2.2 Financial planning

Question 1

consumer income

Answer 1

the amount of income remaining after taxes and expenses have been deducted from wages

Question 2

consumer trends

Answer 2

the habits or behaviours of consumers that determine the goods and services they buy

Question 3

economic growth

Answer 3

the rise in output of an economy as measured by the growth in GDP

Question 4

economic variables

Answer 4

measures within the economy which have effects on business and consumers. E.g. unemployment, inflation and exchange rates

Question 5

extrapolation

Answer 5

forecasting future trends based on past data

Question 6

forecasting

Answer 6

a business process, assessing the probable outcome using assumptions about the future

Question 7

sales forecast

Answer 7

projection of future sales revenue, often based on previous sales data

Question 8

time series data

Answer 8

a method that allows a business to predict future levels from past figures

Question 9

average cost/unit cost

Answer 9

the cost of producing one unit, calculated by dividing the total cost by the output

Question 10

fixed cost

Answer 10

a cost that does not change as a result of a change in output in the short run

Question 11

long run

Answer 11

the time period where all factors of production are variable

Question 12

profit

Answer 12

the difference between total costs and total revenure

Question 13

sales revenue

Answer 13

the value of output sold in a particular time period, it is calculated by price × quantity of output

Question 14

sales volume

Answer 14

the quantity of output sold in a particular time period

Question 15

semi-variable cost

Answer 15

a cost that consists of both fixed and variable elements

Question 16

short run

Answer 16

the time period where at least one factor of production is fixed

Question 17

total cost

Answer 17

the entire cost of producing a given level of output

Question 18

total revenue

Answer 18

the amount of money the business receives from selling output

Question 19

variable cost

Answer 19

a cost that rises as output rises

Question 20

break-even

Answer 20

when a business generates just enough revenue to cover its total costs

Question 21

break-even chart

Answer 21

a graph containing the total cost and total revenue lines, illustrating the break-even output

Question 22

break-even output

Answer 22

the output a business needs to produce so that its total revenue and total costs are the same

Question 23

break-even point

Answer 23

the point at which total revenue and total costs are the same

Question 24

contribution

Answer 24

the amount of money left over after variable costs have been subtracted from revenue

Question 25

margin of safety

Answer 25

the range of output between the break-even level and the current level of output, over which a profit is made

Question 26

budget

Answer 26

a quantitative economic plan prepared and agreed in advance

Question 27

budgetary control

Answer 27

a business system that involves making future plans, comparing the actual results with the planned results and then investigating the causes of any differences

Question 28

historical figures

Answer 28

quantitative information based on past trading records

Question 29

production cost budget

Answer 29

a firm’s planned production costs for a future period of time

Question 30

sales budget

Answer 30

a firm’s planned sales for a future period of time, can be measured in terms of volume or revenue

Question 31

variance

Answer 31

the difference between actual financial outcomes and those budgeted

Question 32

variance analysis

Answer 32

the process of calculating variances and attempting to identity their causes

Question 33

zero-based budgeting

Answer 33

a system of budgeting where no money is allocated for costs or spending unless they can be justified by the fund holder