2.2 financial planning Flashcards
(55 cards)
1
Q
what is sales volume?
A
- the amount of output sold in a particular time period
2
Q
what is the formula for sales volume?
A
selling price
3
Q
what is sales revenue?
A
- the value of output sold in a particular time period
4
Q
what is the formula for sales revenue?
A
price X sales volume
5
Q
what is a fixed cost?
A
- costs which don’t change with the level of output
6
Q
what are variable costs?
A
- costs which change directly with the changes to output
7
Q
what is a semi-variable costs?
A
- a costs that consist of both fixed and variable element
- e.g labour
8
Q
what’s the formula for variable costs?
A
- variable cost Pu X units produced
9
Q
what’s the formula for total costs?
A
variable costs + fixed costs
10
Q
what’s the formula for average costs?
A
output
11
Q
what’s the formula for profit?
A
revenue - total costs
12
Q
what is capital expenditure?
A
- money spent on long term assets such as buying a factory
13
Q
what is revenue expenditure/
A
- money spent on buying day to day items such as raw materials
14
Q
what is a debtor?
A
- owes the business money
15
Q
what is a creditor?
A
- owes 3rd parties money
16
Q
what does insolvent mean?
A
- a business doesn’t have enough cash to pay costs
17
Q
what’s the formula for net cash flow?
A
inflows - outflows
18
Q
what’s the formula for closing balance?
A
opening balance + net cash flow
19
Q
what is liquidity?
A
- ease with which assets can be turned into cash
20
Q
what is capital?
A
- the amount of money which has gone into the business
21
Q
what is sales forecasting?
A
- projection of future sales revenue, often based on previous sales data
22
Q
what is time series data?
A
- a method that allows a business to predict future levels from past figures
23
Q
what is extrapolation?
A
- forecasting future trends based on past data
24
Q
what are benefits of sales forecasting?
A
- helps inform cash flow forecasting and accurate budgeting
- enables them to predict appropriate staffing levels
- helps understand demand
25
what is the Delphi method?
- involves getting a group of market experts to provide an opinion on the forecasting task
26
what does breakeven mean?
- where a business makes neither a profit or a loss
27
what's the formula for breakeven?
- total costs = total revenue
28
what are 3 ways to find breakeven?
- calculate using a table of costs and output
- interpreting charts
- using a formula
29
what is margin of safety?
- the difference between the actual units of output and the breakeven output
30
what's the formula for margin of safety?
current output - breakeven output
31
what does contribution do?
- looks at the profit made on individual products
| - used to calculate how many items need to be sold to make profit
32
what is contribution?
- the difference between the selling price and variable costs
33
what's the formula for contribution Pu?
selling price Pu- variable cost Pu
34
what's the formula for total contribution?
contribution Pu X number of units sold
35
what's the formula for breakeven output?
total fixed costs
-----------------
contribution
36
what is a budget?
- a quantitative economic plan prepared and agreed in advance
37
what is budgetary control?
- involves making future plans
38
what is the purpose of budgeting?
- control and monitoring
- planning
- communication
- improves financial efficiency
- improve motivation
39
what is a revenue budget?
- expected revenue and sales
| - broken down into more detail (products, location)
40
what is a cost/expenditure budget?
- expected costs based on sales budget
| - overheads and other fixed costs
41
what is a profit budget?
- of great interest to share holders
| - based on combined sales and cost budget
42
what are the 2 main approaches to budgeting?
- historical budgeting
| - zero based budgeting
43
what is historical budgets?
- uses last years figures as the basis for the budget
44
why may historical budgeting be useful?
- based on actual results
45
why may historical budgets be bad?
- circumstances may have changed
| - doesn't encourage efficiency
46
what is a zero based budget?
- budgets costs and revenue are set to zero
| - budget is based on new proposals for sales and costs
47
what are advantages to using a zero based budget?
- potentially more realistic
48
what are disadvantage of using zero based budgets?
- time consuming
| - more complicated
49
what is a variance analysis?
- when there is a difference between actual and budget figures
50
what can variances be?
- positive/favourable (better than expected)
| - adverse/unfavourable (worse than expected)
51
what is a favourable variance?
- costs are lower than expected
| - revenue is higher than expected
52
what is an adverse variance?
- costs are higher than expected
| - revenue is lower than expected
53
what are possible causes of favourable variances?
- stronger market demand than expected
- selling process increased higher than budget
- cautious sales and cost assumptions
54
what are possible causes of adverse variances?
- unexpected events lead to unbudgeted costs
- over spends
- sales forecast prove over optimistic
- market conditions
55
what are problems and limitations of budgets?
- are only as good as data being used
- can lead to inflexible decision making
- need to be changed as circumstances change
- can add to demotivation if unrealistic
