Strategic Planning Flashcards
What is a zero-based budget?
A budget where nothing is permitted by mere precedent – all expenses have to be justified
Very time-consuming and detail-oriented
What is a Kaizen budget?
A budget which seeks to foster continuous, progressive, steady improvement
Kaizen = Japanese for “change for the better”
What is a rolling budget?
A budget whose time horizon will periodically add one time period from the future and subtract one from the past
E.g. a budget might encompass six months, starting with January through June, then including February through July, etc.
What is a master budget?
A comprehensive budget for all of a firm’s activities
Includes summarized data from (1) operating budget, (2) financial budget, and (3) capital expenditures budget, where (1) tends to be most foundational
What is included in an operating budget?
Forecasts related to operating income:
(i) sales
(ii) inventory
(iii) cost of goods sold
(iv) selling and G&A expenses
(v) income statement
What is the role of a production budget within an operating budget?
Establishes how much to produce, given the beginning finished-goods inventory, (a) to meet the forecasted sales/demand and (b) to achieve the desired ending finished-goods inventory
What is the role of a schedule of inventory costs within an operating budget?
Includes
(a) a schedule for direct materials
(b) a schedule for direct labor costs
(c) a schedule for manufacturing overhead costs, which includes parts for VOH and FOH
What are other subsidiary budgets included within an operating budget?
(a) cost of goods sold budget
(b) budget for selling, general, & administrative expenses
(c) budgeted income statement
What is included in a financial budget?
A budget for cash flows and other finances
Also includes a budgeted balance sheet
What is included in a capital expenditures budget?
A summary of expenditures for particular capital projects
What is a flexible budget?
A budget which allocates resources based on different projected levels of production/activity
Can be initially used to project activity for many different levels of production and then, as the year goes on, can help to better pinpoint what activity ought to look like
What is responsibility accounting?
Internal accounting designed to trace costs (and other accounting elements) to particular “responsibility centers” within the business
Done to hold managers responsible for their particular areas
Includes budgeted forecasts to predict how different centers should behave
What are different kinds of responsibility centers?
(1) cost centers = managers held responsible for controllable costs
(2) revenue centers = responsible for controllable revenues
(3) profit centers = responsible for controllable costs + revenues
(4) investment centers = responsible for controllable costs, revenues, and investments (i.e. rate of return)
What is probability theory?
The use of probabilities to predict outcomes amid uncertainties
Assigns different probabilities to different events and calculates a weighted avg. outcome – the expected value
What is a probability distribution?
A graphical representation of all possible outcomes for some particular variable, each outcome being assigned a probability
Sum of the outcomes = 1
For a probability distribution, what is standard deviation (σ)?
The level of variation or dispersion within the set of values – in this case, how “spread out” the distribution is
What does it mean for two events to be independent or dependent?
Independent = the chance that one event occurs is the same regardless of whether the other occurs
Dependent = the chance that one event occurs is different if the other event occurs (or doesn’t occur)
What is joint probability?
The chance that both events will occur
What is the joint probability of two independent events?
For independent events, their joint probability is the product of each of their individual probabilities
P(AB) = P(A) x P(B)
What is the joint probability of two dependent events?
For dependent events, their joint probability includes the chance of A given B – P(A/B)
P(AB) = P(A/B) x P(B) = P(B/A) x P(A)
What is regression analysis?
A statistical process for establishing a relationship between variables based on a series of ordered pairs (or ordered triples if three variables, etc.)
What does a regression analysis measure?
Correlation (though only with probability), not causation
What is the difference between simple and multiple regression analysis?
Simple = measures relationship of one dependent variable to one independent variable
Multiple = measures relationship of one dependent variable to more than one independent variable
What is a time series?
A sequence of data points (often ordered pairs) collected over a period of time at specific intervals
What is econometrics?
Using math and statistics for the study of economics
For regression analysis, what is the coefficient of correlation (r)?
Measures how linear of a relationship two variables have
\+1 = perfect direct correlation -1 = perfect inverse correlation 0 = no correlation
For regression analysis, what is the coefficient of determination (r^2)?
Measures the degree to which the change in the dependent variable can be accounted for by change in the independent variable
Since r must be between -1 and +1, r^2 must be between 0 and 1
What is the Delphi method?
Seeking to gain information on a decision by sending out questionnaires to experts
These are sent in different “rounds,” with the responses aggregated and reported back to each expert each round, though individual responses remain anonymous
Thus this seeks out creativity (avoiding social pressure) while also seeking eventual consensus
When does the Delphi method tend to get used?
Only for very complex decisions and as a last resort
What is the purpose of scorecards?
They provide a measure of business performance in both financial and non-financial terms
Thus they can surpass financial statements, which are designed for external users and can be limited that way – but scorecards are also therefore based more on individual judgment
How specific should scorecards intend to be?
Very general – they should include only a few points focused on meeting company objectives, as designed for the intended audience
What is a balanced scorecard?
A scorecard that generally analyzes four key areas:
(1) learning & growth/innovation
(2) business processes
(3) customers
(4) finance
What are the first three (of five) costs which can be part of a product quality control program?
(1) prevention costs – costs to prohibit the production of defective products
(2) appraisal costs – costs to evaluate whether products are defective
(3) interior failure costs – costs incurred for defective products that are discovered before being sent to customers (e.g. reworking costs)
What are the last two (of five) costs which can be part of a product quality control program?
(4) exterior failure costs – costs incurred for defective products that are discovered AFTER being sent to customers
(5) opportunity costs – the costs of forgone sales or unhappy customers due to defective products; includes the costs of factory capacity that had to be used for reworking products rather than making new ones
(5) is not as commonly included in quality control programs as (1) - (4)
What is process value analysis (PVA)?
Evaluates whether each part in the production process adds value, i.e. whether each part adds something that pleases the customer
Done to eliminate unnecessary expenses
As regards process value analysis (PVA), what are push systems and pull systems?
Push systems are motivated by forecasted demand, thus “pushed” from early stages to later
Pull systems are motivated by actual demand, thus “pulled” by each department as it needs to meet the customer demand
What is a just-in-time (JIT) system?
A system which seeks to eliminate (or drastically reduce) inventory costs by producing goods only as they are needed for customers – each stage finishes its processes “just in time” for the next stage, all the way till the customer receives the product
Often the result of PVA
What are different kinds of inventory tracking systems?
(1) sequential costing
(2) backflush costing
What is sequential costing?
Tracking inventory as it moves through the manufacturing process, assigning costs to different processes as they physically occur
Also called synchronous costing
