04 - Preparing Budgets Flashcards
What is a standard cost?
An estimate of a cost which is expected to be incurred, often set as a target
What is an ideal standard?
A target where the conditions are perfect and there is no waste in production. Often un-achievable as nothing is ever perfect
What is attainable standard?
A target that is challenging but attainable, they need to be constantly monitored to ensure that they remain challenging
What is basic standard?
A target that assumes nothing has changed since the standard was first set, these often become outdated very quickly and need to be updated often
What is a current standard?
A target based on current levels of efficiency and assumes that current cost will be maintained. Although it is often accurate, it does not encourage growth or improvement
What is a principle budget factor (PBF)?
The factor in which limits the growth in sales that a business can achieve, usually sales volume.
