E Flashcards
Why should you plan break-even?
it helps the business to work out how many items that they need to sell over a certain period to cover its costs and to use this information to set a prices that will enable it to make a profit
Why should you use monitoring with break even?
monitoring break-even helps alert the business to potential problems
Why should we try to control break-even?
controlling break-even can be used to idnetify where costs are increasing and allowing the business to take action and control
Why should we use target setting with break-even?
it helps a business to set targets for stakes,unit costs, contribution and profit
What are benefits of break-even?
+ a business is able to see whether its products it produces actuaally cover the variable cost
+ is used to set a price in relation to production cost
What are limitations of break-even?
- contribution per unit may be low, so business will need to sell a large amount to recover.
- contribution per unit on products may be high
- contribution per unit may be distorted and may not be valuable.
Why would break-even change if selling price changes?
if selling price is increased total revenue will increase and rise quicker, if selling price falls it revenue will drop
What happens to break-even if fixed costs increase?
total costs will increase if fixed costs increase
What happens to break even if variable costs change?
this will affect the total costs line, making it increase if cost increase and falls if costs decrease
What is the margin of safety?
This is the number or value of the units sold above the break-even point.
What does the gap between the margin of safety and break-even point show?
It shows how far sales could fall before they would affect the businesses ability to pay bills
What are four uses of cashflow forecast?
Planning
Monitoring
Control
Target setting
What are good ways to improve cash flow?
- reduce unecessary expenses
- sell debts to debt factor agency
- ecnourage suppliers to offer exntended credit
- request extension on bank overdraft
- sell and lease back assets
- set targets
encoruage debtors to pay quicker
What are benefits of cash flow forecasts?
Shoudl help business predict when they might have cash flow problems, can help plan financial needs and request extended overdrafts.
What are limitations of cash flow diagram?
don’t consider delayed payments which can increase net cashflow
