An estimate/forecast of the income and expenditure
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What are limitations of setting a budget?
If the budget is unrealistic, may demotivate employees
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What makes a good budget?
Fits with the objectives of the business, balances
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What is variance?
The difference between the predicted figures and the actual fgures
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What is a cash-flow forecast?
Prediction of cash movements in and out of a business
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What are cash inflows?
Money coming into a business, usually in the form of revenue
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What are cash outflows?
Money leaving a business to pay day-today bills
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How do you work out the net inflow?
inflows - outflows
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How do you get the opening balance?
take the closing balance from the previous month
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How do you work out the closing balance?
Take the number from the net cash flow number
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What is a cash-flow statement?
A record of the actual cash movements of a business over a period of time
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What can cause cash-flow problems?
To much stock, poor payers, poor economic conditions, seasonal demand
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What are debtors?
People who owe a business money
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What are fixed costs?
Costs that are not directly related to the level of output e.g. factory, machines etc
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What are variable costs?
Costs that are directly related to the level of output
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What are total costs?
Fixed costs + variable costs
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How do you calculate the unit cost?
Total costs / output = the cost of producing 1 unit
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What is marginal cost?
The cost of producing one extra unit
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Define social cost. Give an example
When business's decisions are not always included in the business's own costs. Society pays for, fro example airways = pollution, tobacco = health problems
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What is an opportunity cost? give an example
What a business could spend money on, and what they would get back, for example, if a business spent money on a marketing campaign, the opportunity would be more customers, therefore more sales, therefore more profit
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What is contribution?
The revenue that is received from selling a product less the direct costs
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How do you work out contribution?
Revenue - direct costs
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How do you calculate contribution per unit?
Price - direct or variable costs
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How do you calculate the total contribution?
Contribution per unit x sales
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What is breakeven?
The point at which total revenue is equal to the total costs (TR = TC)
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How do you calculate breakeven?
Breakeven output = fixed costs / contribution per unit
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Define the margin of safety
The difference between the actual level of output and the breakeven level
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What are some benefits of breakeven analysis?
Tables and diagrams are easy to view, Useful when making decisions, margin of safety can be established
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What are some limitations of breakeven analysis?
The direct or variable costs may change, depending on the quantities involved
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What is investment appraisal?
Methods of assessing whether an investment is a feasible option
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Describe payback
Is an investment appraisal technique used to assess the amount of risk involved
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Give some advantages and disadvantages of using payback
Ad: Easy to use, useful for testing the risk Dis: Ignores value of money over time, Doesn't take into consideration cash flow
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What is ARR?
An investment appraisal technique used to assess the profitability of an investment
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Give some advantages and disadvantages of ARR
Ad: Takes into consideration cash flow Dis: No indication as to when cashflows occur
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What is a profit and loss account?
Measures the amount of profit or loss made over a given period of time
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What is a balance sheet?
A method of recording the value or wealth of a business at a given moment
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What are assets?
What the business owns
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What are liabilities?
What the business owes
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What's current?
Less than 1 year
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What is long-term?
More than 1 year
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Other cards in this set
Card 2
Front
What are limitations of setting a budget?
Back
If the budget is unrealistic, may demotivate employees
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