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Budgeting and Decision Making

5 dot points across 5 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

How is the break-even point calculated, and what does the margin of safety tell a business about its risk?

Calculate the break-even point and margin of safety and interpret the break-even chart
A focused answer to the H2 Principles of Accounting outcome on break-even analysis. The break-even point in units and revenue, the margin of safety, the break-even chart, and how these measure operating risk.
10 min answer →

How are functional budgets prepared and linked, and why is the cash budget central to short-term planning?

Prepare functional budgets including the cash budget and explain the purposes and benefits of budgeting
A focused answer to the H2 Principles of Accounting outcome on budgeting. The sales, production and purchases budgets, the cash budget with its receipts and payments, the role of the budget as a plan and control, and its benefits.
10 min answer →

How does cost-volume-profit analysis link costs, volume and profit, and how is the target-profit output found?

Apply cost-volume-profit analysis to find the output needed for a target profit using the contribution approach
A focused answer to the H2 Principles of Accounting outcome on CVP analysis. The contribution and contribution-to-sales ratio, the profit equation, finding output for a target profit, and the assumptions behind the model.
10 min answer →

How does a flexible budget enable fair control, and how are variances calculated and interpreted?

Prepare a flexible budget and calculate and interpret material, labour and sales variances
A focused answer to the H2 Principles of Accounting outcome on flexible budgeting and variances. Flexing the budget to actual activity, material and labour price and usage variances, sales variances, and reading favourable and adverse results.
11 min answer →

Which costs are relevant to a short-run decision, and how are special orders, make-or-buy and limiting factors analysed?

Identify relevant costs and apply relevant costing to special-order, make-or-buy and limiting-factor decisions
A focused answer to the H2 Principles of Accounting outcome on relevant costing. Relevant versus irrelevant costs, sunk and committed costs, opportunity cost, special-order and make-or-buy decisions, and ranking by contribution per limiting factor.
11 min answer →