Cash Flow Forecast and Break Even Flashcards
(20 cards)
Cash flow forecast
e cash flow forecast predicts the net cash flows of the business over a future period.
Uses of cash flow forecast
Planning, monitoring, control and target setting.
Fixed Cost
These are incurred by the business regardless of how well it is doing.
Variable Costs
These increase when the business increases its activity or output, e.g raw materials.
Semi Variable Costs
These are a combination of fixed costs and costs which become variable once a certain level of activity or output is reached.
Selling price per unit
Amount paid by each customer for each item bought
Sales in units
Quantity of sales.
Sales in value
Monetary value of sales
Total Revenue Formula
Quantity of goods sold x Selling price per unit
Break-even Point
Total Revenue = Total Costs
Total Costs
Fixed Costs + Variable Costs
Contribution per unit
Selling price - Variable costs per unit
Total Contribution
Contribution per unit x Number of units sold
Break- even point
Fixed Costs/Contribution per unit
Margin of safety
Sales - Break even level of output
Months to break even
Break even units/Units produced per month
Planning
Planning - break even helps the business to workout how many items it needs to sell over a certain period to cover its costs and to use this information to set a price that will enable it to make a profit.
Monitoring
Break-even alerts the business to potential problems e.g. increase fixed or variable costs or a fall in sales, allowing it to take steps to fix them in good time.
Control
Break-even can be used to identify where costs are increasing allowing the business to take action to control this.
Target Setting
Break-even helps a business to set targets for sales, unit costs, contribution and profit.
