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Business Revision Accounting and finance
Budgeting is the process of setting targets. It can be seen as a way of turning a firm's
strategy into reality.
Reasons for setting budgets are:
o To ensure no one overspends what the company expected
o Provide a measure of manager success
o Enable spending to be delegated
Ways of setting budgets:
o Incremental approach is taking last years figure and making an allowance for inflation
and other changes.
o Zero budgeting is when all departments are given a zero budget and managers have to
bid for the money they want.
Variances A variance is how much the actual result differs from the budge, usually measured
Cash flow forecasting Is required when applying for a loan.
Cash flow forecasts set out anticipated cash inflows and outflows over a period of months.
Solving cash flow problems:
o Speed up inflow
o Delay cash outflow
o Decrease or delay expenditure
o Finding additional funding
Fixed Costs Costs that don't change with output.
Variable Costs change with output produced.
Semivariable costs Costs with elements of fixed and variable costs.
Direct costs Are costs that are directly physically tangible to the product.
Indirect costs can not be identified with a unit of production.
Marginal costs The marginal cost of production is the increase in total cost as a result of
producing one extra unit
Supply and demand curve
Factors which affect demand include fashion, compliment and substitute products and
Factors which affect supply include price, factors of production and technology.
The factors of production are: capital, enterprise, land and labour.
Break even analysis Compares a firm's revenue
with total costs to identify the minimum sales level
needed to make a profit.
Break even point = Fixed costs divided by
Contribution equals sales price minus variable cost
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To calculate how many units are required to make a certain profit, use the equation:
Fixed costs plus Profit divided by contribution.
Payback period Amount of time it takes for a project to recover or payback initial outlay.
Equation for payback period is (Amount invested divided by monthly return)
Accounting rate of return Measures the net return each year (profit or saving) as a
percentage of the initial cost of the investment.…read more