder participation to produce more accurate and engaging budgets. Based on stretching goals which are linked to performance against benchmarks competitors and prior periods. Goals include customer, satisfaction, resources, realisation and innovation.
Also places greater emphasis on team base rewards rather than individual rewards which will eliminate dysfunctional behaviour. (Goal congruence)
Beyond Budgeting is forward-looking and flexible, and seeks to go beyond traditional finance key performance indicators by considering crucial non-financial indicators as a measure of performance rather than a historic focus on cost control.
Benefits include.
It’s a faster and more adaptive process than traditional budgeting.
It’s a decentralised process, unlike traditional leaders, plan and control organisation centrally
Three methods of double tax relief
Exemption – where the treaty specifies that income is not taxable in certain country.
Text Credit – TTR is given to the lower of their overseas tax
Deduction – only the income after tax in the overseas country is taxable in the resident country . 
Service level agreement
Details a relationship with the outsource partner and might reduce some disadvantages.
Key features include
Service levels (minimal levels of service to be provided)
Exit route – including a notice period and penalty payment
Timescale – when the contract expires
Software, ownership and conditions of use
Employment issues,
The fee
Make or buy decision table
Check to see if it’s cheaper to make the product in-house or buying
Next check to see which is the biggest financial savings when bought in
Next compare buy and price per limited resource unit
Consider whether the supplier can provide the products at this price over a longer term. Where is this is a relevant costing approach to the pricing.
Relevant costing
The relevant cost can be defined as a future incremental cash flow.
– Future decision being made today can I change the past
– incremental only those costs that are affected by the decision of relevant
- Cash flow, only actual cash. Receipts of payments should be considered. 
The four ps marketing
Price
Product
Place
Promotion 
ABC versus absorption costing
Absorption costing uses one or two cost drivers. ABC uses multiple cost drivers.
This thing gives a more accurate understanding of the true cost of a product
absorption costing is approximate and accurate for a company manufacture is similar products in similar volumes 
Benefits of digital costing
More accurate, real-time reporting on profitability
Improve variance reporting
Better informed purchasing decisions 
Linear programming start of question text
In a perfect world….Max demand would be our only limiting factor
However, XYZ, limiting factors. 
Limitations of using a decision tree
Is the accuracy of the outcomes accurate? Is it a new type of process or new decision that we haven’t made before?
Are there only two possible outcomes?
Is this for a one-off decision? Expected values represent long-term weighted averages and are not suited to this type of decision.
Decision trees
Diagrammatic representation of the decisions that we need to make
Read from right to left.
Squares represent decision points.
Circles represent outcomes.
To make each decision, you look at the decision points and choose the outcome with the highest/lowest expected value
Limitations of using decision trees
They use weighted averages, which are good for repeated decisions, not for one-off decisions.
Using expected values makes the assumption that the decision maker is risk neutral.
How accurate are the probabilities?
Is this a decision about something new in which case how accurate is the information?
Could there be more possible outcomes than what is listed?
Non-financial factors to consider
Qualitative factors, for example, quality of service, employee satisfaction, supplier reliability, supplier reputation
Revaluation of assets
Treatment in the statement of financial position
Revaluation surplus is credited by the increase in the asset value
Accumulated depreciation is removed by debiting of accumulated appreciation amount in a statement of financial position.
The asset is then debited by the increase in asset value 
Why transfers of entry should be happen within the same business?
To not do so would be dysfunctional behaviour.
Threats to ethical behaviour
Self review threats
Self interest threats
Advocacy threats
Familiarity threats
Intimidation threats
Rolling budgets 
The budget is continuously updated by adding a further accounting period, taking into account the most recent changes and information. Good in a situation where there is a new market or a new product has been launched. 
Advantages
Planning and control
Adaption to change
Cash control.
Disadvantages
Time-consuming
Demoralising, please.
Uneven update.
Timeseries analysis
Timeseries is a series of figures recorded over time period.
Timeseries analysis is a technique which analyses the timeseries to establish the underlying historical trend and any seasonal variations from this trend.
From the timeseries analysis, the train can be rejected using one of three methods.
Preparing a graph
Moving averages
Linear regression. 
Linear regression analysis
Uses a mathematical formula to establish an underlying trend which is continue predicted to continue into the future.
Uses all the data points in the timeseries analysis, graph and mathematical formula to establish the linear relationship between the variables. Helps us to determine a line of best fit for the linear equation of Y = a + BX
Time series analysis
The trend line
Represents the average position over time with seasonal variation smoothed out 
Limitations of linear of aggression
Only measure is the relationship between two variables and assumes that the relationship between the variables is linear.
Is the past necessarily a good indicator of the future. What has changed? 
Direct costs
Costs that can be traced directly to a cost object, e.g. the product or service
Cost transformation model
Cost conscious culture – aiming to be cost leader and drive, continuous improvements
Understanding, cost drivers – what impacts upon costs and reducing cost driver levels
Managing risks associated with cost conscious culture – what could stop the business achieving cost transformation, for example, loss of quality or increasing customer complaints
Understanding, true profitability of products and services – identify their cost drivers and how to allocate shared costs fairly
Maximising, new products value – assess profitability, preproduction and build in design flexibility to meet customer needs – cost drivers
Considering environmental footprint – consider possible costs such as waste disposal costs, reputational, risks and associated costs
Maxi Max
Looking for the highest available payoff, regardless of probability
Optimist or risk seeking 
Maximin
Minimising the possible loss in a worst case scenario
Risk, adverse or pessimist
Minimax regret
Minimises the regret from making the wrong decision
Based upon first identifying the optimal decision for each possible outcome
Risk neutral or bad loser
Data visualisation
Makes data into a user friendly format that can be easier to interpret and more user friendly to promote better understanding, better decision-making, and ultimately enhance business performance.
Can you separate results at a glance
The value of perfect information
The value of having further information, say about market conditions, which intern allow you to decide whether or not it’s worth paying for market research.
Risk seeking mindset will be unlikely to pay for this perfect information and happy to take the risk of poor conditions arising.
Risk, averse mindset is likely to be interested in buying the perfect information as it will eliminate risks and suit this appetite.
Responsibility, accounting
Involves making managers and their team responsible for achieving targets. When the target has been set it the becomes the responsibility of the individual manager concerned that the target is achieved. They are expected to take responsibility for hitting the target and taking the steps necessary to bring it to fruition. In many instances, achievement of targets is rewarded with additional pay or rewards, providing an additional incentive to the manager concerned.
It is important that responsibility is only given for areas the manager can control. Additionally, when setting targets, we need to be aware of things that the manager cannot control even if they do relate to the area.
It can be useful to involve the managers in setting the targets to increase the likelihood of them buying into the number set. However, this can lead to an element of budgetary slack being included.
Drawbacks of participatory budget setting
Is a time-consuming process and takes money and resources to support it. It can take time to work through any disagreement about numbers. For example between managers and the senior management team and effort is needed to ensure managers and building slack to their targets to make them easier to achieve.
Benefits of participatory budgeting
Bottom up busting is a form of responsibility, accounting whereby managers are involved in setting the figures.
If managers are involved in setting targets, they are more likely to accept them as valid and work towards their achievement. It is likely these targets are set with enhanced awareness of what is really going on, using local knowledge and the constraints that are faced operationally. Manager also more likely to be aware of immediate opportunities so it can be useful that they are built into the targets.
Involvement avoids the issues of top down approach where staff can feel demotivated they have not had a say and, if a target is not achieved, blame it on poor target setting rather than the performance.
Factoring
Advantages
Offers some immediate cash for a trade receivables.
The administration of trade receivables will move to the factor and no longer need to be completed in house
Disadvantages
Debt factoring can be very expensive compared to other forms of finance, such as a bank loan. There will be fees associated with the service which can be high, often containing both an administration fee and interest relating to the advance payment
Using a factoring business can be perceived as a signal that we are having financial problems leading to a loss of confidence and reputational damage.
We will lose control of our receiverables ledger as the fact they will be handling customers directly. This will likely damage the quality of the relationship and communication we have with customers.
This is a long-term step and could lead to redundancies. Redundancies are often expensive, and if not handled very carefully can lead to reputational damage and demotivation amongst the remaining workforce.
Activity based costing
Different portion of overheads.
Will lead to a different share of production, overheads being charged products in three scenarios
One, - when most production overhead costs are not related to volume
Two - when production overhead costs are a large proportion of total production costs, and
Three - when the product range is quite diverse.
Limitations of the timeseries analysis
The further into the future you try to forecast an outcome, the less accurate, it will be
It is important to look at the data in the wider context, and over a longer period of time. This would be more revealing about any changes in the economy (recessions/booms) that might influence the data.
Actions to alleviate pressures on cash flow
Increasing the amount of debt,
Alter the timing of any planned dividends or not pay them at all.
Sell any surplus non-current assets.
Consider leasing any further PPE
Postpone marketing expenditure
Perform review of our working capital management
Involve a debt factor to release some immediate cash from my trade receivables balance.
Risk adverse decision maker
Will choose the campaign with the lowest coefficient of variation 
Activity based budgeting
Uses cost drivers (identified through activity, based costing) to help derive budgets.
Step one – identify activities and cost drivers.
Step two – forecast the number of units of cost driver for the required activity level.
Stet three – calculate the cost driver rate.
This method is particularly useful for newer companies and firms undergoing material changes and can help companies to reduce costs and, as a result, squeeze more profits from sales.
Advantages of using activity based budgeting
Inefficiencies may have been built into the budget.
It gives a much better idea of what can be expected, and what can be achieved, which will help with planning and resource utilisation .
Feedforward control
Is the comparison of forecast results with planned outcomes
Carried out to correct unfavourable results before they actually happen.
Can be given at any time, and is usually positive in nature
Zero based budgeting
Search for for allocating resources in areas with spend is discretionary
Step. One – managers have to specify for their responsibility centres, Those activities that can be individually evaluated
Step two – each of the individual activities is then described in a decision package. This should state the costs and revenues expected
Step three - decision package is evaluated and ranked using cost benefit analysis
Step four - The resources are allocated to various packages
Digital costing
Types of cost difficulties with costing
Digital products have no tangible physical form, making them not as easy to accurately absorb into a digital product.
There are significant upfront costs then ongoing costs for each subsequent product are considerably lower.
Unlike a physical product we do not need for the raw materials, each time, the product is sold or consumed
Some cost will be easy to split by time is spent doing X
Some less easy to split the cost for split between departments (IT costs).
It’s challenging to know what additional cost may be in the future.
It’s challenging to know the volume of products that costs need to be spread across. 
Working capital management
Policies
Aggressive policy – attempts to reduce costs by holding the lowest levels of cash, inventory and receivables as possible. This produces a short operating cycle. This policy carries the greatest risk of liquidity as well as the greatest returns. Financing of the variable and a portion of the fixed working capital is typically sourced through short-term financing
Conservative policy, – attemps to reduce risks by holding high levels of cash inventory and receivables. It’s produces a long operating cycle. Risks such as stock outs or liquidity are low, but resultantly, costs are increased.
Moderate – adopt a middle ground between aggressive and Conservative approaches.
Short-term cash, investment options
Interest-bearing bank account – low risk below return
Certificates of deposit – issued by the bank provides a fixed rate of interest can be cashed at any time
Treasury bills – short term securities issued by government at a discounted rate. No interest can be redeemed at a higher face value. Low risk and secure. 
Securities/shares, – May provide a dividend, may see capital growth
