2.5 Managing Finance Flashcards
(36 cards)
What is the break even point?
The point at which revenue
equals cost so your business
is making neither a profit nor
a loss
What is total cost?
They are fixed and
variable costs added together
What is revenue?
Selling Price x Units Sold
Money into the business through sales (cash in). Also known as turnover, or just sales.
What are fixed costs?
These are costs that do NOT vary with the level of output or sales. E.g. stall rental.
What are variable costs?
These are costs that DO change with the level of output or sales. For example, the plastics used in a Bobblehead. The more a business sells/produces, the more plastic they will need.
What is contribution?
Selling Price – Variable Costs
Before calculating Break-Even, we need to know the contribution that selling the item makes towards the
profit. Contribution looks at the profit made on individual products.
What is the margin of safety?
The difference between the actual level of output and the breakeven output.
Describe a budget?
This is a financial plan and an agreed spending limit within a
business.
What are the parts of a budget?
-Planning
-Motivation
-Decisions
-Control
Describe planning.
To anticipate problems and develop solutions before they arise e.g. New business books are needed for a new spec?
Describe motivation.
For managers to be in control of their own budget shows that the business feels they are responsible and will hold them accountable for the money.
Describe Decisions.
Gives power to make financial decisions to those in the best position to make them e.g. a
Headteacher may not know what kinds of books need to be ordered.
Describe Control.
Budgets are set against objectives and targets and can be used as a comparison tool to measure success.
What are the two types of budgets?
-Historical Figures budget
-Zero based budget
What is a Historical figures budget?
This is a budget set for the business using current
financial figures.
What is a zero based budget?
This is a budget set for a business by using figures based on potential performance.
What are the benefits of a budget?
-Provide a method of allocating and using resources within the organisation
-Help to monitor and control
operations
-Promote forward thinking
-Show employees an overall
picture of the direction of the
organisation which can
motivate staff
-Help to co-ordinate different
departments and align them
towards shared objectives
What are the diasadvantages of a budget?
-The time that workers give to
the budgeting process means
they are not available to carry
out other responsibilities.
-Errors and inaccuracies will still remain.
-Budgets involve and affect people.
What are the two types of variances?
-Favourable variance
-Adverse variance
What is favourable variance?
When the manager has underspent in there department.
What is adverse variance?
When the manager has overspent there budget.
What are the difficulties of budgeting?
-They are set for the year so they are not very flexible
-Managers tend to spend over the limit
-Takes time to prepare
-Unrealistic budgets can be demotivating
What is a profit and loss account?
A profit and loss account is a financial document showing the company revenue or income over the
year and their costs and expenditure.
What is profit?
Profit is recorded straight away.
