Paper 2 Extra

Question 1

Budgets advantages

Answer 1

• Motivate staff
• Improve efficiency
• Monitor performance

Question 2

Financial plan

Answer 2

Set targets for organisation

Managers retain control over performance

Question 3

Variance analysis purpose

Answer 3

Variance analysis exposes inaccuracies in budgeting. If accurately predicted that sales revenue would be higher, could have increased sales, adjusting expenditure budget

Dissects where specific areas of business have underperformed

Question 4

Limitations of the budgetary process

Answer 4

If budgets are inaccurate, demotivational
Common for departments to spend at least as much as they have been budgeted out of fear they might have it reduced in the next budgetary cycle, encouraging overspending in the organisation

Question 5

Fixed Costs Examples:

Answer 5

• Insurance
• Rent
• Salaries

Question 6

Variable Costs Examples:

Answer 6

• Raw materials
• Wages
• Deliveries

Question 7

BE particularly important for

Answer 7

Particularly important for new businesses as about survival, penetrating established market places.

Question 8

Fixed Costs

Answer 8

Fixed costs= have to be paid regardless of your level of output, static constant and unchanged as the level of output varies.
You have to sell as many products as you can to cover these fixed costs

Question 9

Contribution per unit

Answer 9

every time a business makes a sale, we work out how much this is going to contribute to covering our fixed costs and breaking eveN

Question 10

Limitations of budgeting

Answer 10

• Inaccuracy.
• Time-Consuming & Costly.
• Rigidity.
• Excessive Spending.
• Scope for Manipulation.
• Allocation of Expenses.
• Financial Outcome Oriented.

Question 11

Liquidity

Finance is needed for:

Answer 11

Business set-up
Working capital- day-to-day trading
Growth

Question 12

The working capital cycle can be shortened by:

Answer 12

reducing the level of stock, speeding up the rate of debtor collection

Question 13

What is cash flow problem

Answer 13

When a business does not have enough cash to be able to pay its liabilities

Question 14

Main causes of cash flow problems

Answer 14

Low profits or (worse) losses
• Over-investment in capacity- fixed assets are hard to turn back into cash
• Too much stock- can become obsolete BUT there needs to be enough to meet demand and buying bulk means lower purchasing price
• Allowing customers too much credit- customers who buy on credit are called ‘trade debtors’ and offering credit is a good way to build sales but late payment is common
• Overtrading- when a business expands too quickly, putting pressure on short-term finance
• Unexpected changes
• Seasonal demand

Question 15

Implications of 50% capacity

Answer 15

50% capacity utilisation would mean that fixed costs are being spread over fewer units resulting in higher unit / average costs.

Question 16

What is a moving average

Answer 16

A moving average is a process that removes the spikes from a series of data. This process should enable trends in data set to
be identified easier and more reliable.