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Management accounting techniques > Aspect of budgeting > Flashcards

Aspect of budgeting Flashcards

1
Q

What is a budget ? P231

A
  • Financial plan - prepared in advance
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2
Q

What are budgets based on , and what is this thing referred to as? p231

A
  • Pre-determined costs and revenue
  • standard costs
  • standard selling prices
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3
Q

What are budgeted/ standard costs and revenue set for ?

A
  • direct material
  • direct labour
  • production overheads
  • sales revenue
  • operating profit
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4
Q

What would concern direct materials for budgeted/ standard costs ? P231

A
  • Quantity and quality
  • price
  • expected quantity and quality * expected material price= budgeted material costs
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5
Q

What would concern direct labour for budgeted/standard costs ? P231

A
  • Labour hours
  • costs of labour
  • expected labour hours * expected wage rates= budgeted labour costs
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6
Q

What are production overheads iin the context of budgeted / standard costs and revenue ? P231

A

expected volume of output * OAR

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7
Q

What is the sales revenue in relation to the budgeted / standard costs and revenue ? P231

A
  • Expected volume of sales * expected selling price
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8
Q

What is the operating profit in relation to budgeted/ standard costs and revenue ? P231

A

Sales revenue - direct materials/ labour / production overheads =Expected operating profit

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9
Q

What is decision making in relation to budgeted/ standard costs and revnue ? P231

A
  • Pricing decisions
  • considers effect - quality of material and grade of labour - costs of output
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10
Q

What is planning in the context of budgeted/ standard costs and revenue ? P231

A
  • budgets - plan the production - goods/services- for the next accounting period
  • budgets for - materials, labour, overheads, operating profit
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11
Q

What is control in the context of budgeted/ standard costs and revenue ? P231

A
  • Identify -cost and revenue variance
  • reconciliation of budgeted and costs, revenue , operating profit
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12
Q

What is a fixed budget ? P232

A
  • Budget - same regardless of output
  • set - beginning of time period
  • do not change
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13
Q

What is a flexible budget? P232

A
  • Budget - changes with activitity
  • different cost behaviour patterns
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14
Q

How does a flexible budget work? P232

A
  • Altered - control purposes
  • vary - line with level of activity
  • right costs and revenue matched
  • variance calculated
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15
Q

What to remember about the cost per unit when calculating the sales revenue and vairable costs for a flexbile budget ? P233

A

Cost per unit - unchanged
total revenue/ costs - ‘flexed’ to level of acitvity

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16
Q

What are the three overheads in relation to making a product or providing a service in relation to fixed and flexible budgets ? P233

A
  • fixed overheads
  • variable overheads
  • semi variable overheads
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17
Q

What will happen to fixed overheads when preparing a flexible budget ? P233

A
  • will not change due to changes in level of output
  • may change- pricing
  • increase in fixed overheads = actual costs to budgeted figures
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18
Q

What must you compaare for an increase in fixed overheads whne looking at flexible budgets ? P233

A
  • Actual costs - compared with budget figure
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19
Q

How can the business increase profit ? P233

A
  • Alter balance - fixed and variable costs
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20
Q

What type of costs is a labour intensive process of production likely to incurr ? P233

A
  • High variable costs (direct labour)
  • Low fixed costs ( straight line depreciation)
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21
Q

What type of costs is an automated process likely to incurr ? P233

A
  • Low variable costs (labour costs)
  • High fixed costs (straight-line depreciation)
22
Q

What can a knowledge of the behaviour of costs be used to help management with ? P234

A
  • fixed costs in semi variable costs
  • Prep - flexible budgets for revenue and costs
  • Identify - break even point
23
Q

Why mist fixed and variable costs within semi variable costs be identified ? P234

A
  • Budgeting
  • decision making
24
Q

Where the total costs are known at two levels of output , how can the amount of fixed and variable costs be identified ? P234

A
  • High/low method
  • costs difference at different output levels = variable costs
25
Q

When can the high low method only be used ? P234

A
  • Variable costs increase - same money amount , each extra unit
  • constant unit variable costs
  • no stepped fixed costs
26
Q

What are the steps for claculating the high low method ? P234

A
  • Step 1: High output/ costs - low output costs
  • Step 2 : difference costs/ difference in unit = variable cost per unit
  • Step 3 : total costs - variable costs = fixed costs
  • Step 4 : Calculate/ check output at higher rate : variable costs +fixed costs = semivariable (previously advised )
27
Q

How are many budgets set out , to show ? P237

A
  • Contribution to fixed costs
28
Q

What is the definition of a variance ? P239

A
  • Difference - budgeted/ standard costs or revenue and actual costs or revenue
29
Q

How are budgets used as a maethod of costs and revenue controll ? P239

A
  • Comparing - budgeted costs / revenue with actual costs/ revennue
  • establish variance
30
Q

How cna variances be denoted ? P239

A
  • Favourable
  • Adverse
31
Q

What are favourable variances ? P239

A
  • Favourable costs - Actual costs lower than budgeted costs
  • Favourable revenue - actual revenue higher than budgeted
  • Favourable ioperating profit - actual profit higher than budgeted profit
32
Q

What are adverse variances ? P239

A
  • Adverse costs = actual costs > budgeted costs
  • Adverse revenue = actual revenue < budgeted revenue
  • Adverse operating profit = actual profit < budgeted profit
33
Q

How would management act on variances ? P239

A
  • Management by exception
  • Tolerance limits
  • tolerance limit exceeded = significant variance & action to be taken
34
Q

How are the varianceas for costs elements and sales revenue reported ? P240

A
  • Summarised - budget report
  • reconciliation - budgeted costs/ revenue and actual costs/revenue
35
Q

How does the buudget report show a variance for revenue and each costs element ? P241

A
  • Comparing
  • Percentage
36
Q

How are percentages in variance calculated ? P241

A
  • Variance / budgeted figure
  • sales revenue
  • direct materials
  • direct labour
  • variable overheads
  • fixed overheads
37
Q

What effect do variances have on the operating profit ? P241

A
  • Favourable revenue - increases profit
  • adverse revenue - reduces profit
  • favourable cost- increases porfit
  • adverse costs - reduces profit
38
Q

What happens between revenue & costs variances and operating profit variance in the budget report ? P241

A
  • Revenue and costs variances - reconciled - operating profit variance
  • net amount variances for costs and revenue = operating profit variance
39
Q

What is the order for investigating variances shown in the budget report ,using either money amounts or percentages, shown as ? P241

A
  • Large variances - favourable and adverse
  • other- adverse variances
  • any remaining - favourable variances
40
Q

Why would constant adverse/ favourable variances need to be investigated ? P242

A
  • budget incorrectly set up
41
Q

How can budgeted reports be used effectively ? P242

A
  • Record information accurately
  • accurate
  • timely
  • appropriate - format, highlighting , major features
42
Q

Why would budgeted reports need to be revised ? P242

A
  • Inflation = costs increase
  • change- specification / quality of materials = less wastage
  • work practice change
  • selling price change - competition
43
Q

What are controllable costs & revenue ?

A
  • Influenced by manager/ supervisor
  • e.g. purchasing manager - costs of materials
44
Q

What are non-controllable costs and revenue ? P243

A
  • Costs not influenced by manager/supervisor - short term
  • e.g. rent
45
Q

Are all costs controllable or non-controllable in the long term? P243

A
  • Controllable
  • rent - move premise
  • stop trading
46
Q

Why woul;d budgets concern managers? P245

A
  • Suitable targets aim for
  • investigation - causes of the variance
47
Q

How can a direct material vairnace be resolved ? P246

A
  • Reducing material wasted
  • Buying material - cheaper price
  • Training staff - material used more efficiently
48
Q

How can an adverse direct labour variance be resolved ? P247

A
  • Training staff - efficiency
  • lower grade labour
  • production process reorganisation
49
Q

How can an adverse overhead variance be resolved ? P247

A
  • Cheaper suppliers
  • efficient use of overheads
  • production process changes- labour and machine work balance
50
Q

What is a rolling budget ? P247

A
  • Up-to-date
  • adding new budget period - recent budget period completed
  • Moving annual total (MAT)
51
Q
A

Management accounting techniques (9 decks)

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