To review the use of variance analysis

1
Aims For Today

• To review the use of variance analysis
• To practice data response question technique

2
VERY IMPORTANT RECAP!!

• Cash flow is?
• Profit is?

3
VERY IMPORTANT RECAP!!

• If a business has a negative cash flow, does that
  mean it is making a loss?

4
A Few Profit Clangers!

• some outflows are forecast to decrease to a
  stable profit will arise..
• ..cash outflow decreasing so in a couple more
  monthsmaking a profit
• ..because of the prediction in the cashflowthe
  shop not making any profit

5
Common Mistakes

• NAQ Not answering the question!!
• Too much waffle repeating the question etc!
• Dont write everything you know about the
  topic.
• You MUST focus very limited time on answering the
  question!!
• Keep looking back at the question!!
• Not referring to THIS BUSINESS
• 3 Paragraph structure for evaluative question!!
• Not enough analysis or evaluation (conclusion)

6
Some good quotes!

• One disadvantage of external SOF is if loans are
  usedadditional costs i.e. interest
• if company decides to sell part of business in
  form of sharesthey will dilute control of
  ownership..
• cash flow forecast already show it will be
  difficult to raise external SOF
• ..pay back more money after the 300k as
  interest rates are beyond their control..
• if they sell some of their sharesfar less
  control over the company not be able to make key
  decisions
• A disadvantage for VC will be extortionate
  interest rates and will want part ownership of
  it
• The cash flow forecast is just that, a forecast.
  Many things could be different
• the company may not need to take action as the
  cash flow is only a prediction..
• The initial cost of marketing could be delayed
  until the company is in a better financial
  position

7
Quick Recap

• What is a variance?

8
Quick Recap

• What is the definition of an adverse variance.
• Give an example

9
Quick Recap

• What is the definition of an favourable
  variance.
• Give an example

10
Variance interpretation
11
Budgets and Firms Cultures

• Budgets are management tools. The way in which
  they are used can tell you a lot about a firms
  culture
• Strict autocratic culture tightly controlled
  budgeting system. Managers will have budgets
  imposed on them and variances will be closely
  scrutinised
• More open culture budgeting as an aid to
  discussion and empowerment

12
Remember

• Regardless of the cultureif a manager is to be
  held responsible for a budget he or she MUST have
  influence over setting it and control over
  reaching it.
• Analysis of actual against budget can only be
  done after the event some question how useful
  this tool is as to help planning

13
Homework

• Complete Budgeting in Harrogate
• Make sure you attempt evaluation questions
  properly!
• Revise Budgeting and Cashflow for exam question
  next week
• For next lesson!