2.2 Financial planning

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What is the purpose of sales forecasting?
To provide information that you can use to make intelligent business decisions
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What factors affect sales forecasting?
Consumer trends, economic variables, actions of competitors
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What are the difficulties of sales forecasting?
Only works if the future is the same as the past
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What is sales volume?
Simply the number of units sold
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What is sales revenue?
Sales volume x Price
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What are fixed costs?
Any costs that don't vary directly with the level of output
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What are variable costs?
Costs which vary directly with the level of output
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How do you calculate contribution?
Selling price - variable cost per unit
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How do you calculate the break even output?
Fixed costs / (selling price per unit - variable cost per unit)
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How do you work out the margin of safety?
Sales - break-even point
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What are the key factors in interpreting break-even charts?
Profit can be estimated as the vertical difference between the revenue line and the total costs line. No company really has static sales
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What are the limitations of break-even analysis?
The model is a simplification (assumes variable costs increase constantly), assumes the firm sells all its output at a single price, assumes all output is sold, it is only true at one point in time
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What is the purpose of budgets?
Ensure that no part of the company spends more than expected, provide a yardstick against which a manager's success or failure can be measured, to enable spending power to be delegated to local managers, motivate staff
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What are the two types of budgets?
Historical figures and zero based
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What is variances analysis?
The amount by which the actual result differs from the budgeted figure, measured each month, by comparing the actual outcome with the budgeted one
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What are the difficulties of budgeting?
Businesses need to decide whether designing and implementing a budgeting system will cost more in terms of time and money than it could save
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Other cards in this set

Card 2

Front

What factors affect sales forecasting?

Back

Consumer trends, economic variables, actions of competitors

Card 3

Front

What are the difficulties of sales forecasting?

Back

Preview of the front of card 3

Card 4

Front

What is sales volume?

Back

Preview of the front of card 4

Card 5

Front

What is sales revenue?

Back

Preview of the front of card 5
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