2.2 financial planning Flashcards
sales forecasting
predicting future sales volumes/ values to inform key decisions
factors affecting sales forecasts
consumer trends
economic variables
actions of competitors
what economic variables affect sales forecasting
economy growth
interest rates
inflation
unemployment
exchange rates
how do actions of competitors affect sales forecasting
one business failing increases sales of another
competitor launches a rival product decreasing sales
marketing campaign with celebs may reduce market share
advantages of sales forecasting
helps with purchase of raw materials, promotions and staffing
disadvantages of sales forecasting
data may not be accurate
consumer trends are volatile
economic trends are volatile
what is sales volume
number of units sold by a business
what is sales revenue
value of units sold by a business - must be identified to get profit value (sales rev - cost)
what are fixed costs
costs that do not change - rent, insurance
what are variable costs
costs that change according to output - raw material costs, wages of workers
total cost
fixed costs + total variable costs
total variable cost
variable cost x quantity
contribution per unit formula
selling price - variable cost per unit
total contribution formula
(selling price - variable cost per unit) x units sold
break even formula (2)
fixed costs / total contribution
total costs = total revenue
Margin of safety
the difference between the actual level of output of a business and its break-even level of output
margin of safety formula
actual output - breakeven output
limitations of break even analysis
less useful if business produces more than one product
assumes all output is sold
charts cannot easily be changed if theres a change in price or costs
