Finacial performance and planning p2

Question 1

What are the limitations of break even analysis?

Answer 1

• it assumes that all output is sold
• many businesses produce more than one single product which have different costs
• fixed costs can change

Question 2

What is break even?

Answer 2

When a business generates just enough revenue to cover its total costs

Question 3

What is contribution?

Answer 3

The amount of money left over after variable costs have been subtracted from revenue

Question 4

What is margin of safety?

Answer 4

The range of output between the break even level and the current level of output, over which a profit is made

Question 5

What are the purposes of a budgets?

Answer 5

-control and monitoring
-planning
-communication
-coordination
-motivation

Question 6

What is variance?

Answer 6

The difference between actual financial outcomes and those budgeted

Question 7

What are problems of setting budgets?

Answer 7

-budgets may not be correct
-time need to be spent on it
-might set over ambitious objectives