Sales revenue and costs

Question 1

sales volume
formula

Answer 1

the amount of sales expressed as number of units sold
sales revenue/selling price

Question 2

sales revenue
formula
formula #2

Answer 2

amount of sales expressed as the total sum of money spent by customers
selling price X quantity sold
selling price X sales volume

Question 3

revenue
formula

Answer 3

money coming in from selling of goods and services
selling price X quantity sold

Question 4

fixed costs

variable costs

TVC formula

TC formula

Answer 4

costs that don’t change as a result of change in output in the short run

production costs which increase directly as output rises

variable cost per unit X output

FC+VC

Question 5

average cost
formula

profit

semi variable costs

Answer 5

cost per unit of production
total cost/output

total revenue-total costs

costs that consist of both fixed and variable costs

Question 6

ways to improve sales revenue

Answer 6

advertising
promotion
increased targeting
extend product range
extend distribution networks
develop relationships w custemors

Question 7

ways to improve sales revenue

Answer 7

changing prices
adding complementary services/products

Question 8

sales forecasting

Answer 8

prediction of future sales volume and trends often based on previous sales data

Question 9

factors affecting sales forecasting

Answer 9

consumer trends

economic variable:
interest rates, employment, exchange rates, inflation

Competitors :
comp entering or exiting the market
will impact on market share and therefore sales
Changes in price and promotion
(e.g. what if a competitor lowers price or increases promotional activities?)
Competitor is better able to respond to consumer trends

Question 10

Difficulties in sales forecasting

Answer 10

By definition the future is unknown and therefore uncertain
Changing external environment
Unpredictable events
Time frame
Past is not a clear indication of the future
Lack of perfect information

Question 11

1)consumer income

2)consumer trends

3)economic growth

4)economic variables

5)extrapolation

6)forecasting

7)time series data

Answer 11

6) a business process, assessing the probable outcome using assumptions about the future

Question 12

break even
- at this point….

break even output

contribution+formula: contribution per unit and total contribution

profit=

Answer 12

point at which a business is generating just enough profit to cover total costs
…TR=TC

output a bus must produce so that revenue covers costs

the amount of money left after variable costs have been subtracted from revenue

=selling price - variable cost
=total revenue - total variable cost OR unit contribution X numb of units sold

total contribution - fixed costs

Question 13

break even=

margin of safety
formula

Answer 13

fixed costs/contribution

the range of output between the break even level and the current level of output, over which a profit is made
MOS = current output - break even output

Question 14

limitations of break even analysis

Answer 14

1)assumes all output is sold
2)assumes unchanging market conditions
3)accuracy of data
4)non-linear relationships- eg cost of buying bulk, price of promotion
5)multi-product business-hard to allocate fixed cost for individual product + innacuracy risk

Question 15

benefits of B.E.A

Answer 15

Allows businesses to calculate the minimum number of sales needed before starting to make a profit and therefore for see if a venture is viable

Can calculate the level of profit or loss at different levels

Can predict the outcome of changing variables

Provides a target

An integral part of a business plan when seeking to secure finance

Aids decision making

Question 16

Cash flow forecast

Net cash flow

Answer 16

The prediction of all expected expenses and receipts of a business over a future time period which shows the predicted cash balance at the end of each month

Difference between cash inflows and outflows (in-out)

Question 17

Opening balance

Closing balance - formula

Solvency

Answer 17

The amount of cash a business has in begging of each month . Month 1= Amount of cash from. Previous trading period then last month’s closing balance

Amount of cash bus expects to have in end of each month- takes opening balance and net cash flow into account (net cash flow+opening balance)

the degree to which a business is able to meet its
debts when they fall due.

Question 18

Benefits of cash flow forecast

Answer 18

1)To identify the timing and significance of any
cash shortages/surpluses—- borrow cash and opportunities eg. new machinery. especially for bus w/seasonal demand =delay payments where cash inflows are low
2)To help secure finance from potential investors or the
bank
3)To give confidence about short term survival-(ENHANCING PLANNING PROCESS) if none more likely mistakes
4)monitoring cash flow to identify problems with cash- where problems have arisen eg. over payment

Question 19

Limitations of cash flow forecast

Answer 19

1)Based on predicted future inflows and outflows
therefore may be inaccurate
Informed by market research but this may be small
scale, biased or flawed
2)Affected by the external environment which is
outside of the entrepreneur’s control e.g. interest
rates change, a supplier goes out of business, a new
competitor opens
3)Demand may be over (or under) estimated
4) only focuses on cash- profit,profit margins,productivity also important
5)business uses resources when producing- time, employee wage, can spend too much time looking into and avoid other aspects eg. meeting customer needs

Question 20

budget

Answer 20

a quantitative economic plan prepared and agreed in advance

Question 21

purpose of budgeting

Answer 21

1) motivation due to responsibility= increased productivity
2)Provides a quantifiable target, that can be communicated to interested parties, against which actual outcomes can be measured ——e.g.
Are sales targets being achieved?
Are managers keeping expenditure under control?
Is the business operating efficiently to achieve profit targets?
3)EFFICIENCY-important to empower staff by delegating decision making. medium to large businesses budgeting gives financial control to lower levels of management who are best able to make decisions at their point in the business

Question 22

income budget

expenditure budget

profit budget

historical figures

Answer 22

a target set for the amount of revenue to be achieved in a set time period

a limit placed on the amount to be spent in a given period of time

a target set for the surplus between income and expenditure in a given period of time

quantifiable information bases off past trading records

Question 23

zero-based budegting

pos vs neg

opportunity cost

Answer 23

a system of budgeting where no money is allocated for costs or spending unless they can be justified by fund holder
1) motivation, reduces waste, flexible
2) time consuming
——————-
when choosing between different alternatives, it is the benefit lost from the next best alternative to the one chosen

Question 24

variance

variance analysis

adverse variance

favorable v

Answer 24

diff between actual financial outcomes and those budgeted

process of calculating variances and attempting to identify their causes

is one that is bad for the business
- Expenditure higher than budget
- income lower than budget
- Profit lower than budget

one that is good for the business
- Expenditure lower than budget
- Income higher than budget
- Profit higher than budget

Question 25

causes of variances

Answer 25

Action of competitors

Action of suppliers

Changes in the economy

Internal inefficiency
(Poor management of a budget
Demotivated sales team)

Internal decision making
(Change suppliers,Special promotions)

Question 26

difficulties of variances

Answer 26

Dependent upon predictions and forecasts

Costs are subject to change

• May be subject to bias and manipulation

Take time and effort which itself has an associated opportunity cost

short term-ism= focus on current budget too much may damage future business performance just to meet current business targets.

Question 27

1. average cost or unit cost
2. long run
3. short run
4. consumer income
5. consumer trends
6. economic variables
7. solvency
8. historical data

Answer 27

1. cost of producing one unit of output, calculated by dividing total output by total cost
2. time period where all factors of production are variable
3. time period where at least one factor of production is fixed
4. amount of income remaining after taxes and expenses have been deducted from wages
5. the habits or behaviors of consumers that determine the goods and services they buy
6. Measures within the economy which have effects on business and consumers. Examples include unemployment, inflation and exchange rates
7. The degree to which a business is able to meet its debts when they fall due.
8. quantitative info based off past trading records