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

what's variance?

the difference between the actual financial outcomes and those predicted


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


what's is favourable variance?

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


define adverse variance

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


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


what's selected operating point?

the actual level of output of a firm


what's margin of safety?

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


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


define profit

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


what is profitability?

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


what's a profit margin?

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


what's budget?

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


what are two benefits of using budgets?

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


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


what are 2 causes of variance?

- changes in material cost
- changes in quality of materials