2.2 Flashcards
Definition of Sales Forecast
The prediction of future revenues based on past sales figures
4 Focuses of Sales Forecast
-Size of Market
-Volume and Value of Market
-Sales as a result of promotions
-Sales as a result of cyclical factors
3 Ways Consumer Trends affect Sales Forecasting
-Seasonal Variations
-Fashion
-Long Term Trends
3 Ways Economic Variables affect Sales Forecasting
-Economic Growth
-Inflation
-Unemployment
3 Ways Competitors affect Sales Forecasting
-Short term promotions
-Long term changes to products or expansion
-Business Failure
3 Difficulties of Sales Forecasting
-Future doesn’t reflect the past
-Too much data
-Interpretation
Formula for Sales Revenue
Selling Price * No. Units Sold
Definition of Sales Volume
The number of units sold
Definition of Sales Revenue
The value of units sold
Definition of Fixed Costs
Costs that do not change as the level of output changes
Definition of Variable Costs
Costs that vary directly with the output
Formula of Total Costs
Fixed Costs + Variable Costs
Formula of Average Total Cost
Total Cost / Output
Formula of Variable Cost Per Unit
Total Variable Cost / Output
Formula of Total Variable Cost
Variable Cost * Output
Definition of Contribution
The amount that helps to pay off the fixed costs of the business
Formula of Contribution Per Unit
Selling price per unit - Variable cost per unit
Formula of Total Contribution
Contribution Per Unit * No. Units Sold
Definition of Break Even Point
Where total revenue for a product is equal to its total costs, so no profit or loss
Formula for Break Even Point
Fixed Costs / Contribution
Definition of Margin of Safety
The difference between actual output and its break even output
Formula of Margin of Safety
Actual output - Break even output
5 Limitations of Break Even Analysis
-Businesses produce more than 1 product
-Assumes all output is sold
-Cannot be easily amended
-Revenue and TC isn’t always a linear relationship
-Accuracy depends on quality of data
Definition of a Budget
A financial plan that a business sets about costs and revenue
4 Reasons to use a Budget
-Planning and Monitoring
-Control
-Coordination and Communication
-Motivation and Efficiency
Definition of a Historical Budget
A budget that uses previous years figures and external economic factors
Definition of a Zero Based Budget
A budget that is reset every year so spending has to be justified
Definition of Budget Variance
The difference between a figure budgeted and the actual figure achieved
What is Adverse Variance
Adverse is when the actual figure is worse than budgeted
Profit is lower than budgeted OR
Cost is higher than budgeted
What is Favourable Variance
Favourable is when the actual figure is better than budgeted
Profit is higher than budgeted OR
Cost is lower than budgeted
Definition of Variance Analysis
The process of determining reasons for the differences in the actual and budgeted figures
How is favourable variances treated
-Cost = may review quality, returns and wastage
-Sales = may reward client based staff
How is adverse variances treated
-Cost = Seek alternative suppliers
-Sales = Review Marketing
6 Difficulties of Budgeting
-Time
-Competition and conflict
-Only as good as data
-Focus on short term than long term
-Unachievable or unambitious
-Setters have a significant influence
