Business Planning and Cost Volume Profit

Question 1

Why is business planning important?

Answer 1

• As the company has limited capacity and resources, planning is one means of allocating scarce resources amongst competing users
• Business planning includes the determination and setting of goals for short term and long term development of the business
• Objectives of business strategies include changing goals and performance measurement
• Performance management includes reviewing performance reports and determining where future improvements can be made

Question 2

Definition of Goal

Answer 2

A goal is a desired result a person or a system envisions. Plans and commits to achieve a personal or organisational desired endpoint in some sort of assumed development. Many people endeavour to reach goals within a finite time by setting deadlines.

Question 3

Definition of Objective

Answer 3

An objective is a specific target for a business. Objectives must be specific, attainable, measurable, consistent and related to time. The objective of most businesses is to maximise profit. Other objectives include quality of service to customers and social and community objectives.

Question 4

Definition of Generic business strategy

Answer 4

A generic business strategy is one which is designed to be used by no one specific business or industry sector but rather can be applied across businesses and industries.

Question 5

Cost Leadership

Question 6

Differentiation

Question 7

Strategic initiatives/decisions

Answer 7

Strategic initiatives are initiatives put into place to help the business gain a competitive advantage

Question 8

Performance management

Question 9

Reducing costs and risks

Question 10

Definition of a cost:

Answer 10

An economic sacrifice of resources for a particular purpose, such as making a product or providing a service.

Question 11

Definition of a fixed cost:

Answer 11

Fixed costs are those relatively fixed over a range of activity, volume, or output. They do not change as a direct result of changes in volume (amount of goods produced).

Question 12

Examples of fixed costs:

Answer 12

• rent/rates
• management salaries
• depreciation
• building insurance
• interest on loans

Question 13

Definition of a variable cost:

Answer 13

Variable costs vary directly and proportionately with changes in the level of activity, volume or output. This means that if volume or output goes up or down, costs will go up/down by a proportionate amount.

Question 14

Examples of variable costs:

Answer 14

• Wages of employees who make the product (factory wages)
• raw materials

Question 15

Definition of a mixed cost:

Question 16

Examples of mixed costs: