2.2 financial planning

Question 1

purpose of sales forecasting?

Answer 1

• to see if they need to increase capacity
• may need to employ more workers
• may need promotion if sales drop

Question 2

factors that affect trends?

Answer 2

• tastes and fashion

- demographics

Question 3

economic variables affecting sales forecasts?

Answer 3

• fall in the value of the pound
• tax increase
• inflation

Question 4

break even

Answer 4

fixed costs
_________________________
selling price - variable per unit

Question 5

contribution per unit

Answer 5

selling price - variable cost per unit

Question 6

what conclusions can be drawn from break even graphs?

Answer 6

• profit or loss
• margin of safety
• effect of costs (F+C)

Question 7

what is break even used for?

Answer 7

• assess impact of planned price changes

- estimate future level of output

Question 8

limitations of break even?

Answer 8

• assumes variable costs increase constantly
• assumes all output is sold
• doesn’t take trends into account

Question 9

margin of safety

Answer 9

sales volume - break even output

Question 10

budgeting?

Answer 10

target set for costs

Question 11

income budget

Answer 11

minimum income projection

Question 12

purpose of setting budgets?

Answer 12

• avoid spending too much to maintain profit margins
• manage success
• motivate decision makers + workers

Question 13

steps of constructing a budget?

Answer 13

• make a revenue judgement
• set a cost ceiling that allows for profit
• budgets divided into departments

Question 14

historical budget

Answer 14

based off last year sales

Question 15

zero based budget

Answer 15

budget set at 0 and budget holders need to justify