2.2 financial planning

Question 1

what is a variable cost ? example.

Answer 1

a cost that changes
e.g wages

Question 2

what is a fixed cost ? example.

Answer 2

a cost that stays the same.
e.g a salary

Question 3

what is contribution per unit?

Answer 3

the amount of revenue that contributes to covering a businesses fixed costs after the variable cost per unit has been taken away

Question 4

contribution per unit formula.

Answer 4

selling price per item - variable cost per unit

Question 5

what is total contribution?

Answer 5

the amount of revenue from the sale of all products which contributes to fixed costs once total variable costs have been taken away

Question 6

total contribution formula

Answer 6

Total revenue - total variable costs

Question 7

revenue budget defintion

Answer 7

a revenue budget forecasts expected revenues for a business during a period

Question 8

break even formula

Answer 8

fixed costs/contribution per unit

Question 9

sales at break-even point formula

Answer 9

fixed costs/profit volume ratio

Question 10

profit volume ratio formula

Answer 10

total contrubition/sales (x100)

Question 11

name 3 disadvantages for budgets

Answer 11

• are only as good as the data being used
• can lead to inflexibility in decision -making
• time consuming and requires a lot of management

Question 12

what are the 2 types of variances in budgeting ?

Answer 12

favourable variance - costs were lower than expected in the budget (good)
adverse variance - costs were higher than expected in the budget (bad)

Question 13

name 2 purposes of budgeting

Answer 13

• motivates budget holders due to increased responsibility
  -helps with planning and forecasting to make an informed decision

Question 14

sales volume formula

Answer 14

sales revenue/price

Question 15

operating profit margin formula

Answer 15

operating profit/sales revenue x100

Question 16

Total costs formula

Answer 16

Total fixed costs + total variable costs

Question 17

Sales forecast definition

Answer 17

A prediction of future sales within a business.

Question 18

Sales revenue formula

Answer 18

Sales volume x price

Question 19

Why might sales forecast be wrong ? (3)

Answer 19

-competitor behaviour changes
-new entrant into the market
-lack of information

Question 20

Why might sales forecasts be more difficult for new businesses ?

Answer 20

Because of a lack of data or information

Question 21

What is revenue ?

Answer 21

Revenue is the income earned by a business from the sale of its goods and services.

Question 22

Revenue formula

Answer 22

Number of sales x sales price

Question 23

What are costs ?

Answer 23

Costs are all the expenses that a business pays.

Question 24

What is break-even analysis ?

Answer 24

The process of predicting the level of output at which total costs and total revenues will be the same.

Question 25

Total contribution per unit formula

Answer 25

Total revenue per unit - total variable costs per unit

Question 26

Expenditure budget definition

Answer 26

An expenditure budget is a budget that forecasts expected costs for a business during a period of time.

Question 27

What is favourable variance ?

Answer 27

When the actual revenue is higher than the forecasted revenue

Question 28

What is adverse revenue ?

Answer 28

When the actual revenue is lower than the forecasted revenue

Question 29

Net cash-flow formula

Answer 29

Total cash inflow-total cash outflow