3. Financial Strategy

Question 1

What 3 things make up Financial Accounts/ Statements?

Answer 1

• Balance Sheet (where money has come from (investors etc.), where its gone to)
• Income Statement (Profit/ Loss account, whether company has made profit or not)
• Cash Flow Statement

Question 2

Financial Statements are historical. An Income Statement for example shows the profit between two periods, typically the previous year.

What does a Balance Sheet show?

Answer 2

A Balance Sheet is a summary of the company’s current financial statement. (‘snapshot in time’).

Question 3

Where can financial statements be found online? Why is most information hidden?

Answer 3

Companies House. Avoid competition finding out.

Question 4

What is a Cash Flow Statement used for?

Answer 4

Establish if there is enough cash to carry out planned activities.

Does cash coming in cover expenditure, is a loan or overdraft necessary.

Question 5

Receipts and Payments fall under which of the following:

A. Income Statement (Profit and Loss Account)

B. Balance Sheet

C. Cash Flow

Answer 5

C. Cash Flow

Question 6

Direct/Variable Costs, Sales, and Overheads fall under which of the following:

A. Income Statement (Profit and Loss Account)

B. Balance Sheet

C. Cash Flow

Answer 6

A. Income Statement (Profit and Loss Account)

Question 7

Monitoring of Assets, Shareholder Funds and Liabilities fall under which of the following:

A. Income Statement (Profit and Loss Account)

B. Balance Sheet

C. Cash Flow

Answer 7

B. Balance Sheet

Question 8

Do material and labor costs fall under Variable or Direct Costs?

Give an example of the other (i.e. if labor is a variable cost, what is a direct cost?)

Answer 8

Variable, they vary with level of production.

Rent/ interest would be an example of Direct costs.

Question 9

There are various ‘Costing Methods’

What method includes a share of fixed costs in product costs.

Answer 9

Absorption costing

Question 10

Using Marginal costing..

If you made 1000 units of a product, where the fixed cost was £5000 (overhead per unit was £5), but only sold 500. How much would you deduct from the total cost to calculate profit?

A. £2,500
B. £5,000
C. £0
D. bare dollah

Answer 10

B. £5000

Marginal costing treats fixed costs as costs of the period. If you used absorption costing, you’d only account for the overheads of what you sold (in this example £2,500).

Question 11

What are the four different costing methods?

Answer 11

1. Absorption (total) costing.
2. Marginal (contribution) costing.
3. Standard costing
4. Activity-Based Costing (ABC)

Question 12

Variance Analysis is used in which costing method? What is it?

Answer 12

Used in Standard costing.

Standard costing uses pre-determined values. e.g. you expect labour to cost £5 and the product to sell at £20.

Use Variance Analysis to compare the actual costs to pre-determined values. e.g. product actually sold for £15 because the sales team were shite.

Question 13

True or False, Absorption costing absorbs costs on the basis of the activities that drive them?

Answer 13

False, this is Activity-Based Costing (ABC)

Question 14

What is the name given to the graphical technique used to match income and expenditure?

Answer 14

Breakeven Analysis

Question 15

Sales £100/unit
Variable cost £50/unit
FIxed costs £2,000

What is the breakeven sales revenue and volume?

Answer 15

Contribution = Selling price (100) - variable cost (50) = £50

Breakeven volume = fixed cost (2,000) / contribution (50) = 40

Breakeven sales = 40 * Selling price (100) = £4,000

Question 16

___________ is the term given to the point where supply meets demand.

Answer 16

Equilibrium Price

Question 17

Price : Demand Relationship

If you even slightly increase the price of goods such as potatoes this heavily impacts demand, and is known as ________ demand.

Answer 17

Elastic

(On the other hand, changes in cost for a Ferrari would be an inelastic demand, varying price has little effect on demand)

Question 18

• Marketing Objectives
• Marketing Strategy
• Costs
• Organisation

These are all factors to consider when setting prices, but are they

A: Internal Factors
B: External Factors

Answer 18

A: Internal Factors

External Factors to consider in Pricing Decisions would be:

• Supply and Demand
• Competition
• Other environmental factors (government, economy etc.)

Question 19

Market Segmentation

A market can be divided into distinct group of buyers. For example division may be based on demographics.

Give a couple other needs, characteristics or behavior you might consider when dividing a market?

Answer 19

• Geographic
• Socio economic
• Brand Loyalty
• Lifestyle
• Situation
• Attitudes
• Benefit sought

Question 20

In the Porter’s Five Forces Model, there are 4 different factors to consider which affect the Industry and Competitors. One of these is the Bargaining Power of Suppliers. What are the other 3?

Answer 20

• Bargaining Power of Buyers
• Threat of New Entrants
• Threat of Substitutes

Question 21

In a Product’s Life Cycle, it will go though 5 phases:

• Development
• Introduction
• Growth
• Maturity
• Decline

How does the Boston Consulting Grid Model relate to this?

Hint: the BCG considers the relative market share (cash generation) of a product and its market growth rate (cash usage)

Answer 21

When a product is initially introduced it will have a low market share yet high cash usage.

After a period of time, if the product grows it will have a high market share and high cash usage.

And in its ‘maturity phase’, the product will be cheap to produce (low cash usage/ market growth rate) and a high market share.