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What factors should be considered in addition to variance analysis in financial planning?
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Factors such as quality, supplier reliability, and customer satisfaction should be considered alongside variance performance.
Why is the margin of safety an important concept in break-even analysis?
It measures how much sales can drop before a business reaches its break-even point, indicating risk level.
How is the contribution per unit calculated?
Contribution per unit is calculated by subtracting the variable cost per unit from the selling price.
Explain the relationship between sales revenue, costs, and profit.
Profit is the remainder when total costs are subtracted from total sales revenue.
What are the key components of a budget?
Revenue budgets, cost or expenditure budgets, and profit budgets.
Explain the difference between fixed costs and variable costs.
Fixed costs do not change with output, whereas variable costs change with the level of production.
What is adverse variance, and why should it be analyzed carefully?
Adverse variance indicates poor performance, such as exceeding cost limits, and requires careful analysis for underlying causes.
In the context of sales forecasting, how does correlation function?
Correlation examines the relationship between two variables, which helps in predicting sales based on changes in related factors.
What does the break-even point represent in financial planning?
The break-even point is where total revenue equals total costs, resulting in neither profit nor loss.
How do historical budgets and zero-based budgets differ?
Historical budgets are based on past data, while zero-based budgets are created from scratch for each period.
What is the significance of a graphical representation in break-even analysis?
It visually displays the relationship between costs, revenue, and output, simplifying the understanding of break-even points.
Describe the purpose of variance analysis.
Variance analysis compares actual performance against budgeted targets to assess performance.
What are the main methods used in sales forecasting?
Correlation, Extrapolation, and Moving Average
How can extrapolation be used in sales forecasting?
Extrapolation involves predicting future sales based on existing trends, such as consistent increases in previous data.
Why might not all cost savings be beneficial, according to variance analysis?
Cost savings may lead to compromised quality or other negative factors, which could impact long-term business success.
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