Breakeven/ contribution/ cash flow

Question 1

What is BREAKEVEN POINT?

Answer 1

Where the level of output for a business covers the costs of the business- no profit or loss is made

Question 2

Formula for BREAKEVEN

Answer 2

Fixed cost
__________________________

selling price - variable costs

Question 3

What can BREAKEVEN ANALYSIS be used for?

Answer 3

1) Estimate levels of output needed to produce and sell to meet profit targets#
2) see how changes in f/vc may affect profit
3) support applications for bank loans

Question 4

Internal factors affecting BREAKEVEN CHART

Answer 4

1) employing extra staff FC up = TC up = BE up
2) increasing prices REV up = BE down
3) replacing labour with automation FC up VC down

Question 5

External factors affecting BREAKEVEN CHART

Answer 5

1) recession cuts demand MOS affected however BE unaffected
2) price war forces price cut REV up less steeply = BE up
3) inflation increaseing VC

Question 6

What is CONTRIBUTION?

Answer 6

the difference between revenue and vc and is used to pay the companies fc once all fc have been paid the business makes a profit

Question 7

Formula for CONTRIBUTION

Answer 7

contribution = revenue - variable costs

Question 8

Solving cash flow problems: Speeding up cash inflows

Answer 8

~ encourage customers to pay quicker
~chase debts that arent paid on time
~factor debt

Question 9

Solving cashflow problems: Delaying cash out flows

Answer 9

~negotiate to pay suppliers later
~lease equipment instead of buying it
~rent rather than buy building

Question 10

Solving cash flow problems: Cutting/ delaying expenditure

Answer 10

~decrease stock levelss however risky if cut too low
~cut costs: different supplier that is cheaper may not be reliable/ reduced quality
~postpone expenditure

Question 11

Causes of cash flow problems: CREDIT SALES

Answer 11

~poor credit control
~long payment terms B2B

Question 12

Causes of cash flow problems: OVERTRADING

Answer 12

OVERTRADING is when a business gets 2 big 2 quickly leading to the cash flow probs
~increased capital expenditure
~addidtional overheads/ day2day expenses

Question 13

Causes of cash flow problems: SEASONALITY

Answer 13

demand fluctuates

Question 14

Causes of cash flow problems: UNEXPECTED EVENTS

Answer 14

contingency plan

Question 15

Causes of cash flow problems: INTERNAL MANAGEMENT

Answer 15

~stock control
~relationship with suppliers
~poor or inaccurate planning

Question 16

Finding additional funding to cover cash shortages

Answer 16

~overdrafts
~short/ long term loan
~sale and leaseback of assets