Flashcards in Budgeting Systems Deck (52)
What are the Major purposes of budgeting
Evaluation and control
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
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
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
What is meant by motivation as a purpose of budgeting
Motivated staff having targets they can work to achieve
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
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
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
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
How are sales margins, also known as return on sales calculated?
Gross or Net profit/sales x 100
How is return on Capital employed calculated ROCE
Net profit/capital employed x100
How is asset turnover calculated?
Capital employed is total assets less current liabilities
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
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
Average receivables collection period, or Debtor days
Trade Receivables/sales x 365
Average payables period or creditor days
Trade payables/purchases or COS x 365
Average Inventory holding period
Closing inventory/cost of sales x 365
How is budgeted purchase price calculated
Cost per unit of purchases in period
What is budgeted production cost per unit
Cost of production/number of units produced
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
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
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.
What perspectives does the balanced score card look at?
Innovation and learning
What KPI’s would be suitable when looking at the financial perspective
Gross/net profit margin
Dividend per share
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
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
What KPI’s would be used when looking at the customer perspective?
No. Repeat orders
Average delivery Times
Market share growth
What is benchmarking
A comparison of business performance against other businesses within the same industry.
How is the volume of sales to break even calculated?
Volume to break even = Fixed costs/Contribution per unit