Using Budgets Flashcards
How to overcome limited materials?
Utilise raw materials inventory - depends on raw material inventory, short term.
Find an alternative supplier - consider cost amd quality implications
Alternative materials - Cost and quality implications + usage levl including wastage
Buy in finished goods - reduce in-house production, losing profit
How to overcome limited labour resources?
Overtime working - have to pay a premium, logical way.
Utilising finished goods inventory - Reduce labour by reducing production, run down finished goods inventory.
Using sub-contractors - cost implications but responsibility will lie with sub-contractor
Improve labour efficiency - Longer term solution, better equipment
How to overcome production capacity?
Permanent solution - increase capcity by expaning premises, increase selling prices to reduce demand, sub-contracting
Temporary solution - Renting larger premises, holding excess inventory freeing up spare capacity.
Name the 5 stages of the product life cycle
Pre-production, intorduction, growth, maturity and decline
Explain 5 stages of the product life cycle?
pre-production - costs are high, no sales hasn’t been approved
Introduction - Marketing costs high, product launched into the market but still making a loss. Little competition.
Growth - Market is saturated, more competition, profitable
Maturity - Sales reached its peak, demand could be sustained by new adaptations etc
Decline - Fall in demand, product to be withdrawn to avoid losses
How can the product life cycle assist with the budgeting process?
When to move to a new product
Plan cash flow/ expected revenue for each stage - for example a product which has been out for a while might be on the decline and therefore sales will be aswell.
How reliable are forecasts?
Never totally reliable. The more different resources and approaches which support the forecast, the more reliable it is likely to be.
How to deal with uncertainty around forecasts?
Update forecasts regularly to ensure recent events are taken into account. Forecasts are initially based on historical data meaning by re-forecasting can reassure managers that the forecast is correct or if it needs updating.
Use flexible budgets or rolling budgets
What is feedforward?
Using the variances and using the current perfroamance of the organisation to use in budgeting for the future.
What is a limiting factor?
The factor that prevents the original planned production from being carried out, for example, availability of direct materials or labour.
How is exception reporting and management by exception interlinked?
Exception reporting is where only significant variances are reported, this could be to an agreed tolerance level. Management by exception will use exception reporting to help concentrate management efforts on significant issues.
Why should contribution per limiting factor be used?
Method lets the individual see which product maximises the contribution per the limiting factor.
