Section C: Planning & Control

Question 1

How to reconcile Budgeted Contribution to Actual Contribution?

Answer 1

Budgeted Contribution > Sales Volume Variance > Sales Price Variance > Sum of Marginal Cost Variances > Net of those is Budgeted Contribution

Question 2

What is a standard?

Answer 2

A standard represents what should happen rather than what has happened.

( £ per kg )

Question 3

How to calculate standard usage with losses/wastage?

Answer 3

Step 1: Identify wastage % (Eg 10%)
Step 2: Identify standard content of product. (Eg, 1kg)
Step 3: Standard usage = Std Content / (1- Wastage %)
Eg 1/0.9 = 1.1kg

Question 4

What are the types of performance standard?

Answer 4

Ideal:
Perfect operating conditions
Unfavourable motivation impact

Attainable
Allowances made for wastage
Incentive to work harder.

Current
Based on current working conditions
No motivational impact

Basic
Unaltered over time.
Unfavourable impact on performance

Question 5

What is time work?

Answer 5

Wages = Hours worked x Rate per hour
Overtime premium = extra rate per hour for hours above basic

Question 6

What is piecework?

Answer 6

Wages = units produced x rate per unit.

Question 7

What are fixed vs flexible budgets?

Answer 7

Fixed = Budgets set at a single activity level

Flexible = Budgets that change based on different activity levels.

Question 8

How to prepare a flexible budget?

Answer 8

Step 1: Identify whether costs are fixed, variable or semi variable
Step 2: Calculate budget cost allowance for each item (Y=A+Bx)

Question 9

How to use flexed budgets for control?

Answer 9

Step 1: Produce flexed budget based on actual activity.
Step 2: Compare flexed budget with the fixed budget.
Step 3: Identify variances: Volume variance = Fixed - Flexed Budget
Expenditure variance = Flexed - Actual results.

Question 10

What are the key uses of budgets?

Answer 10

Planning
Control
Communication
Coordination
Motivation

Question 11

What is the order of budget preparation?

Answer 11

Step 1: Identify Principal budget factor

Step 2: Prepare sales budget

Step 3: Prepare finished goods inventory budget

Step 4: Prepare a production budget ( Sales units + Closing Inventory - Opening Inventory)

Step 5: Prepare usage budget

Step 6: Prepare Materials inventory budget

Step 7: Prepare raw materials purchase budget ( Usage in kg + Closing inventory - Opening inventory)

Step 8: Prepare overhead budgets

Step 9: Prepare master budgets (SPL, SOFP, Cash Flow)

Question 12

How to identify cash received with change in receivables?

Answer 12

Cash received = Sales + Opening Receivable - Closing Receivables

Question 13

What are the potential cash positions?

Answer 13

Short term surplus:
Pay suppliers early to obtain discounts
Increase sales by increases receivables
Make short term investments

Short term deficit:
Increase payables
Reduce receivables
Arrange overdraft

Long term surplus:
Make long term investments
Replace non-current assets
Expand / Diversify

Long term deficit:
Issue shares

Question 14

What are the different approaches to budgeting?

Answer 14

Incremental: Set using current years results plus growth/inflation

Zero based: Every item of expenditure is built from bottom up.

Rolling: A further accounting period is added to the budget

Participative: Budget holders take part in the setting process

Question 15

How to calculate Material variances?

Answer 15

Direct Material Price

Actual kgs should have cost:
Actual Kgs did cost:

Direct Material Usage

Actual units should use X kg
Actual units did use X kg
Multiplied by std per kg

Question 16

How to calculate labour variances?

Answer 16

Labour Rate Variance:

Actual hours should cost:
Actual hours did cost:

Labour Efficiency:

Actual units should use X hrs
Actual units did use X hrs
Multiplied by std rate per hr

Question 17

How to calculate Variable overhead variances?

Answer 17

Expenditure Variance

Actual hrs should cost:
Actual hours did cost:

Efficiency Variance

Actual units should take X hrs:
Actual units did take X hrs:
Multiplied by OAR.

Question 18

How to calculate sales variances?

Answer 18

Sales volume variance:

We should sell X units:
We did sell X units:
Multiplied by Std Cont Per unit.

Sales price variance

Actual units should sell for:
Actual units did sell for:

Question 19

What is a job?

Answer 19

A cost unit that consists of a single order or contract.

Question 20

What are the features of job costing?

Answer 20

Work is undertaken to customers special requirements.

Each order is of short duration.

Jobs move through operations as a continuous identifiable unit.

Jobs are usually individual and separate records should be maintained.

Question 21

How to calculate profit on jobs?

Answer 21

If total cost of a job = £1000

Profit Margin @ 20% = 1000 / (1-Profit Margin) = £1250

Profit Markup @ 20% = 1000 * (1+Mark up) = £1200

Question 22

How to calculate cost per unit under batch costing?

Answer 22

Cost per unit = Total batch cost / number of units.

Question 23

What are the characteristics of services?

Answer 23

Intangibility

Simultaneity

Perishability

Heterogeneity

Use of composite cost units.

Question 24

How to calculate composite cost units?

Answer 24

Total costs / Total service units.

Question 25

What are the performance measure ratios?

Answer 25

Net or Gross Profit Margin = Net or Gross Profit / Revenue

ROCE = Operating Profit / Capital Emplyed

Asset Turnover = Sales / Capital Employed.

ROCE = Asset Turnover x Net Profit Margin.

RI = Pre tax Profits -Notional interest charge for invested capital.

Question 26

What is the balance scorecard?

Answer 26

A way of measuring performance which integrates financial and non financial measures to prevent improves being made in one area to the detriment of another.

Customer: Complaints
Internal Business: Average set up time.
Innovation and learning: % of revenue generated by new products
Financial: ROCE

Question 27

What is risk?

Answer 27

Involves situations or events which may or may not occur, but who’s probability of occurrence can be calculated statistically and the frequency predicted.

Question 28

What is uncertainty?

Answer 28

Involves situations or vents whose outcome cannot be predicted with statistical confidence.

Question 29

What is simple probability?

Answer 29

Probability = Number of ways of achieving desired results / Total number of possible outcomes

Question 30

How to calculate complementary outcomes?

Answer 30

P(Something not happening) = 1-P(Something happening)

Eg: Probability of not rolling a 3 dice.

P(3) = 1/6 = 0.16
P(Not 3) = 1-(1/6) = 0.84

Question 31

What are mutually exclusive outcomes?

Answer 31

Outcomes where the occurrence of one of the outcomes excludes the possibility of any of the others happening.

Question 32

What are independent & dependant events?

Answer 32

Independent: Events where the outcome of one event in no way affects the outcome of the other events.

Dependant: Events where the outcome of one event affects the outcome of the other events.

Question 33

What is simple addition law?

Answer 33

P(A or B) = P(A) + P(B)

Question 34

What is the simple multiplication law?

Answer 34

P (A&B) = P(A) * P(B)

Question 35

What is the general rule of addition?

Answer 35

P (A or B) = P(A) + P(B) - P(A&B)

This is for non mutually exclusive.

Question 36

Two cards are removed from a deck of cards. What is the probability that they are both red cards?

Answer 36

P (1st card red and 2nd card red) = P(1st card red) x P(2nd card red given first card is Red)

= 26/52 * 25/52

Question 37

What is the expected value?

Answer 37

If probability of an outcome is P, then the expected number of times that this outcome will occur in N events.

EV = N * P