ACCA PM Chapter 14 - MORE VARIANCE ANALYSIS

Planning and Operational variances

Mix and Yield variances

Advanced Idle Time variances

Activity-Based Costing Variances

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ACCA PM Chapter 13 - STANDARD COSTING AND BASIC VARIANCE ANALYSIS

Total Variances

Possible reasons for Adverse Materials

Expenditure Variance:

• Price Increase
• "Bad Buying"
• Mistake in Budgeting
• Deliberately decided to buy better material which costs more
• To reduce waste -> favorable usage variance
• To produce faster -> favorable efficiency variance
• Make better products
• Sell More -> favorable sales volume
• Increase Selling Price -> favorable price variance.

The idea of variances affecting one another is called the Interrelationship of Variances.

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ACCA PM Chapter 12 - QUANTITATIVE ANALYSIS IN BUDGETING

High Low Method

Learning Curve

Formula

Workings (a):

Workings (b):

Workings (c):

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ACCA PM Chapter 11 - BUDGETING

Benefits of budgeting

• Planning
• Co-ordination
• Control
• Authorizing and delegating
• Evaluation of performance
• Communicating and motivating

Principal budget factor
The principal budget factor is the factor that limits the activity for the budget period. Usually, the limit is on the sales level. Sometimes, it could be a limit on the availability of raw materials that limit the activity.

A series of budgets is called a functional budget.


Types of budget:

• Fixed Budget

• Original Budget prepared (Usually for the next year)
• Rapidly goes out-of-date
• May update periodically.
• Remains Overall Target.

• Flexed Budget

• Rewrite the budget for the actual level of activity.
• Use it for Control purposes (Compare Actual with Flexed)

• Rolling Budget

• Dec07: Jan08-Dec08
• Jan08: Feb08-Jan09
• Feb08: Mar08-Feb09
• Each Month: Update the existing 11 months and add an extra month.
• Benefits:
• Always more up-to-date
• Becomes part of normal work
• Better budgets

Methods of Budgeting

• Incremental budgeting
• Take last year's figures and adjust, for inflation, for changes in the level of activity.
• Zero-based budgeting
• List alternatives available
• List out and choose best
• Then prepare budgets.
• Problem:
• Time-consuming/Expensive
• Need expertise/Training/Involvement
• Solution:
• Identify the most important area each year, use zero-based.
• use incremental on the rest.

Behavioral Aspects:

• Top-Down
• Prepared by top management
• Bottom-Up
• Managers prepare budgets
• Managers more motivated
• Dangers: Managers budget more than needed - budget padding.

"Beyond Budgeting"

Comparing to last year's figures and budgets is meaningless. Consider not doing budgets at all but finding other ways to compare departments, perhaps even comparing with another company.

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ACCA PM Chapter 10 - RISK AND UNCERTAINTY

First, construct a matrix/table.

Maximin - Risk Avoider

Maximax - Risk Seeker

Minimax Regret - Risk Avoider

Expected values - Risk Neutral

Limitation:

• Accuracy of probabilities.
• Only valid for repeated occurrences.

Perfect Knowledge

Decision Trees

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