Finance Planning Flashcards
What is a sales forecast?
Estimates the volume or value of future sales using market research or past sales data
What are the 5 purposes for sales forecasts?
- Avoid cash flow problem
- frees up management time
- production capacity
- employ more workers
- start promotional activity
What is sales volume?
The quantity of products sold
What is sales revenue?
The amount of money made from selling a product - quantity x price
What is the selling price?
How much the price of an item
What are fixed cost?
Costs that do not vary with the level of output eg. Rent
What is a budget?
an estimate of income or expenditure for a set period of time
What are the 4 main purposes of budgeting?
- Planning
- Forecasting
- Communication
- Motivation
How does a sales forecast allow a business to avoid cash flow problems?
Helps manage production, staff and financing needs more effectively and possibly avoid unforeseen cash flow problems
How does a sales forecast free up management time?
Allows the business owners to spend more time developing their business rather than responding to day to day developments in sales and marketing
How does a sales forecast help production capacity?
to estimate if they need to increase or decrease production – and this will also help them to see if they have enough production capacity to deal with expected demand
What is the purpose of a sales forecast in terms of employing more workers?
Allows the business to see increases in sales which could mean they need more workers to meet demand.
How does consumer trends affect sales forecast?
Understanding upcoming trends can allow businesses to capitalise on increase in sales.
What Economic Variables affect sales forecast?
interest rates, inflation, unemployment rate and GDP can all affect how a business plans its sales forecasts
How does actions of competitors affect sales forecast?
If the business has products that face declining sales, perhaps because of a competitor’s superior product, they may decide to produce or sell less of those products
What are the difficulties of sales forecast?
- No guarantees
- Dynamic market
- short term thinking
What is variable cost?
The amount a product is brought from the wholesaler
What does break-even mean?
the point at which Total Revenue equals Total Costs so the business is making neither a profit nor a loss
What is contribution?
the amount that each unit produced ‘contributes’ towards the fixed costs of the business
What are the uses of break even?
- used by businesses to know when they will stop making a loss
- used by business to write Thor business plan
What is the contribution formula?
Contribution = selling price - variable cost
What is the Full break even formula?
Fixed cost/Contribution
What is the Margin of safety?
The difference between the break even point and the current sales
What is the formula for margin of safety?
Actual sales - break even level of sales
What are the limitations of break even?
- Assumes everything that’s made is sold
- Only as accurate as the data they’re based on
What is a budget?
An estimate of income or expenditure for a set period of time
What are the purposes of budgets?
- Planning
- Forecasting
- Communication
- Motivation
What is a historical budget?
Using past financial performances to base a budget
What is a zero based budget?
Created by using figures based on potential performances
What are the difficulties of budgeting?
- inflexible so bad for dynamic businesses
- Tendency for managers to spend up to the limit
