2.7 Financial planning Flashcards
Why do businesses carry out sales forecasts?
As it allows them to accurately see how much inflow there is and what they should spend their money on specifically to be as useful as possible.
What is sales volume?
The amount of units sold in a given time period.
What is sales revenue?
Quantity sold x Price of unit
What are business costs?
Direct costs in order to make the goods.
What are fixed costs?
Costs that stay the same such a salaries or rent.
What are variable costs?
Costs that can change with the level of output.
What are total costs?
Fixed costs + variable costs
What is average cost per unit sold?
Total costs / Units sold
What is breakeven?
When businesses revenue equals their total costs so they are starting to make profit.
What is budgeting?
The amount of money a business is allocating to specific things such as wages or advertisment.
Why do businesses budget?
So that they are able to allocate money without having to worry about overspending causing a negative cash flow which in the long run will lead to business failure.
What factors can affect the sales forecasts?
Competition activity, Economic variables ( recession) and consumer trends.
What are negatives of sale forecasts?
The further into the future that a business looks at the more inaccurate it will become.
How does PED link to financial planning?
It will help the business decide if increasing the price of the good will increase their profit or decrease it.
What are examples of fixed costs?
Rent, Interest charges, Local tax, Advertisement, Salaries, Heating and lighting.
What are examples of variable costs?
Raw materials, Piece rate pay, Fuel costs and packaging
What is the breakeven point?
The point at which a businesses revenue from sales meets the total costs meaning all goods since then are pure profit.
What is the margin of safety for breakeven?
The additional units sold once a business had broken even.
What are negatives of breakeven analysis’s?
They say that variable costs are always staying the same and that they have never changed their price of the product and what the sales where during that price change.
What is historical budgeting?
When a business uses last years budget and then makes adjustments to that.
What is zero based budgets?
They allocate budgets throughout the year when the money is needed.
