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Types of budget - ACCA Performance Management (PM)

30 Comments

  1. gift
    Thank you for the clear and concise lectures Mr. Moffat, just been thinking, is there a difference in meaning between the principal budget factor and limiting factor covered under decision making techniques.
  2. Muhammad
    Hi John, some types of budgets which are part of syllabus are missing in notes and lecture.
    Activity based budget, feed forward budgets and there are some other stuff in acca approved text books which are missing in your notes.
    these things are worrying me.
    btw thanks for the free lecture and notes.
  3. John MoffatTutor
    Activity based budgeting only requires knowledge of activity based costing, and in the exam is relevant to control (i.e. variances). ABC variances are explained in my lectures.

    Feed-forward control again relates to variance analysis and is explained in the variance lectures.
  4. Muhammad
    Thanks John. No worries now.
  5. John MoffatTutor
    You are welcome :-)
  6. Jina
    Thanks for the video! When you prepared the flex budget example, your showed the budget as revenue, variable costs, contribution, fixed overheads and profit. In the exam, would it require to be presented as such or can it also simply be presented as revenue minus all costs equals profit? Thanks again.
  7. John MoffatTutor
    It depends on what the question asks for. If it just wants the profit then it doesn't matter how you arrive at it.
  8. Jina
    Thank you!
  9. Natalie
    Sir, the answer to example 2 (Chapter 11) "statement" part is not covered. The statement is summarised for management but what is the statement referring to?? Is it refer to the actual activity level column?? I don't understand the presentation of this statement even though the actual profit $7500 is the same as the columnar form of actual profit.

    Thank you
  10. John MoffatTutor
    The statement is explaining why the actual profit is different from the budgeted profit.
  11. Natalie
    Do you mean the budgeted profit is relates to original budgeted profit? But the variance for variable cost was the difference between flexed and actual, still a bit confusing.
  12. John MoffatTutor
    We compare the actual costs with the flexed costs to see if the manager responsible for the particular cost was paying the right price per. unit or not. If they were paying too much per unit then we need to find out why.

    However this lecture was primarily about flexing the budgets. The variances are discussed in detail (with much more arithmetic involved) in the later chapters specifically on variance analysis.
  13. Hermela
    hello sir it is really good lecture but i cant get the concept of rolling budget
  14. John MoffatTutor
    You will have to say which part of the example I give in the lecture is puzzling you, and then I will try and explain more :-)
  15. Seb
    Hi John,

    Thanks for your excellent lectures, i am confused on the below question available on practice question. Is the below statement are correct.

    Question - Rolling budgets are always prepared for the following 12 months period.

    from my understanding i answered as correct, but it was incorrect. bit confused could you please explain why its incorrect.
  16. John MoffatTutor
    I would really need to see the whole question. However it is probably because although rolling budgets are normally for 12 month periods, that is not a rule - they could be done (for example) for six month periods.
  17. shakir7385
    Dear John, in an environment where rolling budget is practiced, the sole purpose of this budget comes to my mind is only to check the performance on monthly basis and revised subsequent period budget. So if the purpose is to have a check and revision of budget each month so why consideration is given to 11+1 months? why not just 2 to 3 subsequent months only?
  18. John MoffatTutor
    The purpose of the budget is to be able to forecast for the coming 12 months so as to help with planning for the future.
  19. Loserian
    Thanks John. Indeed it's a good lecture.
    One issue is the timing when explaining rolling budget dec 07: jan 08 -feb 08.. I was expecting this to be a one year duration as presented in subsequent period. Thnks
  20. m900
    i remember you teaching the concept of flexed budget in f2. good revision. Thank you as always ?
  21. John MoffatTutor
    You are welcome :-)
  22. maumau
    Hi sir, I don't understand how you actually calculate the flexed budget and also on how you arrived at $5 for revenue, 2.5 for labour and 1.5 for overhead. I would't mind also if you explain why flexed budget is needed and it usefulness.
  23. John MoffatTutor
    The purpose of the flexed budget is so we can compare what actually happened with what should have happened for the actual level of activity. I do explain this in the lecture and expand on it in the following lectures on variance analysis.

    As far as the revenue and the variable costs are concerned, the budgeted revenue was 100,000 for sales of 10,000 units and therefore the revenue should be 100,000/10,000 = $10 per unit. It is the same logic for the variable costs.
  24. Avron
    Dear Sir,
    I trust you are well.
    How did you calculate the contribution of 12500 and 18500?
    Many thanks
  25. Avron
    Sorry, I understand now.
  26. Karim
    Hi. In case of a service industry, flexed budgeting is possible?
  27. John MoffatTutor
    Yes, but then you would flex on the number of services - not obviously on the number of units produced.
  28. LEO
    Sir is ABB- activity based budgeting important ??
    Just asking because you didn’t talk about it in the lectures..
  29. John MoffatTutor
    Less important (and certainly not for calculations).
  30. alie2018
    Thanks John. The flexed budget prepared at the end of the budget period and is based on the actual level of activity using the original standard price and cost. The difference between the flexed budget and actual result is the variance.

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