What is the purpose of sales forecasts ?

Sales forecasts predict future revenues based on past sales figures.

True or False? Sales forecasts commonly focus on the past.

False . Sales forecasts commonly focus on what will happen in the future , though they often use past data to make predictions.

Define the term consumer trends .

Consumer trends refer to patterns of behaviour and preferences among consumers regarding their purchases of products.

True or False? During periods of economic growth, increased consumer incomes can lead to higher than forecast sales for many products.

True . During periods of economic growth, increased consumer incomes will lead to higher than forecast sales for most normal and luxury goods.

State the meaning of inflation .

Inflation is the general increase in prices over time , which reduces consumers' spending power.

How might increased levels of unemployment affect sales forecasts?

Increased levels of unemployment are a key cause of reduced spending in the economy, which can lead to lower sales than forecast.

Define the term exchange rate .

An exchange rate is the value of one currency in terms of another .

True or False? Competitor actions have no impact on sales forecasts.

False . Competitor actions should be considered in sales forecasts.

State two sources of data for sales forecasts.

Sources of data for sales forecasts include: Past sales data Government data Media coverage Trade body predictions Competitor performance

What is meant by experience bias ?

Experience bias is the forming of opinions about the future based on experiences in the past.

Define the term sales volume .

Sales volume is the number of units sold by a business.

Define the term sales revenue .

Sales revenue is the value of the units sold by a business.

True or False? Sales revenue usually falls as the sales volume increases

False . Sales revenue usually increases as the sales volume increases.

Define the term fixed costs (FC).

Fixed costs are costs that do not change with the level of output and have to be paid even if output is zero.

What are variable costs (VC)?

Variable costs are costs that are directly linked to the level of output . They increase as output increases and decrease as output decreases.

True or False? Total costs usually decrease as the sales volume increases.

False . Total costs usually increase as the sales volume increases.

What is meant by the term contribution ?

Contribution refers to a product’s s elling price minus the variable costs directly involved in producing that unit.

True or False? Average unit costs usually decrease as the sales volume increases.

True . Average unit costs usually decrease as the sales volume increases as fixed costs are spread across more units.

What is the break even point ?

The break even point is the level of output at which total revenue equals total costs , resulting in neither profit nor loss.

True or False? The break even point indicates profit.

False . The break even point indicates the level of output at which neither profit nor loss is made.

True or False? Each subsequent unit sold past the break even point generates profit for a business.

True . Each subsequent unit sold past the break even point generates profit for a business.

What is the margin of safety ?

The margin of safety is the difference between actual output and the break even level of output.

What does a break even chart show?

A break even chart shows the break even point, fixed costs, total costs, revenue over a range of output, and the margin of safety.

True or False? Fixed costs change as output increases.

False . Fixed costs remain constant regardless of the level of output.

What is meant by the term contribution ?

Contribution refers to a product’s selling price minus the variable costs directly involved in producing that unit.

True or False? Break even analysis is more useful when businesses produce more than one product.

False . Break even analysis is less useful when businesses produce more than one product.

True or False? Break even analysis assumes that all output is sold.

True . A key limitation of break even analysis is that it assumes all output is sold.

A budget is a financial plan that a business sets for costs and revenue.

True or False? Budgeting requires different parts of a business to operate as part of a coordinated whole.

True . Budgeting requires different parts of a business to operate as part of a coordinated whole.

True or False? Budgets are usually set annually.

True . Budgets are usually set annually and then monitored on a monthly basis.

What is a historical figure budget ?

A historical figure budget is based on past data , such as sales and costs from previous years.

Define zero based budgeting .

Zero based budgeting is an approach where budgets are not allocated , requiring all spending to be justified.

What is a budget variance ?

A budget variance is the difference between a budgeted figure and the actual figure achieved by the end of the budgetary period.

True or False? A favourable variance means actual figures are worse than budgeted figures.

False . A favourable variance means actual figures are better than budgeted figures.

What is the purpose of variance analysis ?

The purpose of variance analysis is to identify reasons for differences between actual and budgeted figures , aiding in decision-making and performance evaluation.

What type of variance exists when the actual profit figure achieved is worse than the budgeted profit figure?

When the actual profit figure achieved is worse than the budgeted profit figure, an adverse variance exists.

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2.2 Financial Planning (Edexcel A Level Business)

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Front2.2.1 Sales Forecasting
What is the purpose of sales forecasts?

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What is the purpose of sales forecasts?
Sales forecasts predict future revenues based on past sales figures.
True or False?
Sales forecasts commonly focus on the past.
False.
Sales forecasts commonly focus on what will happen in the future, though they often use past data to make predictions.
Define the term consumer trends.
Consumer trends refer to patterns of behaviour and preferences among consumers regarding their purchases of products.
True or False?
During periods of economic growth, increased consumer incomes can lead to higher than forecast sales for many products.
True.
During periods of economic growth, increased consumer incomes will lead to higher than forecast sales for most normal and luxury goods.
State the meaning of inflation.
Inflation is the general increase in prices over time, which reduces consumers' spending power.
How might increased levels of unemployment affect sales forecasts?
Increased levels of unemployment are a key cause of reduced spending in the economy, which can lead to lower sales than forecast.
Define the term exchange rate.
An exchange rate is the value of one currency in terms of another.
True or False?
Competitor actions have no impact on sales forecasts.
False.
Competitor actions should be considered in sales forecasts.
State two sources of data for sales forecasts.
Sources of data for sales forecasts include:
- Past sales data
- Government data
- Media coverage
- Trade body predictions
- Competitor performance
What is meant by experience bias?
Experience bias is the forming of opinions about the future based on experiences in the past.
Define the term sales volume.
Sales volume is the number of units sold by a business.
Define the term sales revenue.
Sales revenue is the value of the units sold by a business.
True or False?
Sales revenue usually falls as the sales volume increases
False.
Sales revenue usually increases as the sales volume increases.
Define the term fixed costs (FC).
Fixed costs are costs that do not change with the level of output and have to be paid even if output is zero.
What is the formula to calculate total costs (TC)?
Formula.
$Total costs = Fixed costs + Total variable costs$
What are variable costs (VC)?
Variable costs are costs that are directly linked to the level of output. They increase as output increases and decrease as output decreases.
State the formula to calculate sales revenue.
Formula.
$Sales revenue = Selling price \times Number of items sold$
True or False?
Total costs usually decrease as the sales volume increases.
False.
Total costs usually increase as the sales volume increases.
What is meant by the term contribution?
Contribution refers to a product’s selling price minus the variable costs directly involved in producing that unit.
True or False?
Average unit costs usually decrease as the sales volume increases.
True.
Average unit costs usually decrease as the sales volume increases as fixed costs are spread across more units.
What is the break even point?
The break even point is the level of output at which total revenue equals total costs, resulting in neither profit nor loss.
True or False?
The break even point indicates profit.
False.
The break even point indicates the level of output at which neither profit nor loss is made.
State the formula to calculate the break even point
Formula.
$Break even point = \frac{Fixed costs}{Selling price - Variable costs per unit}$
True or False?
Each subsequent unit sold past the break even point generates profit for a business.
True.
Each subsequent unit sold past the break even point generates profit for a business.
What is the margin of safety?
The margin of safety is the difference between actual output and the break even level of output.
What does a break even chart show?
A break even chart shows the break even point, fixed costs, total costs, revenue over a range of output, and the margin of safety.
True or False?
Fixed costs change as output increases.
False.
Fixed costs remain constant regardless of the level of output.
What is meant by the term contribution?
Contribution refers to a product’s selling price minus the variable costs directly involved in producing that unit.
True or False?
Break even analysis is more useful when businesses produce more than one product.
False.
Break even analysis is less useful when businesses produce more than one product.
True or False?
Break even analysis assumes that all output is sold.
True.
A key limitation of break even analysis is that it assumes all output is sold.
What is a budget?
A budget is a financial plan that a business sets for costs and revenue.
True or False?
Budgeting requires different parts of a business to operate as part of a coordinated whole.
True.
Budgeting requires different parts of a business to operate as part of a coordinated whole.
True or False?
Budgets are usually set annually.
True.
Budgets are usually set annually and then monitored on a monthly basis.
What is a historical figure budget?
A historical figure budget is based on past data, such as sales and costs from previous years.
Define zero based budgeting.
Zero based budgeting is an approach where budgets are not allocated, requiring all spending to be justified.
What is a budget variance?
A budget variance is the difference between a budgeted figure and the actual figure achieved by the end of the budgetary period.
True or False?
A favourable variance means actual figures are worse than budgeted figures.
False.
A favourable variance means actual figures are better than budgeted figures.
What is the purpose of variance analysis?
The purpose of variance analysis is to identify reasons for differences between actual and budgeted figures, aiding in decision-making and performance evaluation.
State the formula used to calculate the profit variance.
Formula.
$Profit variance = Actual profit - Budgeted profit$
What type of variance exists when the actual profit figure achieved is worse than the budgeted profit figure?
When the actual profit figure achieved is worse than the budgeted profit figure, an adverse variance exists.