Edexcel As Business Topic 2.2 Financial Planning

Front 1

Sales forecast

Back 1

a prediction of likely sales in terms of volume and value over a period of time

Front 2

Contingency plan

Back 2

A plan of action devised as an alternative in case a problem arises

Front 3

Fixed costs

Back 3

those costs that do not vary in relation to the level of output e.g. rent

Front 4

Variable costs

Back 4

those costs that do increase as output increases and more is therefore spent on them e.g. raw materials

Front 5

Total variable costs

Back 5

the total sum of money spent on variable costs, often calculated as variable cost per unit x number of units produced

Front 6

Total costs

Back 6

Fixed costs + total variable costs

Front 7

Sales revenue

Back 7

The money raised from selling products or services, calculated as price per unit x number of units sold

Front 8

Sales volume

Back 8

The number of units sold by a particular business

Front 9

Break-even point

Back 9

the level of output at which sales revenue and total costs are the same. Neither a profit or a loss is made.

Front 10

Contribution

Back 10

The portion of the selling price of a product which contributes to paying off fixed costs. Calculated as selling price per unit - variable cost per unit.

Front 11

Total contribution

Back 11

The entire amount of contribution earned from a business' sales over a given time period. Calculated as contribution x number of units sold.

Front 12

Margin of safety

Back 12

The amount by which current or forecast output exceeds the level of output necessary to break even. Calculated as current or forecast output - break-even output.

Front 13

Break-even chart

Back 13

A chart which can be used to graphically display the revenue, fixed and total costs of a business at various levels of output and show the break-even output

Front 14

Income budget

Back 14

Setting a minimum figure for the revenue to be generated by a product, department or manager in order to achieve a business' plans

Front 15

Expenditure budget

Back 15

Setting a maximum figure for what a department of manager can spend over a period of time in order to help achieve the business' plans

Front 16

Adverse variance

Back 16

A difference between budgeted and actual figures that is damaging to the firm's profits (for example costs up or revenue down)

Front 17

Favourable variance

Back 17

A difference between the budgeted and actual figures that boosts the firm's profits (for example costs down or revenue up)

Front 18

Historical budgeting

Back 18

Setting budgets for managers or departments based upon previous historical data on revenue earned and costs incurred by that manager or department

Front 19

Zero budgeting

Back 19

Setting all future budgets initially at £0 and asking managers to justify the money they believe they need to spend in future