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Flashcards in analysing financial performance: profit Deck (15):
1

what's variance?

the difference between the actual financial outcomes and those predicted

2

what's variance analysis?

the process of calculating variances and attempting to establish what has caused them and what effect they might have on profit

3

what's is favourable variance?

when the difference between budgeted and actual figures worsen a firms profit

4

define adverse variance

when the difference between budgeted and actual figures improves a firms budget

5

what's break-even?

the point at which output of a business is just sufficient enough to cover its costs i.e. total cost and revenue are the same

6

what's selected operating point?

the actual level of output of a firm

7

what's margin of safety?

the amount by which the actual level of output exceeds the break even level of output

8

what's contribution (per unit)?

the amount of money left after variable costs have been deducted that goes towards paying fixed costs and then towards making a profit

9

define profit

a profit is made when a firms revenue is greater than its total costs

10

what is profitability?

a measure of the financial performance of a business compared to some other factor such as revenue

11

what's a profit margin?

a ratio that expresses a business's profit as a percentage of its revenue

12

what's budget?

a financial plan covering all aspects of costs and revenue over a period of time, often used for setting targets

13

what are two benefits of using budgets?

- to establish priorities- indicating level of importance
- motivate staff- giving greater responsibility and recognition when meeting targets

14

two drawbacks of using budgets?

- external factors changing outside the budget holder's control
- incorrect allocations- a budget that is too generous may encourage inefficiency

15

what are 2 causes of variance?

- changes in material cost
- changes in quality of materials