2.2 financial planning

Question 1

sales forecasting

Answer 1

predicting future sales volumes/ values to inform key decisions

Question 2

factors affecting sales forecasts

Answer 2

consumer trends
economic variables
actions of competitors

Question 3

what economic variables affect sales forecasting

Answer 3

economy growth
interest rates
inflation
unemployment
exchange rates

Question 4

how do actions of competitors affect sales forecasting

Answer 4

one business failing increases sales of another
competitor launches a rival product decreasing sales
marketing campaign with celebs may reduce market share

Question 5

advantages of sales forecasting

Answer 5

helps with purchase of raw materials, promotions and staffing

Question 6

disadvantages of sales forecasting

Answer 6

data may not be accurate
consumer trends are volatile
economic trends are volatile

Question 7

what is sales volume

Answer 7

number of units sold by a business

Question 8

what is sales revenue

Answer 8

value of units sold by a business - must be identified to get profit value (sales rev - cost)

Question 9

what are fixed costs

Answer 9

costs that do not change - rent, insurance

Question 10

what are variable costs

Answer 10

costs that change according to output - raw material costs, wages of workers

Question 11

total cost

Answer 11

fixed costs + total variable costs

Question 12

total variable cost

Answer 12

variable cost x quantity

Question 13

contribution per unit formula

Answer 13

selling price - variable cost per unit

Question 14

total contribution formula

Answer 14

(selling price - variable cost per unit) x units sold

Question 15

break even formula (2)

Answer 15

fixed costs / total contribution
total costs = total revenue

Question 16

Margin of safety

Answer 16

the difference between the actual level of output of a business and its break-even level of output

Question 17

margin of safety formula

Answer 17

actual output - breakeven output

Question 18

limitations of break even analysis

Answer 18

less useful if business produces more than one product
assumes all output is sold
charts cannot easily be changed if theres a change in price or costs

Question 19

what is a budget

Answer 19

a financial plan that a business or department sets about costs or revenue

Question 20

types of budget

Answer 20

historical figures
zero based

Question 21

historical budget

Answer 21

budget that is based on historical data - allow for inflation and other economic indicators

Question 22

zero based budget

Answer 22

not allocating a specific budget - instead requires all spending to be justified meaning unnecessary costs can be eliminated

time consuming and requires skilled and confident employees

Question 23

purpose of budgets (4)

Answer 23

Planning/monitoring
control
coordination/communication
motivation/efficiency

Question 24

budget variance

Answer 24

the difference between a budgeted figure and an actual figure

Question 25

variance analysis

Answer 25

analysis to determine the reasons for the differences in the actual and budgeted figures

Question 26

2 types of variances

Answer 26

favourable + better (F) adverse - worse (A)

Question 27

difficulties of budgeting

Answer 27

take time and skill to make can be inaccurate leading to misallocation of resources unachievable budgets can reduce motivation moves focus from long term to short term