2.2 Flashcards
Why would a business want to carry out sales forecasting and what is sales forecasting
Sales forecasting is a projection of future sales revenue, often based on previous sales data. This encourages financial planning as well as helps to make better financial decisions.
What are the difficulties of sales forecasting
It is not always accurate, there may be a lack of sales history making future predictions more likely to be less acurate
Define sales volume + calculation
The number of units your company sells
Define sales revenue + calculation
The income generated from sales — volume sold x average selling price
What are business costs
The amount a company spends for production and operation of the business
Fixed costs definition and calculation
Costs that dont change with output eg rent, insurance and salaries
Total costs -Variable costs
Variable costs definition and calculation
Costs that change with output eg, pachaging, wages and supplies
Total costs - FIxed costs
Define average cost/unit cost
The total costs of production/ units produced
Define break even analysis + formula for break even
Calculating the point where a company will make a profit
Fixed costs/ (selling price - variable costs)
Define the term contribution
The difference between sale price and variable costs per unit
Advs and Disadvs of break even analysis
Advantages -
Margin of safety calculation shows how much a sales forecast can prove over-optimistic before losses are incurred
Helps entrepreneur understand the level of risk involved in a start-up
Focuses entrepreneur on how long it will take before a start-up reaches profitability – i.e. what output or total sales is required
DIsadvantages-
Unrealistic assumptions – products are not sold at the same price at different levels of output; fixed costs do vary when output changes
Sales are unlikely to be the same as output – there may be some build up of stocks or wasted output too
Define budget + why it is important
It is a plan for spending based on a businesses income and expenses
This helps a business plan to achieve a profit
What are the different types of budgets
Revenue- A forecast of the money a business will recieve from sales
Cost - A forecast for the amount of money a business will spend
Profit- A forecast for the profit a business will make thus taking into account budgeted costs and revenue
Explain the difference between zero and historical budgeting
Zero- budgeting by justifying and approving all expenses for each accounting period, rather than basing it on your past spending.
Historical - budgeting based on previous spending
Advs and disadvs of budgets
Advs-
Improves decision making
Identifies problems with cash flow
Helps meet objectives
Dis- May encourage overspending
May not be accurate
