2.2 Sales forecasting Flashcards
What is a sales forecast
They predict future revenues based on past sales figures
Why do businesses use sales forecasts
They help to determine resource requirements such as level of staff and stock required
What are the different factors affecting sales forecasts
Consumer trends
Economic variables
Actions of competitors
What are consumer trends
The patterns of behaviour and preferences among consumers
Why do consumer trends change
Seasonal variations, demand for goods changes depending on the season
fashion influence from celebs
Why are sales forecasts difficult
They require skill time and large amounts of specific data.
small businesses may lack specialised personnel to carry out accurate sales forecasts
What is meant by sales volume
The number of units sold by a business
What is meant by sales revenue
The value of units sold by a business
What are fixed costs
Costs that don’t change with the level of output
What are variable costs
Costs that change directly with output
What are total costs
Variable + fixed costs
Total variable cost formula
VC * Q
Variable cost per unit
TVC / Q
what is economies of scale
The increase in the size of a business results in lower costs per unit
What is diseconomies of scale
When an increase in the size of the business results in higher costs per unit
Formula for contribution
Selling price per unit - VC per unit
What is the break even point
where total revenue earned is exactly equal to total costs
the business is not making a profit nor a loss
What is the formula for break even point
fixed costs / contribution
FC / (SP- VC)
What is the margin of safety
The difference between the actual level of output of a business and its break even level of output
What is margin of safety formula
Actual level of output - breakeven level of output
What are the limitations of break even analysis
Break even presumes a business sells one product
Assumes all output is sold
Revenue and total costs don’t always have a linear relationship with output
costs are likely to constantly change
What is a budget
A financial plan about costs and revenue
What are the main reasons for business to use budgets
Planning and monitoring
coordination and communication
motivation and efficiency - targets and goals
What are the two types of budgeting methods
Historical figure budgets
Zero based budgeting
