Theme 2: Financial planning

Question 1

Contingency plans

Answer 1

Plans held in reserve in case things go wrong - for example, a cash flow forecast based on sales being 10 per cent lower than expected

Question 2

Real incomes

Answer 2

Changes in household incomes after allowing for changes in prices, i.e. percentage change in household income minus inflation = real income

Question 3

Sales forecast

Answer 3

A method of predicting future sales using statistical methods

Question 4

Trends

Answer 4

The general path that a series of values (for example, sales) follows over time, disregarding variations or random fluctuations

Question 5

Fixed costs

Answer 5

Those that do not change as the number of sales change (for example, rent or salaries)

Question 6

Piece-rate labour

Answer 6

Paying workers per item they make - that is, without regular pay

Question 7

Sales revenue

Answer 7

The number of units sold in a time period multiplied by the average selling price of those units

Question 8

Sales volume

Answer 8

The number of units sold in a time period, e.g. a year

Question 9

Total costs

Answer 9

All the costs of producing a specific output level, i.e. fixed costs + total variable costs

Question 10

Total variable costs

Answer 10

All the variable costs of producing a specific output level - that is, variable costs per unit x by the number of units sold

Question 11

Variable costs

Answer 11

Thos that change in line with the amount of business (for example, the cost of buying raw materials)

Question 12

Break-even chart

Answer 12

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

Question 13

Contribution

Answer 13

This is total revenue - variable costs. The calculation of contribution is useful for businesses that are responsible for a range of products

Question 14

Margin of safety

Answer 14

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

Question 15

Adverse variance

Answer 15

A difference between budgeted and actual figures that is damaging to the firm’s profit (for example, costs up or revenue down)

Question 16

Criteria

Answer 16

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

Question 17

Delegation

Answer 17

Passing authority down the hierarchy, to allow more junior employees some decision-making power

Question 18

Expenditure budget

Answer 18

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

Question 19

Favourable variance

Answer 19

A difference between budgeted and actual figures that boosts a firm’s profit (for example, revenue up or costs down)

Question 20

Income budget

Answer 20

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

Question 21

Zero budgeting

Answer 21

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