Identify and explain the key objectives of a budgetary control system: 20 marks
Required: Explain how this accomplished and why it is important. 15 marks
Solution Guideline 23:
(i) Plot total costs and total revenue against output and where the gap is the greatest between cost and revenue is the optimum price which maximises profit. (5 marks)
(ii) Flexible budget prepare revenue and cost structures at various levels of output and look for the level of output which provides the greatest profit. (4 marks)
(iii) Differential calculus
The optimum output level is where marginal cost = marginal revenue
dTC/dx = dTR/dx (5 marks)
(2 marks for explanation and 2-3 marks for an example max total 15 marks)
(b) Factors to consider when setting a price:
· Competitors’ actions and reactions
· Suppliers: You ↑ price → Suppliers ↑ price for material
· Quality: customers judge quality by price
· New product pricing difficult to make as lack of reference point
· Income effects (unemployment)
· Multiple products and loss leaders companies sell a range of products which are commonly interrelated being complements to each other or substitutes for one another.
price), price discrimination, volume discounting
· Customers Demand elastic/inelastic. Greater than 1 is elastic, less than 1 inelastic
Price elastic = % change in sales demand
% change in sales price
(2 marks for each relevant point max. 20 marks)
Distinguish between the primary aims of not-for-profit and public sector entities and those of profit oriented entities.
Discuss the extent to which international financial reporting standards (IFRS) are relevant to specialised not-for-profit and public sector.
List the Objectives of the UK statement of Recommended practice (SORP) for charities.
Discuss the different approaches that may be required when assessing the performance of specialised not-for-profit and public sector organisations.
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