2.2 Financial Planning Flashcards
Why would we use sales forecasts ?
- keep up with demand(product) so you can match with the supply
- improve efficiency
- improve customer retention
- to achieve goals
- reduce waste
- to help predict revenue and profit for future planning
What is sales forecasting?
Is a projection of the expected customer demand for products or services at a specific company over a specific time horizon
What is contribution
Is the surplus made after all variable costs have been paid for from sales revenue. The surplus which remains is to pay for fixed costs
What is contribution
Is the surplus made after all the variable costs have been paid for from sales revenue. The surplus then goes to pay fixed costs
What is the order for drawing a break even analysis chart ?
1- draw axis Horizontal - units output Vertical -units of sales and costs 2-draw fixed cost line 3-draw variable cost line 4-draw total cost line 5-draw sales revenue line
If you have to interpret a break even chart sheet what should you write down
- revenue
- total costs
- profit
- fixed costs
- no of units sold
What is the formula for profit in terms of contribution
Contribution - fixed costs
What is a budget
A financial plan for the future concerning the revenues and costs of the business
What is prudence (budgets)
The budget should make sensible and cautious assumptions
- don’t be too optimistic on sales allow some contingency for budgeted costs
What is a completeness (budget)
Should include all known cost categories and ideally prepared in as much detail
What are the three types of budgets?
Sales
Profit (surplus/deficit)
Expenditure
What is a variance
Difference between the actual and budgeted figures
What is a favourable variance
The difference between the figures are beneficial
Sales are higher and costs are lower
What is an adverse variance
The difference between the figures are not beneficial (sales are lower costs are higher)
What is historical budgeting?
Using past figures to generate future budgets
