Budgeting Systems Flashcards Preview

AAT Professional Diploma > Budgeting Systems > Flashcards

Flashcards in Budgeting Systems Deck (52)
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1

What are the Major purposes of budgeting

Remember PRIME

Planning
Responsibility
Integration
Motivation
Evaluation and control

2

What is meant by “planning” as a budgeting purpose

Looking at future activities
Setting out detailed plans
Aims for achieving targets in each department
Improve business ability to deliver targeted performance

3

What is meant by “responsibility “ as a budgeting purpose?

Identify who is responsible for achieving set targets
Allows for focused recognition of targets achieved
Who to contact with issues achieving targets

4

What is meant by “integration” as a purpose of budgeting

Enable activity with each department to support the aims of the business as a whole
Improve communication and coordination between departments and areas

5

What is meant by motivation as a purpose of budgeting

Motivated staff having targets they can work to achieve

6

What is meant by evaluation and control as a purpose of budgeting

Evaluation of business results against predictions
Enabling better budgeting
Identify where business performance needs to be focussed on

7

How is a labour efficiency ratio calculated

This looks at actual output and if it took the budgeted amount of time to produce
Expected hours for actual prod/actual hours for actual prod x 100

8

How is a labour capacity ratio calculated?

This looks at hours worked against hours budgeted

Actual hours to make actual output/budgeted hours x 100

9

How is a labour production volume calculated also known as labour activity ratio.

This looks at budgeted volume against actual volume
Expected hours to make actual volume/budgeted hours x 100

10

How are sales margins, also known as return on sales calculated?

Gross or Net profit/sales x 100

11

How is return on Capital employed calculated ROCE

Net profit/capital employed x100

12

How is asset turnover calculated?

Sales/capital employed

Capital employed is total assets less current liabilities

13

What is the current ratio?

Analyses if short term liquid assets are enough to cover short term liabilities, above 1 is good.
Current assets/current liabilities

14

How is the quick ratio calculated, and what does it show

This takes inventory out of the calculation for liquidity as it can take time to sell.
Current assets- Inventory/current liabilities

15

Average receivables collection period, or Debtor days

Trade Receivables/sales x 365

16

Average payables period or creditor days

Trade payables/purchases or COS x 365

17

Average Inventory holding period

Closing inventory/cost of sales x 365

18

How is budgeted purchase price calculated

Cost per unit of purchases in period

19

What is budgeted production cost per unit

Cost of production/number of units produced

20

What are the stages of the product life cycle?

Introduction - new product, low sales, not much revenue
Growth - establishing product, increasing sales and revenue, still high advertising overheads
Maturity - Established product, stable sales and revenue, decreasing advertising cost
Decline - Being replaced by newer product, decreasing sales and revenue

21

What things should be included when giving narrative on a budget submission?

Include an opening line with indication if current year figures for comparison.
Work down line by line giving percentages on change and reasons for this.
Conclude with over all change as value and percentage

22

What is meant by the balanced score card?

The balanced score card is a tool that looks at multiple perspectives to understand the business performance and long term success.

23

What perspectives does the balanced score card look at?

Financial
Customer
Internal Business
Innovation and learning

24

What KPI’s would be suitable when looking at the financial perspective

ROCE
Gross/net profit margin
Cash Flow
Dividend per share

25

What KPI’s would be suitable when looking at the internal business perspective?

Machine Capacity utilisation
Defect rates in production
Lead times to meet orders
Staff productivity per hour

26

What KPI’s would be suitable when looking at the innovation perspective

Training costs per employee
% Sales from new prodiucts
Research and Development expenditure
No. Hits on business website

27

What KPI’s would be used when looking at the customer perspective?

No. Repeat orders
No. Complaints
Warranty claims
Average delivery Times
Market share growth

28

What is benchmarking

A comparison of business performance against other businesses within the same industry.

29

How is the volume of sales to break even calculated?

Volume to break even = Fixed costs/Contribution per unit

30

What is the contribution cost per unit?

Contribution is Selling price - Variable cost