Analysing financial performance

• What is a variance?

  A difference between actual and budgeted figures
• What are the two types of variances?

  Favorable and adverse variances
• When is a variance considered favorable?

  When actual figures are better than expected
• What is an adverse variance?

  When actual figures are worse than expected
• How do you calculate profit variance?

  Subtract actual profit from budgeted profit
• What was Jason's budgeted profit for 2013?

  33,500
• What was Jason's actual profit for 2013?

  29,200
• What is the profit variance for Jason's business?

  4,300 adverse
• Why is it important to state whether a variance is adverse or favorable?

  To fully answer the exam question
• What is the primary purpose of budgets in businesses?

  To help achieve targets and objectives
• What is the budgeted profit for January to March in the supermarket example?

  119,000
• What is the budgeted profit for April to June in the supermarket example?

  126,000
• How do budgets assist managers and leaders?

  They focus on cost control to increase profit
• How do you find the total budgeted profit for January to June?

  Add budgeted profits for both periods
• What is the actual profit for January to March in the supermarket example?

  125,000
• In what way can budgets motivate staff?

  By providing spending authority to departments
• What are the key functions of budgets in a business context?

  • Achieve targets and objectives
  • Focus on cost control to increase profit
  • Motivate staff by providing spending authority
• What is the actual profit for April to June in the supermarket example?

  45,200
• How do you calculate the total actual profit for January to June?

  Add actual profits for both periods
• What is the profit variance for the supermarket from January to June?

  3,500 favorable
• What is a key piece of exam advice given in the webinar?

  Always answer the question fully
• What are the steps to calculate profit variance in the supermarket example?

  1. Calculate budgeted profit for January to March.
  2. Calculate budgeted profit for April to June.
  3. Add both budgeted profits for total.
  4. Calculate actual profit for January to March.
  5. Calculate actual profit for April to June.
  6. Add both actual profits for total.
  7. Subtract total actual profit from total budgeted profit.
  8. Determine if variance is adverse or favorable.
• What resources are available for further help and support?

  • YouTube channel with videos on key topics
  • Twitter accounts for additional support
• What does break-even analysis compare?

  Income from sales to fixed costs
• What are the five components of break-even analysis?

  Fixed costs, variable costs, revenue, contribution margin, BEP
• What does calculating the break-even point (BEP) help identify?

  Sales required to cover fixed costs
• What can the break-even point formula determine?

  BEP in product units or sales dollars
• What are the key takeaways from break-even analysis?

  • Determines units or dollars to cover costs
  • BEP measures margin of safety
  • Used in stock trading and corporate budgeting
  • Sales beyond BEP generate profits
• How does break-even analysis relate to fixed costs and profit?

  It compares fixed costs to profit from sales
• What happens if a firm has $0 fixed costs?

  It breaks even with the first sale
• What remains constant regardless of units sold?

  Fixed costs
• What are examples of fixed and variable costs?

  • Fixed costs: Rent, salaries, insurance
  • Variable costs: Materials, labor, utilities
• Why is break-even analysis important for pricing?

  It helps set prices to cover costs
• How does break-even analysis assist in decision-making?

  It charts profit to sales volume
• How can break-even analysis help with cost reduction?

  It identifies areas to reduce costs
• What role does break-even analysis play as a performance metric?

  It helps ascertain goal achievement
• What assumption does break-even analysis make about costs?

  Costs remain constant over time
• What external factors does break-even analysis ignore?

  Competition, market demand, consumer preferences
• What is a limitation of break-even analysis regarding cost relationships?

  It assumes a linear relationship between costs and production
• What are profitability ratios used for?

  To assess the performance of a business