2.2 Flashcards
financial planning
what is a sales forecast
estimates the volume/value of future sales using market research or past sales data
what are the purposes of sales forecasting?
avoid cash flow problems, frees up management time, production capacity, employ more staff, start promotional activity
factors that affect sales forecasting
consumer trends, economic variables, action of competitors
limitations of sales forecasting
no guarantees, short term thinking, dynamic markets
sales volume definition
quantity of products sold in a specific period
sales revenue
selling price x volume
break even definition
the where the business makes neither a profit or a lose
break even calculation
FC / C
contribution definition
the amount that each unit produced ‘contributes’ towards the FC of a business
contribution calculation
C = SP - VC
margin of safety calculation
total output - break even point
disadvantages of a break even analysis
might over/underestimate sales, doesnt consider external shock, could be calculated incorrectly
advantages of break even analysis
company can set aims and goals, helps manage stock levels, shows a financial plan
margin of safety definition
surplus of planned revenue over planned costs to allow for unseen developments
budget definition
an estimate of income or expenditure for a set period of time
