2.2

Question 1

Definition of Sales forecast

Answer 1

Predication of achievable sales revenue based on data analysis trends , economic variables and competitor actions

Question 2

Purpose of a sales forecast

Answer 2

To see if they will need to increase their productive capacity - produce more , buy more factory space , employ more workers

Question 3

How can a sales forecast be produced

Answer 3

Market research - the accuracy of the data will impact on the quality of the forecast
Things they might look at - how many future sales they’ll make , effect of promotion on sales , changes in the size of the market , seasonal sales

Question 4

Definition of time series analysis

Answer 4

The prediction of future sales based on past data

Question 5

The four key components that a business will try to identify using time series data

Answer 5

The trend
Seasonal fluctuations
Cyclical fluctuations - impact of economy
Random fluctuations

Question 6

How to calculate percentage change

Answer 6

Difference / Original x 100

Question 7

Factors affecting sales forecasts

Answer 7

Consumer trends
Seasonal variations
Competition
Long term trends
Economic growth rate
Inflation rate
Unemployment levels
Interest rates
Exchange rates

Question 8

Definition of Consumer trends

Answer 8

The Habits and behaviours of consumers around the products they buy and how they use them

Question 9

Definition of Seasonal variations

Answer 9

How sales will vary across the seasons

Question 10

Definition of economic growth

Answer 10

The increase in the total output of the economy measured by GDP

Question 11

Definition of interest rates

Answer 11

Cost of borrowing or the benefits of saving

Question 12

Definition of inflation

Answer 12

The sustained rise in the general price level over time

Question 13

Definition of Exchange rates

Answer 13

The value of one currency in terms of another currency

Question 14

Difficulties of sales forecasting

Answer 14

Historical data may not reflect future performance
Seasonality may affect sales
Natural disaster cannot be foreseen
Fluctuations in demand
A new business has no historical data to look at
Really hard to accurately predict the future

Question 15

Definition of Costs

Answer 15

What a business has to pay in order to continue operating

Question 16

Definition of Fixed Costs

Answer 16

Costs that don’t change with output

Question 17

Definition of Variable costs

Answer 17

Costs that change with output

Question 18

How to calculate total costs

Answer 18

Fixed costs + variable costs

Question 19

How to calculate variable costs

Answer 19

Variable cost per unit x quantity produced
Total costs - fixed costs

Question 20

How to calculate profit

Answer 20

Total revenue - total costs

Question 21

How to calculate average cost per unit

Answer 21

Total cost / output

Question 22

How to calculate revenue

Answer 22

Price x quantity sold

Question 23

Definition of revenue / sales value

Answer 23

The amount of money earned by selling a product

Question 24

Definition of sales volume

Answer 24

The number of units sold

Question 25

How can revenue be increased

Answer 25

Increase price Increase quantity

Question 26

Definition of Loss

Answer 26

Total costs are greater than total revenue

Question 27

Definition of Break even e

Answer 27

Total costs are equal to total revenue

Question 28

Definition of Profit

Answer 28

Total costs are less than total revenue

Question 29

How to calculate Break even

Answer 29

Fixed costs / sales price - variable costs

Question 30

Definition of Margin of safety

Answer 30

Difference between actual output and break even

Question 31

Definition of Budget

Answer 31

A financial plan that is agreed in advance It shows how much money is needed and where it will come from

Question 32

Purpose of budgets

Answer 32

Control and monitoring Planning Co-ordination Communication Efficiency Motivation

Question 33

Types of budgets

Answer 33

Sales volume - planned sales level Sales revenue - uses sales volume budget and prices to show planned revenue Production costs - based on sales volume budget and all planned production costs Overheads - all planned indirect costs Total costs - all planned business costs Marketing - planned spending on research , advertising and promotion R and D - planned spending on research and development Profit - planned revenue , costs and profit Cash - planned inflows and outflows and cash balances Master - a summary of all budgets

Question 34

Definition of Historical budget

Answer 34

Budget based off of past data

Question 35

Definition of Zero based budget

Answer 35

A budget set using figures based on potential performance and no previous data to base it off

Question 36

Cons of historical budgets

Answer 36

Businesses are dynamic Incremental budgeting could occur which can lead to inefficiencies and missed opportunities for cost savings

Question 37

Pros and cons of zero based budget

Answer 37

Pros : Improves allocation for resources A questioning attitude is developed which will help reduce unnecessary costs and eliminate inefficient practices Staff motivation could be increase due to the practise of evaluation skills and a greater knowledge of operations might develop Encourages managers to look for alternatives Cons : Time consuming Skilful decision making is required and decisions may be influenced by subjective opinions Requires the bidding manager to have good negotiation skills It threatens the status quo Managers may not be prepared to justify spending on certain costs

Question 38

What is a Favourable variance

Answer 38

Spent less then expected - costs lower then budgeted More income then budgeted

Question 39

What is adverse variance

Answer 39

Spending more then budgeted - costs higher then budgeted Income is lower then budgeted

Question 40

Reasons for favourable variance

Answer 40

Ability to charge higher prices An increase in demand Improvements in the quality of the product Increase in consumer incomes A change in consumer’s tastes

Question 41

Reasons for adverse variances

Answer 41

Costs higher due to production being higher Supplier raise prices Some inefficiencies in production Higher wages due to wage demands

Question 42

Difficulties in setting budgets

Answer 42

They’re planned figures - inaccurate due to human error and based on historical figures One of the most significant data is sales data - if this is inaccurate most budget figures will be inaccurate May lead to conflict between departments Time - could of been used completing other tasks Budget can be too ambitious - so no longer a bench mark Budgets could be too small - so no longer a bench mark Motivation of workers Manipulation - some managers might have greater influence on coordinating and setting budget Rigidity - can sometimes constrain business activities Short termism - some managers could be too focused on the budget and take actions that undermine the future performance of the business