analysing financial performance: profit Flashcards
what’s variance?
the difference between the actual financial outcomes and those predicted
what’s variance analysis?
the process of calculating variances and attempting to establish what has caused them and what effect they might have on profit
what’s is favourable variance?
when the difference between budgeted and actual figures worsen a firms profit
define adverse variance
when the difference between budgeted and actual figures improves a firms budget
what’s break-even?
the point at which output of a business is just sufficient enough to cover its costs i.e. total cost and revenue are the same
what’s selected operating point?
the actual level of output of a firm
what’s margin of safety?
the amount by which the actual level of output exceeds the break even level of output
what’s contribution (per unit)?
the amount of money left after variable costs have been deducted that goes towards paying fixed costs and then towards making a profit
define profit
a profit is made when a firms revenue is greater than its total costs
what is profitability?
a measure of the financial performance of a business compared to some other factor such as revenue
what’s a profit margin?
a ratio that expresses a business’s profit as a percentage of its revenue
what’s budget?
a financial plan covering all aspects of costs and revenue over a period of time, often used for setting targets
what are two benefits of using budgets?
- to establish priorities- indicating level of importance
- motivate staff- giving greater responsibility and recognition when meeting targets
two drawbacks of using budgets?
- external factors changing outside the budget holder’s control
- incorrect allocations- a budget that is too generous may encourage inefficiency
what are 2 causes of variance?
- changes in material cost
- changes in quality of materials
