KT21: 2.2.3 breakeven, 2.2.4 budgets

Question 1

break-even chart

Answer 1

a line graph showing total revenues and total costs at all possible levels of output or demand from zero to maximum capacity

Question 2

contribution

Answer 2

this is total revenue less variable costs. the calculation of contribution is useful for businesses that are responsible for a range of products

Question 3

Fixed costs

Answer 3

those that do not change as the number of sales change

Question 4

Margin of safety

Answer 4

the amount by which current output exceeds the level of output necessary to break even

Question 5

variable costs

Answer 5

those that change in line with the amount of business

Question 6

adverse variance

Answer 6

a difference between budgeted and actual figures that is damaging to the firm’s profit

Question 7

criteria

Answer 7

yardsticks against which success (or lack of it) can be measured

Question 8

delegation

Answer 8

passing authority down the hierarchy to allow more junior employees some decision making power

Question 9

expenditure budget

Answer 9

setting a maximum figure on what a department or manager can spend over a period of time; this is to control costs

Question 10

favorable variance

Answer 10

a difference between budgeted and actual figures that boosts a firm’s profits

Question 11

income budget

Answer 11

setting a minimum figure for the revenue to be generated by a product, department or manager

Question 12

zero budgeting

Answer 12

setting all future budgets at £0, to force managers to have to justify the spending levels they say they need in future