Projection of future sales revenue, often based on previous sales data
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What are the benefits of sales forecasting?
Inform cash flow forecasts and give the business a clear idea of what cash inflows will be/ Allow the business to plan orders of supplies and components/ Enable business to ensure it has right staffing levels and has the capacity to meet orders.
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What factors affect sales forecasting?
Consumer trends/Seasonal variations/Fashion/Long term trends/Economic growth/interest rates/inflation/unemployment/exchange rates/actions of competitors
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What is a fixed cost?
A cost that does not change as a result in a change in output in the short run e.g. rent, insurance, factories, machinery, heating bills
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What is a variable cost?
A cost that rises as output rises e.g. raw materials, fuel, packaging, wages
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What is meant by sales volume?
The quantity of output sold in a particular time period
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What is the formula for break even output?
Fixed Costs/Contribution
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What is meant by contribution?
The amount of money left over after variable costs have been subtracted from revenue. The money contributes towards fixed costs and profit.
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What is the margin of safety?
The range of output between the break even level and the current level of output, over which a profit is made.
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What are the limitations of break even analysis? page 183
Output and stocks/Unchanging conditions/Accuracy of data/Non-linear relationships/Multi-product businesses/Stepped fixed costs
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What is a variance?
The difference between actual financial outcomes and those budgeted
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What is zero based budgeting?
A system of budgeting where no money is allocated for costs or spending unless they can be justified by the fund holder
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What is a budget?
A budget is a financial plan that is agreed in advance. It is a planned outcome that the firms hope to achieve
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What are the benefits of budgeting? page 185
Control and monitoring/Planning/Co-ordination/Communication/Efficiency/Motivation
The difference between gross profit and business overheads, such as selling and administrative expenses
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What is meant by operating profit margin?
Operating profit expressed as a percentage of revenue
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What is the formula for gross profit margin?
Gross profit/revenue x 100%
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What is the formula for operating profit margin?
Operating profit/revenue x 100%
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What are non-current assets?
Non-current assets are long term resources that will be used repeatedly by the business over a period of time. They may be called fixed assets. examples-land, property,equipment,tools,vehicles
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What are current assets?
Current assets are assets that will be changed into cash within 12 months. They are liquid assets.examples-stocks of raw materials,components and finished goods
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What are current liabilities?
Any money owed by a business that must be paid within 1 year. examples- loans and other borrowings, trade and other payables, current tax liabilities
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What are non-current liabilities?
Non-current liabilities relate to long term loans and any other money owed by the business that does not have to be repaid for at least 1 year. e.g. bank loans, mortgages,company pension funds
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What is the formula for working out the current ratio?
Current assets/current liabilities
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What is the formula for working out the acid test ratio?
Current assets-inventories/current liabilities
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What are intangible assets?
Non physical assets, such as brand names, patents and customer lists
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What is meant by working capital?
The funds left over to meet day to day expenses after current debts have been paid. calculation Working capital=Current assets- Current liabilities
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What ways can liquidity be improved? page 199
Use of overdraft facilities/Negotiate additional short term or long term loans/Encourage cash sales and sell off stocks/Sale and leaseback/Only make essential purchases/Extend credit with selected suppliers/introduce fresh capital
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Other cards in this set
Card 2
Front
What is a sales forecast?
Back
Projection of future sales revenue, often based on previous sales data
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