2.2 Financial Planning

Define sales forecasts

A prediction of future revenue based on past sales figures

Define sales volume

Number of units sold by a business

Define sales revenue

Value of units sold by a business

Define fixed costs

Costs that don’t change with output

Define variable costs

Costs that vary directly with output

Define total costs

The sum of fixed and variable costs

Define economies of scale

Increase in output results in lower costs per unit

Define contribution

A products selling prices minus variable costs

Define break even point

Where total revenue earned is equal to total costs

Define margin of safety

Difference between actual output and break-even level of output

Define budget

A financial plan that a business sets around costs and revenue

Define historical budget

Budgets based on historical data

Define zero-based budgeting

Requiring all spends to be justified

Define budget variance

Difference between figure budgeted and actual figure achieved

Define favourable variance

Actual figure is better than budgeted figure

Define adverse variance

Actual figure is worse than budgeted figure