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Level 4 AAT Budgeting > Extra Shit To Remember > Flashcards

Extra Shit To Remember Flashcards

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1
Q

Advantages of top down budgeting

A

Ensures best use of resources of the business
Operational managers may lack required skills
Senior managers greater control
Better grasp of bigger picture

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2
Q

Disadvantages of top down budgeting

A

Seniors lack local knowledge
Targets are unrealistic or unachievable
Poor use of senior managers time
De motivating to staff as they feel targets are imposed on them

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3
Q

Advantages of bottom up budgeting

A

Better local knowledge
Local managers will have better understanding of what is possible
Fred’s up seniors time
More motivating to staff
Lower managers get more involvement in company direction

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4
Q

Disadvantages of bottom up budgeting

A

Can be time consuming
Managers may lack required skills
Many conflicting views
Targets set could be too easy (budgetary slack)
Budgets may lack consistency between departments

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5
Q

What is negotiated budgeting?

A

Occurs in practice and is where the budgets are agreed between different levels of management. Department managers producing first draft which seniors review and amend. Then passed back and so on.

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6
Q

Advantages of incremental budgeting

A

Stable and changes are gradual over time
System is relatively simple to operate and easy to understand
Co-ordination between department

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7
Q

Disadvantages of incremental budgeting

A

Assumes activities and methods of working will continue the same way
No incentive to reduce costs
Encourages departments to spend full amount of their cost

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8
Q

Advantages of zero based budgeting

A

More efficient allocation of resources.
Eliminate budgetary slack
Cost effective ways to improve operations
Staff motivational by providing greater involvement

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9
Q

Disadvantages of zero based budgeting

A

Very time consuming as every single aspect needs to be justified
Managers may become demotivated at being forced to justify
Far more challenging to undertake than incremental
More difficult to administer the process and may affect communication

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10
Q

Advantages of rolling budget

A

Updating resource prices and demand levels gives up to date budget info
Always has lengthy time horizon
Encourages staff to look at changing internal and external variables

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11
Q

Disadvantages of rolling budgets

A

Involves time and effort as budget done on monthly basis
Constant change can demotivate staff
End of year can be hard to see which budgets to compare

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12
Q

What is activity based budgeting?

A

Find cost drivers and bases budget in these aspects

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13
Q

Advantages of activity based budgeting

A

Focuses managers attention on the true drivers, which could be controlled
Likely to be more accurate as looking at cost drivers
More efficient improvement programmes as whole cost of activity considered

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14
Q

Disadvantages of activity based budgeting

A

Time consuming and resource intensive

Not as easily understood by managers

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15
Q

What is priority based budgeting?

A

Modification of zero based
Focuses on priorities of company and allocated growth and savings accordingly
Based on ongoing review of activities
Elements of spending can be classed as essential/highly desirable/beneficial

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16
Q

What should the budgetary system encourage?

A 
Honesty and transparency 
Motivation of management team
Continuous improvement 
Goal congruence -common goal
Reduce rivalry and suboptimal performance
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17
Q

What is forecasting?

A

Method used to predict what will happen in the future

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18
Q

What could you use to forecast sales?

A

Sales experts
Market research
Time series analysis
Linear regression

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19
Q

What could you use to forecast expenses?

A

Production and purchasing managers
Market research
Time series analysis and linear regression
Price indices

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20
Q

What is a time series?

A

A series of figures recorded over a period of time

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21
Q

What is the additive model?

A

Trend + Seasonal variation = time series

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22
Q

What is the multiplicative model?

A

Trend x Seasonal variance = Time series

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23
Q

What is linear regression?

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A

Method used to forecast future costs or sales by looking at what has happened in past.
Assumes there is a reliable linear relationship

24
Q

Assumptions and limitations of forecasting the trend using past data

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A

Observations may not be typical of normal behaviour
Historic data may not predict future results
Assumes linear relationship
Predicting outside data range is less accurate
Reliability of trend depends on how well data fits
Many factors may affect variables

25
What is the Retail Price Index used for?
To inflate or deflate costs at different points in time for more meaningful comparisons.
26
4 ways to reduce uncertainty in budgets
Flexible budgets Regular re-forecasting Planning models -allows accurate predictions Rolling budgets
27
What is the product life cycle?
The stages through which an individual product develops over time.
28
What are the 4 stages of product life cycle? And state what typical costs are
Introduction stage - high cost, low revenue Growth stage - falling production cost with increased volume, increasing revenue Maturity stage - high demand and sales but growth slows, reduced production costs Decline stage - falling demand and market share means it is loss making
29
Why do we use a product life cycle in budgeting?
Helps forecast sales and costs depending on what stage it is in. Market trends can be forecast in stable markets where product has long life Competitor can affect forecast if new Promotional activity should be considered as will affect sales
30
What are 3 problems with reliability of forecasts?
Historical data outdated Unexpected events not factored in Focus on historic data not future
31
What is a standard cost?
Used to estimate costs they are expecting to incur in advance of costs being incurred
32
What is ideal standard?
Perfect operating conditions with no allowance for waste, inefficiency or idle time It is an impossible target Demotviates
33
What is an Attainable standard
Realistic but challenging | Gives staff incentive to work hard
34
What is a basic standard?
Assumes nothing has changed | Become out of date therefore not meaningful
35
What is a current standard?
Based on current levels | Up to date but no incentive to improve
36
What are the uses of standard costs?
Planning - enables process of planning and to produce comprehensive cost budgets. Control - forms basis of variance analysis
37
Advantages of standard costing
Makes budgeting quicker and more accurate if accurate one found as multiplied to required level Useful for setting selling prices which cover costs Used to set targets for individual staff Makes measuring performance easier Helps to value inventory of costs changes frequently
38
Disadvantages of standard costs
Time consuming to create and keep updated If changes they can become out of date quickly If wrong standard used it can demotivate staff Difficult to establish standards if business does not have comprehensive cost info
39
What are the main steps in order to identify the optimal use of limited resources? (5)
1) identify limiting factor 2) calculate contribution per unit 3) calculate contribution per unit of limiting factor 4) rank products 5) work out optimal production plan
40
Advantages of subcontracting production
Greater volume of sales possible May lower costs than providing ourselves if they achieve suitable economies of scale Quality may be better - more specialised Business can focus on core strengths
41
Disadvantages of subcontracting production
Lose control over process and quality Lead times may be longer Business can become too reliant on subcontractors May limit access to finance
42
What is a flexible budget?
Drawn up at the beginning of the year and involves a series of budgets based on various different sale and production volumes
43
What should be considered before investigating a variance?(5)
``` The size of variance Controllability of variance Cost of investigating Interrelationships with other variances Trend ```
44
What are the two profitability ratios?
1) margin on sales | 2) return on capital employee (profit in relation to investment
45
What is the return on capital employed formula?
Net profit —————————- x 100 Capital employed
46
What is the current ratio? And what does it show
Current assets ——————— Current liabilities Shows whether current assets can cover current liabilities
47
What does Quick ratio show and what is it?
Current assets - inventory ————————————- Current liabilities Shows truly if asssts cover liabilities by excluding inventory which could take time to sell
48
What are the three areas of NFPI’s?
Customer satisfaction Productivity/efficiency Quality
49
Examples of none financial performance indicators
Customer satisfaction ``` Number of customer complaints Levels of repeat business On-time deliveries made to customers Customer waiting times Market share ``` Productivity/efficiency ``` Number of units produced per labour hour Batch set-up times Number of suppliers used Percentage of idle labour hours Inventory holding days Machine capacity utilisation Daily output per employee Days lost due to staff absenteeism ``` Quality Number of sales returned due to defects Reject rates of production units due to defects Percentage of output that requires reworking Training time per employee The sorts of NFPl's that you would measure would be dependent on the industry that yoi looking at. For instance, a provider of accountancy training courses may look at pass rates!
50
Benefits of nfpi’?
More forward looking leads to sustainable business Long term targets will reduce focus on short term profit goals by reducing costs Calculated quickly Less scope for manipulation Easily understood by non accountants Managers can appraise many areas Allows consideration of various important stakeholders eg customers
51
Using both FPI’s and NFPI’s gives balanced scorecard provides all round view. What are the 4 areas /perspectives
Financial Customer Internal business Innovation and learning
52
What would be the accounting treatment of repairs to delivery vehicles?
Allocate to distribution
53
Accounting treatment of salaries of stores department staff
Activity based charge to prodcuts
54
What are performance indicators important? WRITE THIS IN TASK 4
Important to monitor performance to check, control and compare budgets
55
In task 8 before anything else you must compare the …
Operating profit of original, flexed and actual
56
Health and safety course for direct production workers would be dealt with as what cost?
Charge to production on a labour hour basis
57
Performance indicators for quality control
Quality measures - Units rejected at quality controls - Returns by customers - Number of customer complaints - Customer repeat business levels.

Level 4 AAT Budgeting (3 decks)

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