Sales forecasting and breakeven (2.2.1/2.2.3)

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What is the purpose of sales forecasting?
It allows businesses to make better decisions, such as whether to increase production, recruit staff or hire extra premises.
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What are the main factors which affect sales forecasts? (4)
Consumer trends, Economic variables, Competition and External factors.
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How may consumers affect sales forecasts?
Consumers change their minds often and companies should be aware of any market trends that could affect their products.
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Why might changes in consumer trends occur?
Advanced technology creating demand for different products/services. Environmental or ethical issues. Fashion changes. Celebrity endorsements.
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How may economic variables affect sales forecasting?
In times of economic decline, for example, average consumers have less disposable income than they would have during economic growth.
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Why does competition affect sales forecasting?
Businesses may not know when competition may establish or expand, it is hard to predict. Companies also need to ensure they're up to date on what new products/services businesses are bringing to the market.
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How may external factors affect sales forecasting?
Businesses that import/export goods and supplies may be affected in such events as war or a natural disaster.
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What are the difficulties of using sales forecasts?
Less accurate over long periods of time. They're only predictions and so they should not be fully depended on. Economic decline, competition and external factors are not included. Doesn't take into account of the market as a whole, just the firms POV
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What is the calculation for sales volume?
Sales volume = total sales revenue / selling price per product
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What is the formula for sales revenue?
Sales revenue = price per unit x number of units sold
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What are fixed costs?
These are the costs of a business that never change, regardless of how many goods are produced, advertised or sold.
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What are some examples of fixed costs?
Council tax, insurance, annual interest, property rent, salary, equipment rental, electricity.
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What is the calculation for annual interest paid?
Annual interest paid = total loan amount x interest rate
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What are variable costs?
These are costs that change with every good/service sold by a business. The more goods a company produces, the higher the variable costs.
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What are some examples of variable costs?
Raw materials, production supplies, by-the-hour contract workers, transport per item.
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What is the difference between fixed and variable costs?
Variable costs will mostly change all the time whereas fixed costs don't usually change. Fixed costs are usually more expensive up front costs than variable costs.
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What is the calculation for average variable cost?
Average variable cost = total variable cost / sales volume
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What is the calculation then for total variable costs?
Total variable cost = average variable cost x sales volume
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What is meant by break-even?
Shows where a company is neither making a profit nor a loss. It is the mark where total costs and total revenue cross, i.e where both figures are exactly the same.
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What is contribution?
This is the difference between what variable costs a company has for making a single product and how much revenue they earn from selling it.
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What is the calculation for contribution?
Contribution = selling price of one good - variable costs of one good
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What are total costs?
The sum of variable costs and fixed costs together (added up). Fixed costs always stay the same while variable costs are dependent on how many units you produce.
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What is the calculation for total costs?
Total costs = fixed costs + total variable costs
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What is the calculation for break even?
Break even point = total fixed costs / contribution per units
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What is margin of safety?
This shows the difference between the break even point that a company needs to exceed in order to make a profit and the actual output of the company is making.
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What is the calculation for margin of safety?
Margin of safety = actual sales volume - break even
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What is the calculation for total variable costs?
Total variable costs = variable cost p/unit x sales volume
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However, what is the calculation for total variable costs if you don't know the original variable cost p/unit?
Total variable cost = total costs - fixed costs
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What are the disadvantages of break-even analysis?
Only takes into account elements that the firm can control such as price p/unit-doesn't consider external factors. Difficult to look at more than one product at a time. All costs include only those that a business can plan for-not unforeseen costs.
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-carried on from the last question-
Businesses usually buy in bulk, reducing the cost of variable costs-this would effect the graph. Breakeven graphs only work for companies selling a item at one price. Good products don't always sell. B/E graphs show that revenue + as price +.
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Other cards in this set

Card 2

Front

What are the main factors which affect sales forecasts? (4)

Back

Consumer trends, Economic variables, Competition and External factors.

Card 3

Front

How may consumers affect sales forecasts?

Back

Preview of the front of card 3

Card 4

Front

Why might changes in consumer trends occur?

Back

Preview of the front of card 4

Card 5

Front

How may economic variables affect sales forecasting?

Back

Preview of the front of card 5
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