Theme 2.2 Financial Planning

Question 1

Purpose of sales forecast

Answer 1

• Predict future revenues
• support planning
• determine resource requirements -> how many staff needed and how much stock needed

Question 2

Factors affecting sales forecast

Answer 2

• consumer trends -> seasonal, fashion
• economic variables -> inflation (reduces consumer spending) -> interest rates (borrowing more expensive) -> unemployment (period of recsesion)
• actions of competitors -> short-term e.g sales promotion
  -> long - term e.g changes to product ranges

Question 3

Difficulties of sale forecasting

Answer 3

• future doesn’t always mirror past -> external shocks, competitor actions, trends..
• time consuming -> many employees gather info -> time used elsewhere
• too much data -> gov data, past sale data.. -> hard to discern what is meaningful compared to what is irrelevant

Question 4

Break even chart

Answer 4

<img></img>

Question 5

Variable costs vs Fixed costs

Answer 5

VC -> costs that vary directly with output e.g raw materials, wages of workers
FC -> costs that don’t change as level of output changes

Question 6

Total cost diagram

Question 7

Limitations of break-even analysis

Answer 7

• less useful when business produce more than one product
• assumes all output is sold
• chart can’t be easily amended when conditions change

Question 8

Reasons for using budgets

Answer 8

• Planning & monitoring -> problems & conclusions solved in advance
• Motivation & efficiency -> target - setting and measure success
• Control -> review company objectives

Question 9

Difficulties of budgeting

Answer 9

• takes time & skill
• budget is only as good as data used to construct it
• unachievable budgets have a negative impact on motivation

Question 10

What is variance analysis

Answer 10

Difference between figure budgeted and actual figure achieved

Favourable variance
- actual figure > budgeted figure

Adverse variance
- actual figure < budgeted figure