Unit 5

Question 1

Benefits of setting financial objectives

Answer 1

The shareholder can decide whether to invest in ur business or not
Co-ordination as allows employees to be motivated and
Allow success or failure to be measured

Question 2

Disadvantages of setting financial objectives

Answer 2

Some objectives can be hard to measure
Can be difficult to set realistic objectives

Question 3

The return of investment equation

Answer 3

Return of investment/cost of investment ×100

Question 4

What is return of investment

Answer 4

Measure of the efficiency of am investment in financial terms

Question 5

advantages of ROI

Answer 5

Can reveal trends in financial performances and can see the total level of investment that it should undertake

Question 6

Formula for debt

Answer 6

Debt/long term funding ×100

Question 7

How is profit calculated

Answer 7

Revenue-expenditure

Question 8

Gross profit calculation and what is it

Answer 8

Revenue minus cost of sales and it is raw materials and wages

Question 9

Operating profit calculation and what is it

Answer 9

Gross profit minus administrative expenses and is profit made from trading

Question 10

What is profit of the year how is it a useful measure

Answer 10

All profit of the year including non trading revenue like sale of assets and expenditure but is a measure for shareholders as shows how much they benefit their ownership of the business

Question 11

Revenue objective

Answer 11

Sales maximisation
Exceeding sales of competitor
Targeting specific increase in sales revenue

Question 12

Cost objective

Answer 12

Cost minimisation
Lowering levels of wastage
Find cheaper suppliers
Relocating to a cheaper site

Question 13

Profit objectives

Answer 13

Profit maximisation
Targeting a specific level of profit
Exceeding the profit of competitors

Question 14

Cash flow objectives

Answer 14

Maintaining a minimum closing monthly cash balance
Reducing bank overdraft
Spread costs more evenly

Question 15

External factors of objectives

Answer 15

Social: adjust to society e.g access to business 24/7 meaning difficult for business to set targets of lower costs but can generate more income
Environmental: higher demand of environmental products change supplier
Suppliers: depending on supplier could ruin targets

Question 16

Internal influences on financial objectives

Answer 16

Human resources: good recruitment plus training policy can increase profitability
Nature of the product: businesses are heavily influenced by products and services

Question 17

Budget holders

Answer 17

Responsible for Exceeding targets of income and profit budgets

Question 18

1-4 stages of budgets

Answer 18

-set objectives
-Carry out market research
-Carry market research in costs
-complete income budget

Question 19

Stages 5-8 of budgets

Answer 19

-Construct expenditure budget
- create an overall profit budget
-draw a divisional/departmental budget
-summarise budgets into a master budget

Question 20

What is the expenditure budget based on

Answer 20

Level of sales

Question 21

Variance analysis definition

Answer 21

Difference between the budget and actual figure

Question 22

Reasons for setting budgets

Answer 22

Gain financial support
Ensure a business does not overspend
Assign responsibility

Question 23

Problems of setting budgets

Answer 23

Problems of gathering info
Managers may not know enough about the department

Question 24

Features of good budgeting

Answer 24

Consistent with the aims of the business
Challenging but realistic targets

Question 25

Cash flow problems

Answer 25

Credit payments Length of time required to convert inputs into outputs Amount of cash held at beginning of cash flow cycle

Question 26

Contribution per unit calculation

Answer 26

Sales-variable costs

Question 27

Total contribution

Answer 27

Contribution per unit × numbers of unit sold

Question 28

Break even out put equation

Answer 28

Fixed costs divided by contribution per unit

Question 29

Strengths of break even

Answer 29

Simple plus straightforward way of discovering whether a business plan is likely to succeed financially Can show different levels or profit arising from various levels of output

Question 30

Weakness break even

Answer 30

May be unreliable as it is a forecast plus difficult to predict demand Sales are unlikely to be the same as demand

Question 31

Any margin is divided by what

Answer 31

Sales revenue

Question 32

Examples of management accounting data

Answer 32

Decision trees, revenue cost and profit objectives Budgets and break eben

Question 33

Examples of financial accounting data

Answer 33

Cash flow statement Data on profitability

Question 34

Internal plus short term finance

Answer 34

Debt factoring

Question 35

External and long term finance

Answer 35

Ordinary share capital ,venture capital and loan

Question 36

Debt factoring and advantage

Answer 36

Usually a bank buys the right to collect money from credit sales of a business -improved cash flow in short term Increase efficiency

Question 37

Debt factoring disadvantage

Answer 37

Loss of revenue High cost

Question 38

Bank overdraft and advantage

Answer 38

When a bank allows a group to overspend its current account in the bank up Flexible and security is not usually required

Question 39

Disadvantage bank overdraft

Answer 39

Flexible interest rates and banks can demand immediate repayment

Question 40

Hdjej

Answer 40

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