ACCA P5 flashcards – set 2

See also ACCA P5 Flashcards: Set 1 | Set 2 | Set 3 | Set 4


Name a quantitative and a qualitative model for predicting corporate failure

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Quantitative: Altman’s Z score
Qualitative: Argenti’s A score

What are three practical ways of setting a transfer price?

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Cost plus
Marginal cost
Market prices

List five advantages of strategic planning

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Any five of:
* It forces you to look ahead
* Better coordination
* Better use of resources
* Targets to which all can work
* An opportunity to influence the future
* Holds out the promise of better times in the future after initial hard work

Into what three categories can stakeholders be divided (not Mendelow’s classification)

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Internal (such as employees),
Connected (such as customers,)
External (such as local people).

What is a stakeholder?

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Any person or other organisation affected by an organisation.

Draw a single loop feedback system

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What are five specific characteristics of service industries?

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* perishability
* intangibility
* simulaneity
* heterogeneity
* no transfer of ownership

What are the three levels or categories of business process change?

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Automation, rationalisation and business process engineering.

What is business process re-engineering?

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Business process reengineering involves re-thinking and radically re-designing of the way an Organisation’s processes operate. It is not simply attempting to improve the existing way of doing things, but starting almost with a blank piece of paper and designing how best to operate the business.

Describe what is meant by the term ‘matrix structure’?

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In a matrix structure, each employee has responsibilities to more than one superior.
Eg, in project management an engineer could be responsible to the project manager and to the engineering manager.

What are the main ways in which a business can be divisionalised?

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By market and by product

What is the name of the business structure which is organised as accounting, manufacturing, sales, IT etc?

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This is a functional structure as it organises the business by function (or department).

What is a span of control and how does it differ between tall narrow and wide flat structures?

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The span of control (SoC) is the number of people directly reporting to a manager.
In a tall narrow structure the SoC is low;
In a wide flat structure the SoC is large.

What limits further learning in the learning curve effect?

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Practical reasons for the learning effect to cease are:
* When machine efficiency restricts any further improvement.
* A process cannot be speeded up (eg material solidifying)
* The workforce reaches its physical limits.
* If there is a ‘go-slow’ agreement among the workforce.
* Staff turnover

What is the rule governing the operation of learning curves (Wright’s Law)?

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As cumulative output doubles, the cumulative average time per unit falls to a given percentage of the previous average time per unit.

What are the necessary conditions for the learning effect to occur?

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* There’s a significant manual element in the task being considered.
* The task must be repetitive and fairly complex.
* Production must be at an early stage so that there is room for improvement.
* There must be consistency in the workforce.
* There must not be extensive breaks in production, or workers will ‘forget’ the skill.
* Workforce is motivated and want to improve.

What are three criticisms of traditional budgeting?

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* It takes up a lot of management time
* However well the budget is prepared, it rapidly becomes out of date and therefore of less use
* It provides a framework for managers to work to and they are therefore less keen to consider innovations (that may mean overspending the budget in the short-term even if good for the long-term).

What are some of the characteristics of budgeting in a not-for-profit organisation?

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* the organisation may be prevented from borrowing funds or from budgeting for a deficit
* the organisation may not be allowed to transfer funds from one budget head to another
* the budgeting tends to be just for one financial year (i.e. short-term rather than long-term)
* incremental budgeting is the method most widely used

How difficult should it be to achieve budget targets?

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Targets can assist motivation and appraisal if they are set at the right level.
If they are too difficult then they will demotivate
If they are too easy then managers are less likely to strive for optimal performance
Ideally they should be slightly above the anticipated performance level

What is activity based budgeting’?

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This is the application of the idea of Activity Based Costing to the process of budgeting, and as such has particular relevance to budgeting for fixed overheads. At the planning stage, attempts are made to identify which activities drive various overheads. Costs are spread over these cost drivers using whatever basis appears to be appropriate in the circumstances.

What are incremental and zero based budgeting?

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Incremental: last year’s budget updated for inflation and any other known changes.
ZBB: critically consider each activity on its own merits and draw up the costs and benefits of the different ways of performing it (and indeed whether or not the activity should continue). Then decide on the most effective way of performing each activity.

What are fixed, flexed, flexible and rolling budgets?

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Fixed: prepared at the expected level of activity
Flexed: adjusted or scaled to that level of activity achieved.
Flexible: prepared in advance at several levels of activity
Rolling: always looking a set period ahead – typically one year.

What is meant by the term ‘principal budget factor’?

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The principal budget factor limits the activity for the budget period. Normally this is the level of sales and therefore the sales budget is usually the first budget to be prepared – this then leads to the others. However, it could be (for example) a limit on the availability of raw materials that limits activity. In this case raw materials would be the principal budget factor, and this would be the first budget to be prepared.

What is meant by the terms ‘backward integration’ and ‘forward integration’?

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Backward integration is taking over (or setting up) a supplier;
Forward integration is taking over (or setting up) a customer or supply chain.

What are the two classes of diversification?

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Related and unrelated diversification.

In Ansoff’s matrix, what is selling a new product to an existing market known as?

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Product development

In Ansoff’s matrix, what is moving to a new market with an existing product known as?

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Market development

What can a company do to increase its profits if it stays with existing products and existing markets?

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Market penetration,
Efficiency gains,
Withdrawal, consolidation.

What are the axes of Ansoff’s matrix?

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Products (existing and current);
Markets (existing and current)

What are the potential benefits of budgeting?

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* Planning
* Co-ordination
* Control
* Authorising and delegating
* Evaluation of performance
* Communicating and motivating