2.2 - Financial Planning Flashcards
(15 cards)
Economic uncertainty
Where firms/consumers are unable to predict their future sales income/costs
Sales revenue
Price x quantity
Sales forecast
A prediction of the expected level of sales rev for a business for a future period
Average costs
Total costs/output
Fixed costs
Don’t change when output/sales changes
Total costs
Total FC + total VC
Variable costs
Costs that vary according to the level of output
Break-even
Fixed costs/Unit contribution (selling price - variable cost/unit)
Margin of safety
Difference between current or planned level of output/sales and BE level of output
Adverse variance
Negative, e.g. higher costs than budget
Budget
A financial plan of income and expenditure prepared/agreed in advance
Favourable variance
Positive. Lower costs than budget
Historical budgeting
Budget based upon previous financial figures
Variance analysis
Shows the difference between budgeted and actual figures and can be calculated at the end of a financial period, once actual known
Zero based budget
A type of budget where no money is allocated for spending unless it has firstly been justified
