Budgeting

What is unstructured data?

Data that is not easily contained within structured data fields

What are the problems associated with big data?

-A company needs to be seen as trustworthy to attract customers to share this info -Lack of forecasting tools available -Infringement on privacy -Security required -Incorrect data -Lack of skilled data analysts to successfully use big data

What is a top down budget?

A budget that is set without allowing the ultimate budget holder to have the opportunity to participate in the budgeting process (imposed or non participative budget)

Which two of the following statements about budgeting are correct? A forecast is an attempt to predict what will happen. A budget is a plan of what is intended to happen. All budgets are prepared in financial terms. The master budget consists of a budgeted income statement and a budgeted balance sheet. A flexible budget adjusts both fixed and variable costs for the level of activity.

A forecast is an attempt to predict what will happen. A budget is a plan of what is intended to happen.

What is a budget committee made up of?

Chief executive budget officer (management accountant) and departmental and functional heads.

Which of the following are criticisms of incremental budgeting? It is time consuming because it involves starting each budget from scratch It encourages slack It includes past inefficiencies as cost levels are not scrutinised It encourages wasteful spending

It encourages slack It includes past inefficiencies as cost levels are not scrutinised It encourages wasteful spending

What is the master budget?

Normally comprises: budgeted profit or loss account Budgeted BS Budgeted cash flow

What is the labour budget?

Number of hours multiplied by lavour rate per hour

What is data analytics?

Process of collecting, organising and analysing large sets of data to generate trends and other info to aid decision making

What is data mining?

Process of sorting through data to identify patterns and relationships between different items, usually with the use of statistical algorithms

The quantity of material in the material purchases budget is greater than the quantity of material in the material usage budget. What can be inferred from this situation?

Raw materials inventories are budgeted to increase.

Which two of the following are Beyond Budgeting principles?Targets should be cascaded from management downwards Resources should be made available when needed throughout the year Management processes should be organised around the calendar year Each employee's job should be connected with customer needs

Resources should be made available when needed throughout the year Each employee's job should be connected with customer needs

What is the coefficient of determination?

The square of r measure of how much of the variation in the dependent variable is 'explained' by the variation of the independent variable

Which of the following is not one of the main purposes of a budget? To compel planning To communicate targets to the managers responsible for achieving the budget To inform shareholders of performance in meeting targets To establish a system of control by comparing budgeted and actual results

To inform shareholders of performance in meeting targets

What are the types of budgets?

-Continuous/rolling budget -prepared a year ahead and is updated regularly by adding a further AP -Incremental budget- uses the previous periods budget as a starting point and then adds 'increments' -zero based budget- starts the budgeting process from 0

Which of the following statements is true? -Omitted variable bias occurs when people ignore data that disagrees with their beliefs. -Survivorship bias occurs when the people are influenced by the way data is presented. -Graphs can be manipulated to introduce bias. -Results produced using artificial intelligence are free from bias.

-Graphs can be manipulated to introduce bias.

What methods exist for analysing semi variable costs into their fixed and variable elements?

-High low method -Time series analysis -least squares regression

What are the purposes for budgeting?

-Planning for the future -Controlling costs -Coordination -Communication -Motivation -Evaluation -Authorisation -Resource allocation

What are the alternative budget structures?

-Product based budgets where budgets are produced for each product -responsibility based budgets where they are produced for areas of personal responsibility -activity based budgets- produced on the basis of the activities which drive costs

Traditional budgeting methods are known to have problems in the modern business environment. Indicate which solution would be most appropriate for each problem -Traditional methods are inflexible -Forecasts are inaccurate -Businesses have lost sight of what is important to customers

-Traditional methods are inflexible-Rolling budgets -Forecasts are inaccurate- Use of machine learning -Businesses have lost sight of what is important to customers-Use of machine learning

What are the features of big data?

-Volume -Velocity- timeliness -Variety- consists of both structured and unstructured data -Veracity- 'clean' and free from bias

What are the benefits of big data?

-allows a substantial amount of info to be processed from many different sources -allows an accurate model of future demand to be generated -provides companies with the ability to understand customer's preferences and reactions to new products -Big data can be used for ST and LT decisions -Big data often provides 'real' time info

What are the limitations of time-series analysis?

-assumption of what happened in the past is a reliable guide to the future -assumption that a straight line trend exists -assumption that seasonal variations are constant

What are the advantages of participative budgets?

-increased motivation -should contain better info -increases managers' understanding and commitment -better communication -senior manager can concentrate on strategy

What are the disadvantages of participative budgets?

-senior managers may resent loss of control -bad decisions from inexperienced managers -Budgets may not be in line with corporate objectives -budget preparation is slower and disputes can arise -Figures may be subject to bias if junior managers either try to impress or set easily achievable targets -Certain environments may preclude participation

Which two of the following statements are correct? A. A forecast and a budget are essentially the same thing. B. A budget must be quantified if it is to be useful for planning and control purposes. C. A budget provides the basic unit rates to be used in the preparation of standards for control purposes. D.The sales budget must always be prepared first. E.An organisation's long term plan provides the framework within which an annual budget is set.

B. A budget must be quantified if it is to be useful for planning and control purposes. E.An organisation's long term plan provides the framework within which an annual budget is set.

Which three of the following are steps in the preparation of a budget? A. Arrange overdraft facilities B. Identify the principal budget factor C.Prepare a budgeted income statement D.Budget the resources for production E.Complete the audit of the prior year's results

B. Identify the principal budget factor C.Prepare a budgeted income statement D.Budget the resources for production

Which two of the following statements relating to budgets are correct? A. A budget covers periods longer than one year and is used for strategic planning. B. The budget committee coordinates the preparation and administration of budgets. C. The budget committee is responsible for the preparation of functional budgets. D. A budget manual will contain instructions governing the preparation of budgets. E. A budget is usually prepared by the shareholders of a company.

B. The budget committee coordinates the preparation and administration of budgets. D. A budget manual will contain instructions governing the preparation of budgets.

When preparing the master budget, which of the following tasks would normally be carried out first? A. Calculate the overhead absorption rate B.Establish the organisation's long-term objectives C.Identify the principal budget factor D.Prepare the sales budget

B.Establish the organisation's long-term objectives

Three separate newly-formed companies are currently designing their budgetary planning and control systems. Company A will manufacture a wide range of products of varying flexibility. Some of the products will be mass produced, others will be low volume. The degree of non-production support required for each product differs widely. Company B will manufacture a single product and has employed a specialist to manage each of its production and non-production activities. Company C will manufacture a small range of diverse products and the cost and revenue responsibilities will differ for each product. Indicate which budget structure would be most appropriate for each organisation

Company A- Activity based budget Company B- Responsibility based budget Company C- Product based budget

What is structured data?

Data that is contained within a field in a data record or file

How do you do the high-low method?

Find variable cost unit: =(cost at high level-cost at low level)/(high level activity-low level activity) Then substitute: Fixed cost=total cost at level-total variable cost

How do you calculate the material purchases budget?

Material usage budget+closing inventory-opening inventory

What are functional budgets?

Sales budget Production budget Raw material usage budget Raw material purchases budget Labour budget

For a company that does not have any production resource limitations, which of the following sets out the correct sequence for budget preparation?

Sales budget, finished goods inventory budget, production budget, then materials usage budget

What is a bottom up budget?

System of budgeting in which budget holders have the opportunity to participate in setting their own budgets (participative budgeting)

Which of the following best describes incremental budgeting?

The budget for each period is based on the current year's results, modified for changes in activity levels

What is the material usage budget?

The budgeted production for each product multiplied by the number of kgs required to produce 1 unit of the product

Which of the following statements is true? Correlation occurring by chance is more likely to occur with a large data set. If there is correlation then there must be causation. Two variables may be correlated because of a confounding variable. Low levels of correlation are useful for making predictions.

Two variables may be correlated because of a confounding variable.

What are the final stages of budget preparation?

1. Initial budgets are prepared 2. Initial budgets are reviewed 3. Master budget is prepared 4. Comparison between budgets and actual results

Which two of the following statements are correct? A. The coefficient of determination must always fall between 0 and +1. B.The correlation coefficient must always fall between -1 and +1. C.An advantage of the high-low method of cost estimation is that it takes into account the full range of available data. D.A cost estimate produced using the high-low method can be used to reliably predict the cost for any level of activity

A. The coefficient of determination must always fall between 0 and +1. B.The correlation coefficient must always fall between -1 and +1.

Advantages of linear regression model?

All data points are taken into account when calculating a and b

Which of the following could be principal budget factors? 1.Sales demand 2.Machine capacity 3.Key raw materials 4.Cash flow

All of them

What budgets may be prepared by an organisation?

Budget for business as a whole Departmental budgets Functional budget Profit or loss account Cash budget

How can budgeted production levels be calculated?

Forecast sales+closing inventory of finished goods-opening inventory of finished goods

Which two of the following are advantages of a 'bottom-up' style of budgeting? Increase operational managers' commitment to organisational objectives Enhance the coordination between the plans and objectives of divisions Reduce the incidence of budgetary slack Based on information from employees most familiar with day to day activities Decrease the period of time taken to prepare the budgets

Increase operational managers' commitment to organisational objectives Based on information from employees most familiar with day to day activities

How are budgets prepared?

With long term objectives. A budget committee is formed, a budget manual is produced, limiting factors are identified and other functional budgets are produced

The high-low method of cost estimation is useful for

calculating the budgeted cost for the actual activity

What is the correlation coefficient (r)?

measures the strength of a linear relationship +1 = perfective positive correlation 0= no correlation -1= perfect negative correlation