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Theme 2 Business AS > Financial Planning > Flashcards

Financial Planning Flashcards

1
Q

What is a fixed cost?

A

A cost which doesn’t change with the output of the business.

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2
Q

What is a variable cost?

A

Costs connected to the output of the business

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3
Q

What is revenue?

A

The total income that a business receives from the sales of its outputs

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4
Q

What is the calculation for total cost?

A

Fixed costs + Variable costs

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5
Q

What is the calculation for revenue?

A

selling price X units sold

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6
Q

What is the calculation for profit?

A

Revenue - costs

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7
Q

What is the calculation for break even?

A

fixed costs / contribution per unit

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8
Q

What is the calculation for contribution?

A

selling price - variable cost per unit

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9
Q

What is the calculation for total contribution?

A

Total sales - total variable costs

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10
Q

What is the calculation for Margins of safety?

A

Planned output - break even output

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11
Q

What are the positives of breakeven? (3)

A

Impact of cost changes can be seen which help the business make decisions
Allows business to estimate the future level of output they will need to break even & hit a profit
Impact of price changes can be seen on profit

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12
Q

What are the drawbacks of breakeven? (4)

A

A business rarely charge same price for all products
Variable costs aren’t always constant, should TC line curve?
The output isn’t always sold at a constant price
A business may have a wide product range

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13
Q

What is favourable budgeting?

A

Underspending

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14
Q

What is adverse budgeting?

A

Overspending

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15
Q

What is a budget?

A

A financial plan for the future concerning the revenues and costs of a business

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16
Q

What is historical budgeting?

A

Uses last years figures as the basis for its budget

17
Q

Benefits of historical budgeting?

A

Realistic as it uses actual results

18
Q

Drawbacks of historical budgeting?

A

Circumstances may have changed

Doesn’t encourage efficiency

19
Q

What is zero budgeting?

A

Budgeted costs and revenues to be set at 0

20
Q

Benefits of zero budgeting?

A

Budgets are based on new prospects for sales and costs which are more realistic

21
Q

Drawbacks of zero budgeting?

A

More complicated and time consuming

22
Q

What is the calculation for profit variance?

A

expenses - budget

23
Q

What is a positive variance?

A

Actual result is better than budget

24
Q

What is a negative variance?

A

Actual result is worse than budget

Theme 2 Business AS (4 decks)

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