Finance Flashcards
What is Variance analysis ?
When we analyse the budget figures against want actually happens - may lead to variance
What are the two variance analysis ?
Favourable variance - when person has underspent
Adverse variance - overspent
What is a budget ?
A budget is an estimate income and expenditure for a set period of time
How can we find the income of a budget ?
Through sale forecast
What is expenditure budget?
What your expected to spend
What are the 4 purposes of budgeting?
Planning - vital for small business - to see what possible issues they may face - to help pay budgets
Forecasting - use sales history - preps to project possible profits enables owners to analysis sale margins
Communication - can help communicate obj for business - financial plan
Motivation - tied to perks - likely to be more cautious
What are the 2 types of budgets ?
Zero based budget -
No money is allocated to the budget unless it is justified
Takes away historical assumptions- also in time - accuracy enhanced
Historical budgets -Budget based upon previous financial figures
Realistic - based on last years sales
Subject to external influence - dynamic markets , social changes
What is a break even chart?
A chart that displays the amount of sales volume needed To break even
Show the level of output needed to make a profit
Show the relationship between the fixed costs and variable costs

What are the limitations of break even analysis?
Output in stock- Assumes all stock is sold and those are held
Unchanging conditions - due to external factors -
Break even chart cannot be easily amended when conditions like costs and selling price change
Accuracy of data - the effectiveness of the break even analysis depends on the quality of accuracy of data use
Nonlinear relationship- costs may be curved
Multiproduct businesses - different variable costs no harder to allocate possible fc
What are the uses of budgets?
Preparation of plans -help set targets and objectives
Comparison of plans with actual results
Variance analysis 
What are the five difficulties of budgeting?
Settling budget -or historical data may be out of date
motivation- some workers are left out during planning process
Manipulation- Could be set by managers to look successful but not help achieve objectives
Rigidity - Budget to make restrict business activities- can’t invest in opportunity
Short Termism - Managers may be too focused on current budget may undermine future performance of business labour costs that customer service
What is margin of safety?
Calculation shows the number of cells that could be lost before the business makes a loss
What is break even?
Where total costs equal total revenue
