sales revenue and costs Flashcards
what is the sales revenue formula?
sales x price
what are variable costs?
costs that change depending on the level of output/sales, e.g. materials
what are fixed costs?
costs that don’t change, e.g. rent
what is the formula for average cost?
total cost/output
what is the formula for profit?
total revenue-total costs
what are budgets?
a financial plan and a figure that you are restricted by when making decisions
why would a business set a budget?
to give them more control, and to ensure less mistakes are made and that money isn’t overspent etc
what are historical figures?
figures based on the sales of previous years used to calculate the next years’ budget
what is a drawback to using historical figures?
if a business is dynamic, it is hard to predict an accurate amount for the next years
what is a zero based budget?
a budget based on potential performance, where managers must justify their levels of expenditure
what is variance analysis?
the comparison of the forecast and the actual figures to analyse the accuracy of a budgeting process
what is favourable variance?
when you underspend and you have more money than you thought you would
what is adverse variance?
when a manager has overspent
the overall drawbacks to budgeting?
- can be difficult to forecast sales as future events are unpredictable
- time consuming
- can cause inter department rivalry as some departments get a higher budget than others
