Lecture 3

Question 1

What is budgetary control?

What is flexible budgeting?

What is favourable variance?

What is adverse variance?

Answer 1

Budgetary control = checking if you followed your money plan

Flexible budgeting = changing the money plan depending on how much work you did

Favourable variance = you did better than expected ( YOU SPENT LESS)

Adverse = you did worse than expected
( YOU SOENT MORE)

Question 2

What is feedback control?

What is feed-forward control?

Answer 2

Feedback control = seeing feeback after

Feed- forward control = like planning ahead

Question 3

How does flexible budget work?

Answer 3

• basically we know when it changes
• e.g a business thought they would make and sell 10,000 units and plan to sell it at 10£ each so revenue would be 100,000
• but instead they made 12,000 x 10=120,000 that’s how much they made

1. We look at variables ( not fixed cost because fixed cost don’t change )
   And how much it is and divided by original units and then once we get price for the cost of one we x 12,000 units

Question 4

How do we do high-low method?

E.g
Month a : 5,000 units and total cost 25,000
Month b : 3000 units and total cost 21,000

Do high-low method example

Answer 4

1. Cost at high activity - cost of low activity / high units - low units = that’s the variable unit answer
2. Workout fixed cost
   Total cost - ( variable cost x number of units )
   Look at total cost for each
   E.g 25,00 - (2 x 5,00 )
   21,000 - ( 2 x 3,000)
   They should be the same answer then that is your fixed cost and for
3. Fixed cost +( variable x fixed cost )
   Then that tells you how much it cost