2.2 financial planning M Flashcards
musab (29 cards)
sales forecasting
what is a sales forecast?
an estimation of the volume/value of the future sales for a product/business. it is based upon market research or data from past sales.
sales forecasting
what are the 3 factors affecting sales forecasts
- consumer trends
- economic variables
- actions of competitors
sales forecasting
what are the difficulties / disadvantages in sales forecasting?
- reliance on historical data - may not be accurate or indicative of future trends
- forecasters may have biases - overly optimistic or pessimistic
- risk of over or understocking
business costs
define costs
costs are the payments that a business makes in roder to produce goods and services
business costs
define fixed cost
costs that do not change with the level of output eg. rent, salaries
business costs
define variable costs
costs that do change with the level of output eg. packaging, raw materials
business costs
define semi-variable costs
expenses that include a mixture of fixed and variable costs
business costs
define start up costs
initial expenses when starting up a new business. these are necessary to start the business, but are not part of regular operating expenses
business costs
define direct costs
costs that can be directly linked to the production of a good or service eg. raw materials, labour
business costs
define indirect costs
costs that are not directly tied to production eg. rent, utilities
business costs
formula for average unit costs
total costs / output
sales volume and revenue
formula for sales revenue
quantity sold x selling price
sales volume and revenue
formula for sales volume
total sales revenue / price per unit
contribution
define contribution
the returns a business makes from each unit sold and whether that is enough to allow the business to make money overall after taking into account FC
contribution
formula for total contribution
total revenue - total variable costs
contribution
formula for unit contribution
selling price - variable costs per unit
break even analysis
define break even (point)
the point at which total costs are equal to total revenue and the business does not make a profit or a loss
break even analysis
define break even analysis
compares a firm’s revenue with its fixed and variable costs to identify the minimum level of sales needed to cover costs
break even analysis
formula for break even
fixed costs / contribution (per unit)
break even analysis
define break even revenue + formula
the revenue the business will be earning at the break-even point
break even units x selling price
break even analysis
strengths and limitations of break even analysis
+aid in setting the right price for products or services by understanding the relationship between fixed costs, variable costs, and selling price
+break-even analysis helps businesses make clear and effective decisions
-assumes that both variable costs and sales prices remain constant
-does not consider external changes like competition which can affect costs and revenues
margin of safety
define the margin of safety
the difference between actual output and break-even. It shows the business how many units worth of safety they have before they break-even or incur a loss
margin of safety
formula for margin of safety
actual output - break even output
budgeting
define a budget and budgetary control
budget - a financial plan for the future concerning the revenues and costs of a business
budgetary control - comparing actual financial performance against the planned or budgeted figures
