2.2 Financial Planning Flashcards
What is the purpose of a sales forecast?
- Avoid cash flow problems
- free up management time
- manage production capacity
- employ more workers
- start a promotional activity
What are the factors affecting sales forecasts?
- consumer trends
- Economic variables
- actions of competitors
What is sales forecasting?
A sales forecast estimates the volume or value of future sales using market research or past sales data
What are the limitations of sales forecasts?
- Seasons affect sales
- historic data may be inaccurate
- disasters that cannot be foreseen
- Competitors actions
- lack of perfect information -
- Change in the external environment
- fluctuations in demand
- A new business has no historical data
What is the sales volume calculation?
Sales revenue / selling price
What is break even?
When total revenue = total costs so there is neither a profit nor a loss
What is the break even formula?
Fixed costs / selling price - variable costs
What is the mos formula?
Actual sales - break even
What is mos?
Amount of sales that can be lost before a loss is made
What are the limitations of break even analysis?
- unrealistic assumptions
- sales are unlikely to be the same as output
- planning aid rather than decision making tool
What is a budget?
A budget is an estimate of income or expenditure for a set period of time (usually month or year)
What is a variance ?
Difference between estimated budget and actual numbers
What are the purposes of budget?
- planning
- forecasting
- communication
- motivation
What is a historical figures budget?
Budget set for businesses using current financial figures based off last years sales
What are the problems with a historical figures budget?
- Information can change in a dynamic market
- can be unreliable
