Definitions 2.2 Flashcards
Contribution
this is total revenue less variable costs. The calculation of contributions useful for businesses that are responsible for a range of products
Margin of safety
the amount by which current output exceeds the level of output necessary to break even
Adverse variance
a difference between budgeted and actual figures that is damaging to the firms profit (e.g. costs up or revenue down)
Criteria
yardsticks against which success (or lack of it) can be measured
Expenditure budget
setting a maximum figure on what a department or manager can spend over a period of time; this is to control costs
Favourable variance
a difference between budgeted and actual figures that boosts a firm’s profit
Income budget
setting a minimum figure for the revenue to be generated by a product, a department or a manager
Zero budgeting
setting all future budgets at £0, to force managers to have to justify the spending levels they say they needed in the future
Corporation tax
a levy on the incomes of companies, i.e. you pay a percentage of your pre-tax profits
Dividends
annual payments made to shareholders
Fixed overheads
the indirect costs that have to be paid however the business is performing e.g. rent and salaries
Contingency finance
planning for the unexpected by either keeping a cash cushion in the firms current account or keeping an overdraft facility little-used
Credit period
the length of time a supplier allows a buyer to wait before paying, e.g. 60 days after the bill has been sent
Liquidation
closing the business down by selling off all the assets, paying debt and returning what is left ot the shareholders
Liquidity
the ability of a business to pay its bills on time, which all depends upon having enough cash in the bank
Working capital cycle
how long it takes for a complete cycle from cash out (buying stock) to cash back in from the customer payment. It could very from one day (for example, for fruit and veg stall) to one year (for example, a house builder)
Administration
when the directors of a business feel forced by the threat of insolvency to hand over management control to an administrator (usually an accountant), who may try and sell the business, or perhaps close it down and sell off the assets
Business model
the underlying plan of how the business is going to make a profit in the long term
Enterprise resource planning (ERP)
planning that logs all of a firms costs, working methods and resources within a piece of software; this provides a model of the business that can be answered with questions such as “when do we need to start working to get stocks made in time for delivery before Christmas?”
Supply chain
the whole path from suppliers of raw materials through production and storage on to customer delivery
Barrier to entry
factors that make it hard for new firms to break into existing markets - for example, strong brand loyalty to the current market leaders
GDP
gross domestic product is the vale of all the goods and services provided in one year
Job enrichment
giving people the opportunity to use their ability
Lean production
focusing on minimising wastage of resources throughout the supply process e.g. minimum stock levels and minimum wastage through poor quality
Downtime
any period when machinery is not being used in production; some downtime is necessary for maintenance, but too much may suggest incompetence
Excess capacity
when there is more capacity then justified by current demand (that is, utilisation is low)
Rationalisation
reorganising in order to increase efficiency. This often implies cutting capacity to increase the percentage utilisation
Subcontracting
where another business is used to perform or supply certain aspects of a firms operation
Buffer stock
the desired minimum stock level held by a firm just in case something goes wrong
Competitive advantage
a feature that gives one business an edge over its rivals
