Business Management: Budgeting and Sales
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Questions and Answers

How can mild or warm autumn months affect sales levels?

  • Sales will be unaffected regardless of autumn weather.
  • Sales may not reach expected levels. (correct)
  • Sales will remain the same as previous years.
  • Sales will definitely increase.

    • What do budgets allow a business to understand better?

  • How to guarantee sales increases.
  • How to eliminate all costs.
  • How to disregard variances.
  • How costs impact profit. (correct)

    • What action might management take if sales forecasts are disappointing?

  • Implement a marketing campaign to boost sales. (correct)
  • Cut down production rates dramatically.
  • Ignore the forecasts.
  • Increase the price of products immediately.

    • Why are budgets considered a useful management tool?

    <p>They help in forecasting, planning, and control.</p> Signup and view all the answers

    What is a potential risk of allowing customers to buy on credit?

    <p>Some customers may fail to pay their debts.</p> Signup and view all the answers

    What is the budgeted total revenue figure with credit for Kyriakides Ltd?

    <p>£3,339,189</p> Signup and view all the answers

    What may happen if companies do not coordinate their departments effectively?

    <p>Operational issues may arise.</p> Signup and view all the answers

    What is the primary role of variances in budgeting?

    <p>To measure performance and take corrective action.</p> Signup and view all the answers

    What is a potential issue when opening a new store in a competitive area?

    <p>The company might not accurately predict local competition reactions.</p> Signup and view all the answers

    Why might customer loyalty to existing stores impact a new store's sales?

    <p>Loyal customers may resist change and not try the new store.</p> Signup and view all the answers

    What effect does seasonal variation have on sales figures?

    <p>Seasonal factors can cause fluctuations in sales performance.</p> Signup and view all the answers

    What is an advantage of rejecting finished goods that are not perfect?

    <p>It assures that the remaining goods are of high quality.</p> Signup and view all the answers

    What is a disadvantage of rejecting finished goods?

    <p>It leads to waste of resources including materials and labor.</p> Signup and view all the answers

    How might changes in technology influence sales levels?

    <p>Technology changes may lead to unpredictable sales outcomes.</p> Signup and view all the answers

    What should companies consider to avoid wasting capital when rejecting finished goods?

    <p>Calculate the cost of quality control measures.</p> Signup and view all the answers

    What factor should not be ignored when evaluating sales estimates?

    <p>The falling value of money over time.</p> Signup and view all the answers

    What benefit does budgeting provide in relation to management pay decisions?

    <p>It helps forecast the impact of costs on profit.</p> Signup and view all the answers

    How can a business respond if forecasted sales are lower than expected?

    <p>Initiate a marketing campaign to boost sales.</p> Signup and view all the answers

    What role do budgets play in performance measurement?

    <p>They act as a yardstick to measure employee performance.</p> Signup and view all the answers

    What is a potential concern regarding holding a high inventory value for a company?

    <p>It could lead to cash flow issues.</p> Signup and view all the answers

    What is the significance of coordinating different departments within a company regarding budgets?

    <p>It ensures smoother operational execution.</p> Signup and view all the answers

    Why might a company worry about the value of parts in its inventory?

    <p>Parts could become obsolete due to technological changes.</p> Signup and view all the answers

    What is a potential drawback of ZimbaPower Electrical Limited's budgeting process based on their previous experience?

    <p>They lack experience with the new store in Naniuke.</p> Signup and view all the answers

    What could be a possible consequence of having a high value of inventory in terms of security?

    <p>An increased risk of theft due to its value.</p> Signup and view all the answers

    What is a primary advantage of using flexible budgets for Glowtherme plc?

    <p>They allow management to take action based on variances.</p> Signup and view all the answers

    Why might flexible budgets save Glowtherme plc time and money?

    <p>They help management focus on specific output levels.</p> Signup and view all the answers

    What is a limitation of budgeting as identified in the content?

    <p>Forecasts based on budgets may be unrealistic.</p> Signup and view all the answers

    What potential issue does Glowtherme plc face in predicting sales volume?

    <p>They are a new company with uncertain predictions.</p> Signup and view all the answers

    What could be a consequence of setting production targets too high for Jolly Pyeman plc?

    <p>Demotivation of staff.</p> Signup and view all the answers

    Which situation exemplifies a lack of management control in budget forecasts?

    <p>Seasonal sales fluctuations due to weather.</p> Signup and view all the answers

    What impact does a flexible budget have on employee motivation at Glowtherme plc?

    <p>It can improve motivation through realistic targets.</p> Signup and view all the answers

    What is a potential negative consequence of Narayang's policy of selling on credit?

    <p>It could result in bad debts.</p> Signup and view all the answers

    What is one challenge faced by Jolly Pyeman plc when planning based on budgets?

    <p>Some costs are beyond management's control.</p> Signup and view all the answers

    What is one benefit of producing ovens for expected sales rather than actual orders?

    <p>It allows customers to receive their orders promptly.</p> Signup and view all the answers

    What might happen after the first two months of business regarding cash flow?

    <p>Receipts will total £25,632 while payments are £12,600.</p> Signup and view all the answers

    What is a risk associated with producing ovens based on expected orders?

    <p>Stock may remain unsold, leading to potential financial loss.</p> Signup and view all the answers

    How might Narayang improve its financial terms with suppliers in the future?

    <p>By proving to be a regular and reliable customer.</p> Signup and view all the answers

    What might be a consequence of high levels of product rejection?

    <p>The company should investigate the cause of rejection.</p> Signup and view all the answers

    What is one reason Sunny Kipwat might consider paying a lower rate to his workers?

    <p>To achieve a profit target of £2,000 per month.</p> Signup and view all the answers

    Which of the following is a possible disadvantage of lowering labor rates?

    <p>Decreased worker motivation leading to low morale.</p> Signup and view all the answers

    Why might Narayang Doors Ltd have little choice in determining trade payable terms?

    <p>Supplier terms could be mandated due to Narayang's new status.</p> Signup and view all the answers

    What is one advantage of the cash budgeting method employed by Narayang?

    <p>It creates a simple working capital cycle.</p> Signup and view all the answers

    What might happen if Narayang waits longer to collect sales receipts than they take to pay suppliers?

    <p>They may face cash flow issues.</p> Signup and view all the answers

    What would be a reasonable approach for Sunny Kipwat to increase profits aside from lowering labor costs?

    <p>Reduce fixed costs through negotiation.</p> Signup and view all the answers

    Which of the following is NOT a concern for Sunny Kipwat when paying lower rates to workers?

    <p>Immediate increase in business housing costs.</p> Signup and view all the answers

    Study Notes

    Flexible Budgets for Glowtherme plc

    • Flexible budgets allow for comparing "like to like" (costs against revenues at the same sales or output levels), which is good for decision-making.
    • Drawing up multiple budgets at various output levels takes time, which could cost Glowtherme plc money.
    • Variances are more meaningful if volume elements are removed.
    • Flexible budgets can save time and money by allowing "management by exception," meaning management only needs to take action when variances occur at particular output or sales levels.
    • A new company, like Glowtherme plc, might not have precise predicted sales volume.
    • Creating a single budget for a possible output level might not fully reflect complexities.
    • Flexible budgets can improve employee motivation by offering realistic targets.
    • Budget figures are estimates, so actions based on them may be inappropriate or misleading.
    • Flexible budgets are a valuable tool for decision-making.

    Budgets as a Tool for Jolly Pyeman plc

    • Budgets help management focus on future possibilities.
    • Budgets allow management to control activities directly, for instance, direct labor costs.
    • Budgets can be used for accurately forecasting future performance.
    • Budget accuracy can be impacted by limitations of management control, such as seasonal sales or external influences (like fluctuating commodity prices).
    • Forecasts can be unrealistic, demotivating staff.
    • Unpredictable factors (weather, commodity prices) can affect forecasts.
    • Some figures or costs may not change annually.
    • Budgets can help prevent overspending.

    Budgets for Forecasting, Planning and Control

    • Budgets help to identify potential risks in forecasting.
    • Variability in future figures can affect planning.
    • Budgets provide a common framework for coordination across departments (purchasing, production, and logistics).
    • Remedial action can be taken based on variance analysis.
    • Budgets act as a benchmark for measuring performance.
    • Budgets ensure different departments are coordinated, integrated and controlled.
    • Budget figures are only forecasts which may be impossible to guarantee.
    • The company may need insurance for possible non-payments from customers.

    Allowing Customers to Buy on Credit (Kyriakides Ltd)

    • Allowing customers to buy on credit may increase sales, potentially leading to more revenue.
    • However, some customers might not pay, creating financial risk.
    • The cost of non-payment is higher than the potential increase in revenue.
    • The increased revenue from sales on credit may not justify the possible non-payment risk for the company.
    • Allowing customers credit is a calculated risk.

    Budgeting as a Management Tool (May 2024)

    • Budgets help in planning and control, as well as forecasting.
    • Preparing a budget involves forecasting and visualizing future outcomes.
    • Management may focus on sales levels and projected revenues.
    • Forecasts may not always be accurate or realistic (seasonal factors, unforeseen circumstances).
    • Production targets might be unrealistic, impacting staff morale.
    • Costs beyond company control (e.g., fluctuating input prices).
    • Budget figures are merely forecasts, not guarantees.

    Rejecting Finished Goods

    • Rejecting damaged goods assures the company that goods in storage meet standards of merchantability and quality.
    • This is vital to maintain brand reputation.
    • Damage control helps enforce brand standards and reputation, particularly important in premium markets.
    • Not achieving quality standards can result in wasted materials and labor and/or capital, reducing profitability.

    Sunny Kipwat's Profit Target

    • Sunny Kipwat aims for a £2,000 monthly profit.
    • The profitability depends on how workers are paid per tray.
    • Reducing labor rates could help meet targets but could demotivate or negatively affect workforce morale.
    • A reduction in staff wages may also impact workers' morale and willingness to meet high volume demands.

    Paying Trade Payables and Receivables (Narayang Doors Ltd)

    • Narayang Doors allows a 3-week payment term for suppliers.
    • Customers pay within 4 weeks.
    • This may be necessary due to company size, or terms set by suppliers.
    • Paying suppliers later than customers impacts cash flow in the short term.
    • The company's cash flow might be negative immediately.
    • Offering better terms in the future might positively influence customer relations and supplier terms.
    • Selling on credit can lead to bad debt risks.

    Producing Ovens for Expected Sales

    • Companies may decide to manufacture based on forecasted sales rather than order-by-order.
    • This strategy can avoid delays if demand is higher than projected.
    • However, unsold stock can create problems like warehousing costs and potential obsolescence, and tie up capital.
    • Production for anticipated demand might be a more sensible production strategy depending on how reliably forecasts are produced.

    Brainboxxe Inventory

    • Brainboxxe plc has over £900,000 worth of inventory.
    • This large amount of inventory could be a problem for cash flow.
    • The high inventory value increases insurance premiums and poses a security risk (parts could be stolen).
    • Inventory obsolescence is another issue if the products become outdated.
    • Determining whether £900,000 is a significant amount for the company requires additional context.

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    Description

    This quiz covers key concepts in business management, focusing on budgeting, sales forecasts, and the impact of seasonal variations on sales levels. Explore the advantages and disadvantages of various management strategies to enhance understanding of practical business scenarios. Ideal for students studying business management or entrepreneurship.

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