Question

Research, define, describe, and explain the above-mentioned (Minimum 250 words answer for each questions)

1. What is the theory of constraints?

2. What is forecasting? Explain with an example.

3. What is cash budgeting?

4. What is variance analysis?

5. Describe and explain the break-even analysis.

6. What are the main financial statements that every organization uses (list three)?

7. Describe and explain the regulatory environment.

Answer 1

Answer are as under :
1. What is the theory of constraints?
Theory of Constraints means a system or method by which it a limiting factor can be identified due to which there is constraints in achievement of goal and then it helps to improve that factor so that it is no longer a limiting factor. In simple words it helps to remove a bottle neck from any process or system by adoption of a particular method.
It is kind of prevention method. Theory of constraints ask there question : Which constraints ? , how to remove it ? And What changes are required.
The five steps of theory of constraints are :
1 ) What is the goal or objective of particular process or organization
2) What is the constraint towards the achievement of goal
3) Understand the constraints,
4) prevention measure to stop the bottle necks issues should be identified
5) Start the process and check whether all bottle necks are removed and process can be smoothly conducted
2. What is forecasting? Explain with an example.
Forecasting means a method by which future data can be predicated on the basis of past data. Forecasting is generally used by business manager , financial decision maker, companies for decision making and budgeting process.
Forecasting can be made on the basis of qualitative and quantities data. It is useful for planning any process , project in a organization . Forecasting can be useful also and many time wrong furcating can result in loss of time and money. Hence method of forcating should be selected after careful consideration. Stakeholder utilize forecasting to determine if events affecting a company, such as sales expectations, will increase or decrease the price of shares in that company. Forecasting also provides an important benchmark for firms, which need a long-term perspective of operations. Stock analysts use forecasting to extrapolate how trends, such as GDP or unemployment, will change in the coming quarter or year.
Forecasting example :
The demand for milk in last 6 month is as under
Month	Demand
January	130
February	170
March	180
April	200
May	240
June	230
On the basis of 6 month demand , we can forecast the sales of 7 month =	192
( Average of 6 month sales considered)
3. What is cash budgeting?
Cash budget is prepared to keep the track of available fund and where the same can be utilized to achieve the desire result. Here management can clearly understand the sources of fund and outflow . Outflow of fund can be control when the cash budget is prepared because track of all expenses can be kept. When a organization prepares a Cash budget, set of controls are set to achieved the planned results. Controls are set at each and every level of planning for which cash budgets are prepared. At the end of year or month budgeted plan is compared with the actual results. Risk assessment is done on the basis of control and budget set. With the help of controls sets, management can be aware about the future predictable risk and helps to allocate the scare resources.
Controlling ensure in budgeting that actual results does not derive from the standards set.
In the following manner organization gets benefit from cash budgeting :
a. It help to predict the future cost. On the basis of it organization can know the out flow of cash
b. Management is able to compare the actual and standard data on the basis of budgeted figure
c. Organization will get clear picture of where its resources are utilized
d. It helps to forecast the results
e. Helps to control and avoid the cost
f. It helps to assess the risk and on the basis of it controls can be set
g. Helps to achieve organization financial and non monetary goals
h. It helps to meet the contingent liability
4. What is variance analysis?
Variance analysis means comparison of actual and planned process to understand the over performance or underperformance and improve the process. Here standard results is compared with the actual results. Variance analysis is very useful in costing. When a company compare the standards set with the actual result the difference between them is known as variance. Variance analysis is done for material used, labor hours, labor cost, variable and fixed expenses etc. Management of company should look after unusual variance to improve the performance.
The process of variance analysis are :
1) Identify the process
2) Set standard
3) Perform the process
4) Get the actual results
5) Compare the actual result with standard set
5. Describe and explain the break-even analysis.
Breakeven analysis means to understand a stage at which revenue is equal to expenses . It is no profit or loss situation. It is a calculation of break even point
Fixed cost are the expenses which will not changed on the basis of changes in sales or production of units
Variable cost changes as per the change in number of units
Breakeven point analysis is very useful in managerial decision making as it helps to identify whether to go ahead in a project or not. Also it helps to reduced the fixed cost and keep control on variable cost. The main purpose is to determine the minimum quantities required to be produced at the given selling price and variable cost and to cover the fixed cost
Variable expenses increases when per unit sales increases in thus it the important cost for decision making . Variable expenses change as the sales volume changes. More the variable cost , less will be the profit but variable cost can be decrease when the sales volume is less. Fixed cost does not change even if the sales volume is zero. The one important and major limitation of break even analysis is that here it is assume that the fixed cost remains constant but the same is not true in long run .
Break even point in units =                                         Fixed cost
( Selling price per unit - Variable cost per unit )
6. What are the main financial statements that every organization uses (list three)?
The main financial statements that every organization uses are :
a. Income statement,
b. Statement of changes in equity
c. Statement of financial positon
d. Statement of cash flow
e. Notes to financial statements
The above stated output are very important data for any prospective investors and stake holder such as customers, creditors , debtors, government, employees of the company, Financial statement shows the true and fair view of the companies financial position. The investors can get detail idea about the value of investment, the amount of borrowed money, other liabilities etc. .
Income statement shows the companies profitability. What are the main products and expenses of the company can be known from the income statement
Cash flow statement explains the liquidity position of the companies. It shows the inflow and outflow of actual cash during the financial year for the company
Statement of changes in equity shows the changes in equity components to the investors.
Notes to account shows the accounting policy followed by the company and same should be as per the generally accepted accounting principles.
All above financial statements are very important for understanding and analyzing a company’s financial and operational position. The income statement provides deep insight into the core operating activities that generate earnings for the firm. The balance sheet and cash flow statement, focus more on the capital management of the firm in terms of both assets and structure.
7. Describe and explain the regulatory environment.