2.2 key terms

Question 1

Defins sales forecasting

Answer 1

A business using a range of techniques to predict future sales volume and values. Sales forecasting is a key business process as the information will be useful in many other key decisions for the business I.e. staffing, marketing, managing cash flow etc

Question 2

Define break even output

Answer 2

the point where a business’s revenue generated through the sales of its products will cover its total costs. At break-even, the business is not making a profit or a loss.

Question 3

Define margin of safety

Answer 3

The amount that sales can fall before the break-even point is reached and the business makes no profit. Is also known as a safety net for the business.

Question 4

Define contribution per unit

Answer 4

How much each units contributes to costs initially and profit in the long term

Question 5

Define budgets

Answer 5

A financial plan with an agreed spending limit within a business which clearly maps out how a business may spend its money over the course of a year

Question 6

What is a historical budget?

Answer 6

A budget set for the business using current/past financial figures.

Question 7

What is a zero-based budget?

Answer 7

A budget set for the business by using figures based on potential performance.

Question 8

Define variance analysis

Answer 8

This compares the forecast data to the actual figures and can be used to analyse the accuracy of the budgeting process.