Cover sheet written exam

1st Attempt / Written Exam

Intermediate exam

Programme: EXP BA VZ
Course: BFP5ILV - Budgeting and Financial Planning
Examiner: Hon.Prof.(FH) Bakk.Mag. Birgit-Maureen MARTINEK
Term: WS21/22
Semester number: 5. Semester
Date, duration,
max. points / %:
10.01.2022 90 min 100 points / 70%

Remarks, permitted x Calculator (not programmable) ☐ Books

tools & aids:
☐ Laptop ☐ Formula collection
☐ Open book ☐ Others:
☐ Law text

Assessment criteria: Please write legibly!

Please note the double-sided printing!

STEINHOFF Federico

Student LAST name, First name

__19/1/0398/060__________________________
Student ID-Number

Achieved points / %:

Grade:

Remarks:

Signature Examiner:

100-91% = excellent /very good (1)

Invalidity of Examinations (Study and Examination Regulations)

<91-81% = good (2)
Examinations can be declared as invalid, when it can be proved that the student made use of
<81-71% = satisfactory (3)
unfair practice during the examination or that the student did not follow the guidelines laid down
by the lecturer. In both cases the student can be immediately expelled from the examination.
<71-60% = sufficient (4)

<60% = fail (5)

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 Cover sheet written exam

1) a) Set up a flexible budget on the basis of 3 scenarios for the business case of
the restaurant Veggie-Buddha! b) Set up a flexible budget report! c) What is the benefit
of a flexible budget? (20p)

Currently, client visits droped to 8,000, due to the lock-downs 2021 periodically only
take-aways were sold. Normally, Veggie-Buddha has 15,000 client visits on average, in
good times they could even hit a record peak of 18,000.

Veggie-Buddha

Unit costs
VOH costs (EUR) FOH costs (EUR)

Vegetables 4.00 Support staff 9,000.00

Oil 0.10 Rent 3,500.00

Spices 0.80 Insurance 1,000.00

Electricity 0.20 Other utilities 500.00

Total VOH Total FOH

costs 5.1 costs 14,000.00

2) a) What is a master budget? What may be possible starting points? (5p)

A master budget is including all lower-level budgets within the operating budget as well
as the financial budgets. The operating budget shows all activities of a firm that generate

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 Cover sheet written exam

revenue, while the financial budget shows cash movements and other elements of the
financial position. Basically, the master budget turns all your “smaller” budgets of your
company into one large budget and helps you to get an overview of your company’s
finances.

It includes:

 Budgeted balance sheet

 Budgeted income statement
 Budgeted cash flow statement

The starting point for most companies when creating a master budget are a combination
of limiting factors and the objectives of the firm. Oftentimes the starting points are the
following:

 Sales Budgets and Forecasts

 Production Capacity and Production Planning
 Necessary profit

3) a) Describe incremental budgeting, value proposition budgeting, zero based

budgeting, and activity-based budgeting (5p) b) What means a top-down or bottom up
approach in budgeting? (5p) c) What is the trade-off among these techniques in a) and
b)? (10p)

Incremental Budgeting

Is prepared by using a previous period (usually last year) as benchmark. Then expected
changes modify your new budget and it is adjusted.

Incremental Budgeting is simple to create and easy to understand providing managers

with consistency to operate their departments. Coordination might be easier and most

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conflicts that occur during annual budgeting rounds are avoided. It ignores changes in
competitive environments and other circumstances.

Value Proposition Budgeting

Value Proposition Budgeting aims to consider every aspect of budgeting. The following
points are considered:

 Why is this specific amount included in budget?

 Does this item generate value to the business or its stakeholders?
 Does this value outweigh its costs?

This form of budgeting aims to provide value and avoid unnecessary expenditures.

Zero based budgeting

Here are budgets created from scratch with the aim to justify new expenses for the new
period. Very time consuming. Budgets are build for the next period based on what is
needed, and not considering if each budget is higher or lower than the previous one.

Activity based budgeting

Activity-based budgeting is a way of budgeting that involves recording, analyzing, and

researching actions that incur expenditures.

These budgets are created using a planned activity cost model and then transformed into
a cost-based budget.

Traditional budgeting systems, on the other hand, tend to simply update past budgets to
allow for inflation or corporate growth.

a) The trade-off between these methods

Between goal congruence and involvement, there is a trade-off. Budgets are executed
in one of two ways:

• Top-down: Budgets are set by upper management, with no input from employees.

• Bottom-up: staff are involved, and departments collaborate on the budget; this
must then be streamlined.

However, there is a middle ground between these two approaches: the so-called
negotiated budget, which combines top-down and bottom-up approaches.

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4) a) Describe the operating leverage! (2p) b) Try to point out it’s financial & budgetary
impact if we assume a total lock-down due to COVID - 19 for 2 fictive cases – one
company facing a high, the other one a low leverage! Please demonstrate the 2 cases
with your own (!) figures! (8p)

High operational leverage is achieved by a company with high fixed expenses and low
variable costs, whereas low operating leverage is achieved by a company with low fixed
costs and high variable costs. Operating leverage allows you to determine what
percentage of your overall costs are made up of fixed and variable expenditures.

This allows you to assess how well your business uses fixed costs to produce revenues.

5) a) Name 2 functions that a budget may fulfill! b) Describe them and point out the
specific problems / difficulties related to this problem. (10p)

Functions of a budget

 An income and expenditure forecast

 A tool for making decisions
 A monitor for keeping track of the success of your business

Specific problems

Budgets are only as good as the information that was used to create them. Budgets can
quickly become unrealistic due to inaccurate or irrational assumptions. They can also
limit decision making freedom of managers as they usually act as agents of the budget
instead of the firm. As conditions change, budgets must be adjusted. Budgeting is a
time-consuming procedure; in large corporations, entire departments may be devoted to
budgeting and control.

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 Cover sheet written exam

6) a) Why do budgets fail? b) Describe the beyond budgeting approach? c) What is

corporate performance measurement? (15p)

• They are not recent enough, meaning they are already "out-of-date" when they are
released.

• Time-consuming

• Budget assumptions are frequently incorrect

• Budgets may provide a benchmark, but they also may limit a company's potential

• Encourages wasteful spending

Beyond Budgeting

 Beyond budgeting distinguishes itself from traditional ways and improves a

company's agility by decentralizing budget management.
 It uses the rolling forecast method and makes no provisions for any consequences
if the forecast and the results differ.
 The budget is monitored by empowered teams within the organization, and
balanced scorecards are used.
 The performance goals are not determined internally, but rather in comparison to
an industry standard.

CPM – Corporate Performance Measurement

CPM is a method for aligning a company's strategy with its objectives.Key Performance
Indicators, Return on Investments, and other indicators are considered and used to
measure success.

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7) a) Use exponential smoothing to forecast the May forecast of your sales time series.
As starting point use last year’s actual value of DEC and set it equal as naive forecast for
the same month. So, the first real forecast will be JAN. (5p)

b) Interpret an alpha value of 0.3! (5p)

This indicates the likelihood of getting your results by chance.

The lower this value, the more "abnormal" the results, indicating, for example,
that the sample is from a different population than the one being compared to.

c) Calculate the error statistics of your exponential smoothing model including, the
forecast error, MAD, MSE, MAPE! (10p)

PERIOD Actual value

DEC 810.00
JAN 800.00
FEB 1,050.00
MAR 880.00
APR 950.00
MAY ?
Alpha 0.3

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