2.1 Internal Business - Finance Flashcards
What is a budget?
A budget is a list of all planned future income and expenses over a given time period.
Why is a budget important?
- Provides a forecast of revenues and spending.
2. Enable the actual finances of the business to be measured against the forecast.
What are the disadvantages of budgets?
They take time to produce and have to be explained as they seem complex.
What do we mean by costing?
Measuring the cost of what you are making.
Why is costing important?
Costing is important because then you can figure out ways of lowering costs and/or you make sure your prices are fully covering your costs.
What is job costing vs process costing?
Process costing is when you get total cost and divide it over the number of units to get a cost per unit - useful when you are producing the same product again and again e.g. hats.
Job costing is when you write down the exact cost of each specific unit e.g. when you paint a house, the painters charge for all of the paint used etc.
What are variable costs?
The cost of making a good or service, e.g. to make one hat it costs $10 which is made up of the material, time etc
What are fixed costs (or overheads)?
Fixed costs are costs that the business has to pay no matter how many of that product they produce
e.g. the rent of the building they are in is $10,000 no matter if they produce 1 hat or 10000 hats.
What is variance? Why is it important?
Variance is the difference between the budgeted amount and the actual amount
e.g. if sales were supposed to be $100,000 for January, and then it was actually $150,000, the variance is +$50,000
This is important as
What is gross profit?
Gross profit = sales - variable costs
What is net profit?
Net profit = Gross profit - overheads
