Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

A LEVEL BUSINESS - TH > 2.2 financial planning > Flashcards

2.2 financial planning Flashcards

1
Q

what is a sales forecast?

A

a prediction of future sales volumes and values

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

what information can businesses use to make a sales forecast?

A

-market research
-past sales (e.g. time series analysis) -economic forecasts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

why is sales forecasting important?

A

-supports planning
-can improve the validity of cash flow forecasts
-used to determine resource requirements (stock, equipment, finance, promotions)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what are the three main methods of sales forecasting?

A

-extrapolation
-correlation
-confidence intervals

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

limitations of sales forecasting:

A

-sales forecasting requires skill
-market conditions are constantly fluctuating (dynamic)
-lots of data for businesses to consider when constructing sales forecasts
-the nature of the product must be considered

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

sales forecasting limitations - requires skill, time and the accurate use of timely data

A

-smaller businesses may particularly lack the experience / specialised workers to construct, analyse and interpret sales forecasts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

sales forecasting limitations - market conditions are constantly fluctuating (dynamic)

A

-sales forecasts will rarely reflect the full range of external influences that can affect future sales,
(eg: volatile customer tastes, the actions of competitors, new market entrants)

-it is difficult to avoid experience bias (eg: opinions of the future based on experiences in the past)
↳ the future rarely repeats the events of the past

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

sales forecasting limitations - lots of data for businesses to consider when constructing sales forecasts

A

-internal data, such as previous sales figures, will be a key source of information when constructing forecasts
-choosing the most appropriate external data to support sales forecasts is hard and will require careful evaluation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

sales forecasting limitations - the nature of the product must be considered

A

eg: product may be a fashion item and fashions move quickly

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

3 factors affecting sales forecasts:

A

-consumer trends
-economic variables
-competitor actions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

consumer trends

A

-fashions may change from season to season, but most consumer behaviours change over a longer period of time (e.g. the trend towards solar-powered energy)

-demand for certain goods is seasonal

-fashion is often led by celebrities, and their influence can have a short-term impact on sale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

issues with consumer fashions

A

fashions constantly change and can make it very difficult to carry out accurate sales forecasts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

economic variables that affect sales forecasting:

A

economic growth:
increased consumer incomes → higher than forecast sales

inflation:
increase in prices → reduced consumer spending power → sales decrease

unemployment:
higher unemployment (during recession)
→ reduced spending, especially for lifestyle and luxury goods, spending is focused on essentials

exchange rates:
value of UK sterling falls → exports cheaper, businesses that sell products overseas / cater for tourists visiting the UK may adjust their sales forecasts upwards

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

competitor actions

A

-hard to predict, but often reason why sales forecasts prove over-optimistic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

what must a business do to make revenue?

A

by satisfying customer demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

how to calculate revenue

A

selling price x quantity sold

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

terms for revenue

A

-sales
-income
-turnover
-takings

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

which two ways can a business increase revenues? (& examples)

A

1) increase quantity sold
↳ sales promotion, advertise, expand

2) increase selling price
↳ add value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

what are costs?

A

amounts that a business incurs in order to make goods and/or provide services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

why are costs important?

A

-drain away the profits made by a business
-the difference between making a good and a poor profit margin
-main cause of cash flow problems in business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

what are variable costs?

A

costs that change as output varies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

what are fixed costs?

A

costs which do not change when output varies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

how do you calculate total costs?

A

fixed costs + variable costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

examples of variable costs:

A

-raw materials
-wages based on hours worked

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

examples of fixed costs:

A

-rent
-salaries
-insurance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

examples of start up costs:

A

-furniture
-equipment
-training

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

semi fixed costs (+examples)

A

fixed in the short term, but change once a certain level of output is reached

eg: rent (business may need to move to bigger place)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

short run costs

A

refers to the immediate future:
-variable costs are variable and fixed costs are fixed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

long run costs

A

-all costs are variable
-fixed costs will eventually change over time, some fixed costs may fall, whereas others will rise, such as employee salaries.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

which costs are easy to estimate & control? (examples)

A

rent, salaries, advertising

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

which costs are hard to estimate & control?

A

-raw materials
-product returns

32
Q

what is average cost/unit cost?

A

the cost per unit of production

33
Q

the larger the output the ______ the unit cost/average cost

A

lower

34
Q

what is profit?

A

the reward or return for taking risks &
making investments

35
Q

why is profit important to a business?

A

-a reward for taking risks
-a key source of finance
-a measure of business success
-a motivating factor

36
Q

how to calculate profit?

A

revenue - total costs

37
Q

when is profit occurring?

A

total sales are more than total costs

38
Q

what is loss?

A

total costs are higher than total sales

39
Q

what is breakeven?

A

the point where total sales equal total costs

40
Q

what is profit in absolute terms?

A

the £ value of profits earned

41
Q

what is profit in relative terms?

A

the profit earned as a/proportion of sales achieved or investment made

42
Q

what does contribution look at?

A

the profit made on individual products

43
Q

how do you calculate contribution & total contribution?

A

selling price - variable cost

total contribution:
contribution per unit x quantity sold

44
Q

what are three methods of calculating breakeven?

A

-a table
-a formula
-a graph

45
Q

what assumptions are made to do a breakeven analysis?

A

-selling price per unit stays the same
-variable cost per unit is the same

46
Q

formula for breakeven output

A

fixed costs / contribution per unit

47
Q

steps of drawing a breakeven chart:

A

1) produce two axis, y axis = sales and costs, x axis = output

2) add fixed costs (horizontal line)

3) add the total costs (starts from fixed costs line)

4) draw the line for total sales (starts from zero)

5) find the breakeven point (where total sales = total costs)

48
Q

tip for finding the breakeven point

A

go across the fixed costs line (horizontal) to the y axis, then go upwards on the total costs line until there is an intersection

Right Angled Triangle shape

49
Q

what is the margin of safety??

A

the difference between actual output and the breakeven output

50
Q

strengths of breakeven analysis

A

-calculations are quick and easy
-illustrates the importance of keeping fixed costs down to a minimum
-shows a business how to reach profitability
-decide whether a business idea is profitable and viable
-assess the effects of costing and pricing decisions

51
Q

limitations of breakeven analysis

A

-unrealistic assumptions (eg: products are not sold at the same price at different levels of output)
-break-even analysis simplifies a very complex process
-most businesses sell multiple products
-costs are rarely constant, break-even analysis presumes that costs stay the same over various levels of output

52
Q

what is a budget?

A

a financial plan for the future.

53
Q

what should an effective budget do?

A

drive many of the decisions taken across the functional areas of a business

54
Q

who is responsible for controllable costs within budgets?

A

managers

55
Q

uses of budgets in management

A

-turn objectives into practical reality
-provide direction
-allocate resources
-control income and expenditure
-help a business to save towards a goal

56
Q

what is the main purpose of budgets?

A

to ensure efficiency in spending

57
Q

what are the two main approaches to budgeting?

A

1) historical budgeting

2) zero-based budgeting

58
Q

what is historical budgeting?!

A

past figures are used as the basis for the budget

59
Q

evaluation of historical budgeting:

A

strengths:
-realistic in that it is based on actual results

weaknesses:
-circumstances may have changed

60
Q

what is zero based budgeting?

A

budget is based on new proposals for sales and costs

61
Q

evaluation of zero based budgeting:

A

strengths:
-more realistic
-suitable for a new business

weaknesses:
-more complicated & time consuming

62
Q

what are the three main parts/types of budget?

A

1) revenue - expected income
2) expenditure - expected costs
3) profit budget - combined sales and cost budgets

63
Q

what are two key sources of information for budgets?

A

-financial performance in previous periods
-market research → competitor activity, trends in market size

64
Q

problems with calculating budgets:

A

-a budget is only as accurate as the data on which it is based
-past trends can be a poor indicator of what is likely to happen in the future
-sales forecasting can be inaccurate and affect budgeting
-unexpected costs always happen

65
Q

what is a variance analysis?

A

compares the differences between actual results and the budget

66
Q

when does a variance arise?

A

when there is a difference between actual and budget figures

67
Q

what two things can variances be?

A

1) positive/favourable (better than expected)

2) adverse/unfavourable (worse than expected)

68
Q

examples of favourable variance

A

-costs lower than expected
-revenue/profits higher than expected

69
Q

examples of adverse variance

A

-costs higher than expected
-revenue/profits lower than expected

70
Q

possible causes of favourable variances

A

-stronger market demand than expected
-selling prices increased higher than budget
-cautious sales and cost assumptions (e.g. cost contingencies) → emergency
-competitor weakness

71
Q

possible causes of adverse variances

A

-unexpected events lead to unbudgeted costs
-over-spends
-market conditions mean selling prices are lower than budget

72
Q

do variances matter?

A

it depends on…

-if the variance was foreseen
-the size of the variance
-the cause of the variance
-whether the variance was temporary or long term

73
Q

what should management do with a variance?

A

-act only if the variance is outside an agreed margin
-investigate the cause of variance &
whether it was avoidable or unavoidable
-fix the problem

74
Q

what to remember about adverse variance (+example)

A

it might result from something that is good that has happened in the business

eg: higher production costs than budget (adverse variance) that occur because sales are significantly higher than budget (favourable budget)

75
Q

4 bad behavioural implications of budgets:

A

-budgets are de-motivating if they are imposed rather than negotiated
-setting unrealistic targets adds to de-motivation
-budgets can contribute to departmental rivalry - battles over budget allocation
-it can result in a “use it or lose it” mentality - spend up to the budget to preserve it for next year

A LEVEL BUSINESS - TH (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions