Theme 2 - section 7 (Financial Planning) Flashcards
(38 cards)
What is sales forcasting ?
predicting the future sales volume and sales revenue based on past sales data and market research.
sales forcasting allows businesses to make decisions about …….
1) finance
2) marketing
3) resources
Factors that effect sales forecasting
1) consumer trends
2) Economic variables - ( interest rates, inflation, unemployment levels )
3) Actions of competitors
Its hard to make sales forecasts in …..
dynamic markets
What is sales volume ?
the number of units sold in a given time period
What is sales revenue ?
value of sales in a given time period
What are fixed costs ?
costs that dont change with output.
- Rent, business rates, basic salarys, cost of machinery.
What are variable costs ?
costs that rise and fall as output changes.
- hourly wages, raw material costs, packaging costs.
What is profit ?
the amount of money you have after you subtract total costs from total revenue.
What is breaking even ?
it means covering costs
What is the break even point ?
The level of sales a business needs to cover its total costs.
sales are below the break even point …..
firms make a loss
sales are above the breakeven point ……
firms make a profit
What is contribution per unit ?
the difference between selling price of a product and the variable costs it takes to produce.
total contribution is used to pay …..
fixed costs.
Break even charts show …..
revenue and costs plotted against output ( number of units sold)
Margin of safety
is the amount between actual output and break even output
advantages of break even analysis
- quick and easy to do
- forecast how variations in sales will effect - cost, revenue and profits.
- forecast how variations in price and cost will effect how much they need to sell.
- whether new products are worth selling
disadvantages of break even analysis
- assumes that variable costs always rise steady.
- more complicated for multiple products
- assumes business sells all the products without any wastage.
- if data is inaccurate results will be wrong
- tellsyou how many you need to sell, not how many you are actually going to sell.
What is a budget
a finacial plan for the future, it forecasts future earnings and future spending.
What do income budgets do ?
forecast the amount of money that will come into the business as revenue.
What do expenditure budgets do ?
predict the businesses total costs for the year.
profit budget =
income budget - expenditure budget
Benefits of budgeting …..
- motivating - give employees targets to work for.
- control income and expenditure.
- review activities and make decisions
- focus on priorites
- communication tool
- coordinate spending
- persude investors
