ACCA F5 题型归类budgeting.docx
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ACCA F5 题型归类budgeting.docx
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ACCAF5题型归类budgeting
Generalbudgeting
1.describethecharacteristicsofaresponsbilityaccountingsystem
●awell-organisedsystemofbudgetarycontrol:
ahierarchyofbudgetcentres;adefinedpurposetothebudgetcentre;costandrevenues;
●amonitoringsystemwhichfacilitatesperformanceevaluation
2.explainthedifficultytoimplementaresponsbilityaccountinginnon-profitorganisations
●non-profitorganisationsdonothaveclearlydefinedobjectivesortheobjectivesmaybemultiple.Thus,responsibilitywillbehardtodefinebecausethereisnoclearlinkbetweeninputsandoutputs.
●Manynon-profitorganisationsdonotchargefortheirserivicesandhence,budgetcentresarethenleftmonitoringratherthancontrollingcosts.
●Valueformoneyperformancemeasuresaresometimesusedinthepublicsectorthatrelyonmeasuresrelatingtoeconomyandefficiency.Whilsteffectivenessmaynobeinmoneyterms.Thus,non-financialobjectivesmaybesetwhichmaynotbecomparablebetweenbudgetcentresortoanyoverallobjective.
●Fixedcostsinpublicservicesoftenhavelittlediscretiontochange.
3.explaintheconceptofeffectivebudgeting
●involvesdevisingoptimumplansandthesettingofappropriatestandardsandtargetswhichcanencourageandmotivatethestaff
●plansmustbedevisedbaseduponthecurrentandexpectedfuturebusinessandeconomicenvironments【opportunitiesandthreats】andtakeaccountofexpectedvariationsfrompastdata【adjustment】
●alternativeshortandmediumtermstrategiesmustbeconsidered
4.discusstherelativemeritsofperiodicbudgetingandcontinuousbudgeting
●aperiodicbudgetingisonethatisdrawnupforafullbudgetperiod.Anewbudgetwillnotbeintroduceduntilthestartofthenextbudgetperiod,althoughtheexistingbudgetmayberevisedifcircumstancesdeviatemarkedlyfromthoseassumed.【incrementalbudget/fixedbudget/ZBB】
●Acontinuousorrollingbudgetisonethatisrevisedatregularintervalsbyaddinganewbudgetperiodtothefullbudgetaseachbudgetperiodexpires.【rollingbudget】inthisway,thebudgetwillcontinuetolookoneyearforward.Cashbudgetsareoftenpreparedonacontinuousbasis.
●Theadvantagesofperiodicbudgeting:
lesstime,moneyandeffort;
●Theadvantagesofcontinuousbudgeting:
budgetremainsbothrelevantanduptodate.Itwillbeamorerealisticbudgetandhenceismorelikelytomotivatetoresponsiblestaff.Itkeepsshowingtheexpectedfinancialperformanceforseveralfuturebudgetperiodswithconsiderationofsignificantchanges.
●Continuousbudgetisusedwhenregularchangeisexpected,orwhereforwardplanningandcontrolareessential.
✋Definition–advantages–relationshipbetweenthetwoapproaches
5.discusstheconsequencesofbudgetbiasforcostcontrol
●budgetbiasoccurswhenmanagersaimtogivethemselveseasierbudgettargetsbyunderstatingbudgetedsalesrevenueoroverstatingbudgetedcosts.【deliberatelyoverstatingcostsorunderstatingrevenuetoallowsomeleeway】itisalwaysrelatedtotherewardstructureinanorganisationusingincrementalbudgeting.Thatiftheabonusisbasedonthecostcontrol.
●Costcontrolusingbudgetsisachievedbycomparingactualcostsforabudgetperiodwithbudgetedorplannedcosts.Significantdifferencesbetweenplannedandacutalcostscanbeinvestigatedandcorrectiveactionstaken.【costvariances】
●Budgetbiaswillleadtomorefavorableresults.thencorrectiveactionmaynotbetakenincases.inconsequences,inefficiencywillbeperpetuated
●Managersmayincurunnecessaryexpenditureinordertoprotectexistingbudgetbiaswiththeaimtomaketheirjobseasierinthefutureperiods.【ifthebiasweredetectedorremoved,futurebudgettargetswouldbemoredifficulttoachieve.】
●Managerswillbelessmotivatedtolookforwaysofreducingcostsandinefficiency.Theorganisation’scostswillbehigherthannecessary.
●Overall,budgetbiaswillresultinmoreunnecessarycostsincurredandthenreducetheeffectivenessofcostcontrol.
✋Defintionofsomeconcepts–consequences–conclusion
6.performanceevaluationinaprivatesectormanufacturingcompany
●budgetsarequantifiedplans.Theysettargetsfortheorganisations.
●Thetaskofachievingthebudgetisoftendelegatedtomanagersinthedivisions.
●Itisthereforepossibletomeasuretheextenttowhichbudgettargetsaremetbymanagers.Andthismeasureisperformanceevaluation.
●Itmustbeunderstoodthattheremaybedimensionsofperformancenotcapturedbythebudget【nonfinancialperformance】
●Ifapersonistobeevaluatedusingbudgetdata,itisimportantthattheyhaveopportunitiestoinfluencebudgetcontentbutnottobiasit.
●Adepartmentmanagerofamanufacturingcompanywillberequiredtoachievecertainnumbersofoutputwithagivenexpenditure.Thevariancebetweenactualmaterialcostandtheflexiblebudgetisonewayofevaluationhowthedepartmenthasbeensupervised/monitored,machinesbeensetanmaterialcontrolled.
✋Theaimofbudgets;thebackgroundofperformanceevaluation;relateevaluationtothemanufacturingcompany;
7.resourceallocationinaprivatesectorservicecoampy
●budgetsenablethebusinesstoestimatetheamountofphyiscalandfinancialresourcesavailable.
●Informationcanalsobecollectedtoidentifyanystrengths,opportunitiesviabudgeting.
●Itisthenpossibleformanagerstodiscusshowtheseresourcescanbeallocatedtodifferentpartsofthebusinessinordertocreateanoptimalplan.
●Forexample,themanagerofabankshoulddecidetoundertakemorebusinessbyphone/mailratherthandealingwithcustomersintheirbranchestoreducecosts.
●Anotherexampleistoclosesomebranchesofalosstoallocateresourcesintoaprofitablearea
8.outlinethekeystagesintheplanningprocessthatlinkslong-termobjectivesandbudgetarycontrol
●long-termplanning:
●identifyingobjectives:
whattheorganisationisseekingtoaccomplish.willbestrategicinnatureandwillgivedirectionfortheorganisation’soperation
●identifyingalternatives:
strategicanalysisoftheorganisationanditsenvironment.forexample,acompanymaylookatitsexistingproductsanddecideakeyobjectivethatistodevelopanewproductwhichmaymakeahigherprofit.
●evaluatingalternatives:
intermsofsuitability,feasibilityandacceptability.Detailedinformationabouteachalternativeneedstobegathered.
●selectingalternatives:
basedonfinancialterms.Oncethealternativeshavebeenselected,long-termplanswillbeformulatedandimplemented.
●budgetarycontrol:
●implementingthelong-termplan:
basedonformulate,implementthebudgetwhichistheshort-termactions
●monitoringactualresults:
actualperformanceisproceedingaccordingtoplan.Inthiswaytoguaranteetheimplementationofthelong-termobjectives
●respondingtodivergenciesfromplan:
investigatethosesignificantdifference.【costcontrol】Thisactionmaybecorrectiveinnaturetobringactualactivitybackinlinewithplan.Ormayentailrevisionofthebudgetifoneofitsunderlyingassumptionsisseenasbeinginerror.【revisionorcorrection】
Budgetapproaches
1.explaintheincrementalbudgeting
●entailstheuseofpreviousyear’sbudgetasabaselineandaddsorsubtractsamountsinordertoreflectassumptionsfortheforthcomingbudgetyear.
●Thisapproachcanleadtoinefficienciesinthepreviousyear’sbudgetbeingrolledforwardintothenextyear’sbudget.
✋Benefits:
quickestandeasiest;avoidsreinventingthewheel;savemoney
✋Drawbacks:
inefficiencieswillberolledforward;uneconomicactivitieswillbecontinuedasthereislittleexaminationofeachactivity;managersmayspenduptotheexpenditureallowancetoensurethesamebudgetnextyear【budgetslackwillcontinue】
2.weaknessofanincrementalbudgetingsystem
●definition:
usesthepreviousyear’sbudgetasthestartingpointforthepreparationofthenextyear’sbudget.Itassumesthatthebasicstructureofthepreviousbudgetisacceptableandtheadjustmentswillbemadetoallowforchangesinfvolume,efficiencyandpricelevels.
●Thefocustendstobeontheexistinguseofresourcesratherthanonidentifyingobjectivesandalternativestrategies
●Weakness:
theresourceallocationisnotclearlylinkedtoastrategicplan
●Atendencytoconstrainnewhighpriorityactivitiesduetobias
●Insufficientfocusonefficiencyandeffectiveness
●Leadstoarbitarycustinodertomeetoverallfinancialtargets,withoutanycarefulanddeepexaminationofactivitiesandanalysingtheirvalues.
✋Definitionofincrementalbudgeting;then,illustrateitsweaknesses.
3.explainthezero-basedbudgeting
●developedtoovercometheshortcomingsofthetechniqueofincrementalbudgeting【disposeoftheincrementalbudgeting】
●aperiodicbudgetthatrequiresthemanagertoeffectivelystartwithablanksheetofpaperandabudgetallowanceofzero.
●takesnothinggranted:
requireseachbudgetcentremakesadetailedcaseforallofresourceallocationeachyear.【identifydecisionpackages;evaluatethem;rankthem;reporttheireffectiveness;listalternativesforacitivities;】allspendingissubjecttoscrutiny,notjustincrementalspending.
●Allplannedactivitiesaretojustifyintermsofitscontributiontowardsachievingorganisationalobjectives.
●Throughttheplanningprocess,importantguidelinesanddirectionsareprovidedforthedevelopmentandrankingofthedecisionpackages;ithelpsthemanagementtofigureoutthemosteffectiveandefficientwaystousetheiravailableresourcestoachievetheirdefinedgoals
●ToimplementZBBrequires
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