2.2 Financial Planning Flashcards
sales forecasting
Predict future revenues based off past sales figures
factors effecting sales forecast 3
consumer trends
economic variables (exchange rate, inflation, unemployment, economic growth)
competitors actions
Difficulties of sales forecasting 3
requires skill, time
hard to avoid experience bias
hard to select right data as there is a significant amount available
sales revenue equation
selling price x qty sold
Fixed costs definition
Costs that do not change as level of output changes
Variable costs definition
Costs that change with a change in output
total costs definition and ATC equation
fixed + variable costs
ATC= total cost/qty
Contribution def/equation (same thing)
selling price - variable costs
Break even point definition and equation
when total revenue and total costs are even and firm is not making a profit nor a loss
fixed cost/ contribution
Margin of Safety
difference between actual output and break even output
Actual level of output − Break even level of output
Reasons for using a budget 3
Planning- can solve solutions in advance
Motivation- can help target goals and improve performance
Control- allows managers to control their area
Adverse vs Favourable budget variance
Favourable- when actual figure is better than budgeted figure
Adverse- When actual figure is worse than budgeted figure
limitations of break even analysis 3
less useful with firms who have more than one product
assumes that all units are sold
may be hard to change when costs, price change
revenue and costs do not always have linear relationship with output
Difficulties of budgeting 3
takes time and skill to set and monitor
encourages managers to focus short term
unachievable budget may demotivate staff
