D Section C Theory

Question 1

What does the sales mix contribution variance measure?

Answer 1

Measures the effect on profit of changing the mix of actual sales from the standard mix

Question 2

What does the sales quantity contribution variance measure?

Answer 2

Measures the effect on profit of selling a different total quantity from the budgeted total quantity

Question 3

What variance is the production manager responsible for?

Answer 3

The operational variance, not the planning variance

Question 4

What does the sales volume variance calculate?

Answer 4

The difference between the standard volume of sales that would ordinarily be expected for this number of customers and the actual volume of drinks sold

Question 5

Advantage of incremental budgeting (perform)

Answer 5

Incremental budgeting is very easy to perform. This makes it possible for a person without any accounting training to build a budget

Question 6

Advantage of incremental budgeting (quick)

Answer 6

Incremental budgeting is also very quick compared to other budgeting methods

Question 7

Disadvantage of incremental budgeting (inefficiency)

Answer 7

Incremental budgeting encourages inefficiency because it does not question the preceding year’s figures on which it is based

Question 8

Disadvantage of incremental budgeting (slack)

Answer 8

Encourages slack because departmental managers may attempt to use their entire budget up for one year, even if they do not need to, just to ensure that that cash is available again the next year

Question 9

1st step of ZBB

Answer 9

Activities are identified by managers. Managers are then forced to consider different ways of performing the activities. These activities are known as a “decision package”

Question 10

2nd step of ZBB?

Answer 10

Management will then rank all the packages in the order of decreasing benefits to the organisation

Question 11

3rd step of ZBB?

Answer 11

The resources are then allocated, based on order of priority up to the spending level

Question 12

Issue with ZBB (time)

Answer 12

ZBB takes a long time to implement and would not be appropriate to all categories of expenditure at the school

Question 13

Issue with treating staff costs as purely variable costs?

Answer 13

At least some of the staff will be permanent, meaning that it would be more appropriate to treat staff costs as semi-variable rather than variable

Question 14

What is incremental budgeting?

Answer 14

The current year’s budget and results are taken as the starting point for preparing the next year’s budget

Question 15

Which forms of budgeting are critical for cost control?

Answer 15

Zero-based budgeting
Activity based budgetig

Question 16

Issue when incremental budgets ignore the relationship between activities and cost?

Answer 16

The budgets will provide management with little relevant information for managing costs

Question 17

What is a participative approach?

Answer 17

Each manager would be able to influence the figures for their area, rather than having budget targets imposed on them

Question 18

Advantage of participative budgeting? (expertise)

Answer 18

Local managers should have a greater understanding of the environmental factors and operational constraints which will influence the performance of their area

Question 19

Advantage of participative budgeting? (creating)

Answer 19

Managers are more likely to be committed to achieving a budget if they have been involved in creating it

Question 20

Disadvantage of participative budgeting? (time-consuming)

Answer 20

However, involving the restaurant managers in the budgeting process is likely to make it more time-consuming. As managers will be involved in attending meetings

Question 21

Disadvantage of participative budgeting? (influence)

Answer 21

Managers may try to influence the budgets so that their targets can be achieved easily

Question 22

Disadvantage of participative budgeting? (highlight issues)

Answer 22

Managers are more likely to highlight issues which will lead to a reduction in their budget targets, rather than ones which increase their targets

Question 23

How to close cost gap for product (learning)

Answer 23

Improve the rate of learning by better training and supervision

Question 24

How to close cost gap for product (re-design)

Answer 24

Re-design the chair to remove unnecessary features and hence cost

Question 25

How to close cost gap for product (labour)

Answer 25

Employ cheaper labour by reducing the skill level expected

Question 26

How to close cost gap for product (suppliers)

Answer 26

Leather can be bought from different suppliers or at a better price also. Reducing the level of waste would save on cost

Question 27

What is the result of the learning period ending in October?

Answer 27

From November onwards the time taken to produce each batch of microphones is constant

Question 28

How can the learning period be extended?

Answer 28

Increasing the level of staff training provided. Could try and motivate staff to work harder through payment of bonuses

Question 29

Advantage of involving senior staff in the budget setting process (knowledge)

Answer 29

Knowledge from a range of levels of management is pooled

Question 30

Advantage of involving senior staff in the budget setting process (motivation)

Answer 30

Staff are more likely to be motivated to achieve any targets as it is “their” budget and they therefore have a sense of ownership and commitment

Question 31

Advantage of involving senior staff in the budget setting process (accuracy)

Answer 31

Since they are based on information from staff who are most familiar with the department, they are more likely to improve the accuracy of the budget

Question 32

Advantage of involving senior staff in the budget setting process (coordination)

Answer 32

Co-ordination is improved due to the number of departments involved in the budget setting process

Question 33

Disadvantage of involving senior staff in the budget setting process (consuming)

Answer 33

Whole budgeting process is more time consuming and therefore costly

Question 34

Disadvantage of involving senior staff in the budget setting process (slack)

Answer 34

Managers may try to introduce budgetary slack (i.e. make the budget easy to achieve so that they receive any budget-based incentives)

Question 35

Disadvantage of involving senior staff in the budget setting process (disagreement)

Answer 35

Disagreements may occur between the staff involved, which may cause delays and dissatisfaction

Question 36

Disadvantage of involving senior staff in the budget setting process (hoarding)

Answer 36

Can support hoarding of resources and power by subordinates

Question 37

What do responsibility accounting systems struggle to cope with?

Answer 37

“Joint” success stories, refuting in general a collective responsibility

Question 38

What should standards be (date)

Answer 38

Should be kept up-to-date

Question 39

What does the sales mix contribution variance measure?

Answer 39

Measures the effect on profit of changing the mix of actual sales from the standard mix

Question 40

What does the sales quantity contribution variance measure?

Answer 40

Measures the effect on profit of selling a different total quantity from the budgeted total quantity

Question 41

Who is responsible for the raw material price variance?

Answer 41

The responsibility of the purchasing manager

Question 42

Are production managers involved in setting the standard mix?

Answer 42

No

Question 43

Issue with not giving feedback or commentary?

Answer 43

A true picture is lacking as to the production manager’s performance

Question 44

Problem with changing the mix?

Answer 44

It could affect quality and as a result sales and there is no information about this

Question 45

Is there a direct relationship between materials mix and materials yield variances?

Answer 45

YES

Question 46

What will production manager likely do if there is no importance placed on variances?

Answer 46

Not be motivated to control costs and could become complacent which could adversely affect Kappa Co overall

Question 47

Problem with changing the mix?

Answer 47

Could affect quality and as a result sales and there is no information about this

Question 48

Are planning variances outside the control of the production manager?

Answer 48

Yes

Question 49

Does the production manager set the standard cost?

Answer 49

No

Question 50

Limitation of regression analysis (linear relationship)

Answer 50

Assumes there's a relationship between independent variable (x) and dependent variable (y). In reality, the relationship between variables may not occur

Question 51

Limitation of regression analysis (outliers)

Answer 51

Regression analysis could be distorted by outliers, which make regression line less accurate

Question 52

Limitation of regression analysis (extrapolation)

Answer 52

Regression analysis uses past observations to attempt to predict what happens in the future. Changes in business environment can create uncertainty, could make forecasts based on past observations unrealistic

Question 53

Ethical question regarding staff (wages)

Answer 53

Are they being paid fairly? Compare to competitors

Question 54

When can a top-down approach to budgeting be maintained?

Answer 54

If an area is operating in a stable way witrh little change

Question 55

What needs to be taken into account when assessing variances?

Answer 55

External factors such as market conditions

Question 56

What is the purchasing maanger responsible for?

Answer 56

Negotiating prices with suppliers

Question 57

What is the production manager responsible for?

Answer 57

Quantities of raw materials that were used in production of the product

Question 58

What does the sales mix variance occur?

Answer 58

When the proportions of the various products sold are different from those in the budget

Question 59

What does the sales quantity variance occur?

Answer 59

Difference in contribution/profit because of a change in sales volume from the budgeted volume of sales

Question 60

What is meant by the controllability principle?

Answer 60

Managers of responsibility centres should only be held accountable for costs over which they have some influence

Question 61

Why is controllability principle significant (motivation)?

Answer 61

Can be very demoralising for managers who feel that their performance is being judged on something they have no control over

Question 62

Why is controllability principle significant (control)?

Answer 62

Control reports ensure that information on costs is reported to the manager who is able to action to control them

Question 63

How can the controllability principle be implemented?

Answer 63

Removing the uncontrollable items from areas manager are accountable for

Question 64

What is the aim of ABB?

Answer 64

Ensure amount of resources available accurately reflects the activities required by an organisation's expected production and sales volumes

Question 65

What does ABB aim to identify? (resources)

Answer 65

The resources which are under utilised and the areas where the level of resources available is insufficient to meet production and sales requirements

Question 66

What does ABB aim to eliminate?

Answer 66

Activities which are not value-adding

Question 67

What should organisations do for ABB?

Answer 67

Organisations should control the causes of costs (cost drivers), rather than the cost themselves