2.2 Financial Planning Flashcards
(28 cards)
What is a sales forecast?
A estimate to predict future revenues based on past sales figures.
What are the factors affecting sales forecasts?
1)Consumer trends
2)Economic variables
3)actions of competitors
How do consumer trends affect a sales forecast?
Seasonal variations, fashion and longterm trends.
How do economic variables affect a sales forecast?
During periods of high economic growth and therefore increased consumer income and increased consumption.
Inflation reduces consumers purchasing power.
When interest rates rise, borrowing becomes more expensive for consumers.
How does the actions of competitors affect a sales forecast?
Competitor actions are difficult to predict so the usefulness of past data to predict future sales may be limited.
What are the difficulties of sales forecasting?
1)smaller businesses may lack the experience to analyse and interpret sales forecasts.
2)selecting the most appropriate external data to support sales forecasts is extremely challenging.
What is sales volume?
The number of units sold by a business.
What is sales revenue?
The value of units sold by a business.
What is the formula for sales revenue?
Revenue=price x quantity sold
What are fixed costs?
Costs that do not change as the level of output changes.
What are variable costs?
Costs that vary directly with output.
What are total costs?
The sum of the fixed + total variable costs
Wht is the formula for total variable cost?
Variable cost x quantity
What is the formula for contribution?
Contribution = selling price per unit - variable cost per unit
What is the formula for break even point?
Fixed costs/contribution
What is the margin of safety?
The difference between the actual level of output and its break even level of output.
Limitations of break even analysis?
1)Not useful when a business produce more than one product.
2)not easily amended when costs and selling price change.
3)assumes that all output is sold.
What is a budget?
A budget is a financial plan that a business sets about costs and revenue.
What are the four reasons for using budgets?
1)planning and monitoring
2)control
3)coordination and communication
4)Motivation and efficiency
What are the two types of budgets?
1)Historical figure budgets
2)Zero based budgeting
What are historical figure budgets?
Budgets based on historical data and allows for factors such as inflation and other relevant economic indicators.
What is zero based budgeting?
A budgeting technique where all spending needs to be justified, which means unnecessary costs can be eliminated.
What are the two disadvantages of zero based budgeting?
1)time consuming
2)requires skilled and confident employees
What is a budget variance?
The difference between a figure budgeted and the actual figure achieved by the end of the budgetary period.
