2.2 Financial planning Flashcards
What is breakeven?
Indicates when the business is not making a loss but isn’t making a profit.
What is contribution per unit?
The amount of money each unit provides towards paying off the fixed costs or creating profit.
What is the margin of safety?
The difference between the actual output and the breakeven level of output.
Name three strengths of breakeven analysis.
Can show how long it is until profit is made
Can speed up decision making- quick to complete
Can determine targets to reach
Name three weakness of breakeven analysis.
Unpredictable
Assumes product will be sold at a given price
Assumes variable costs stay similar cost
What is a budget?
A financial plan for the future that sets out targets to be met, the cost of achieving them and how spending might be financed.
What are the three types of budget?
Expenditure- amount spent in a given time
Income- amount of revenue in a set time
Profit- a target set for the surplus between income and expenditure in a given time.
What is a variance?
Allow a business to see why they are ahead or behind budget
How do you calculate variance?
Budget figure- actual figure
What is a favorable variance?
When more profit is gained than expected.
What is an adverse variance?
When less profit is gained than expected
