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Volume of goods sold X Average selling price
Fixed Costs: any costs that do not vary directly with output they exist even if a business is not producing any goods or services. E.g.
Variable Costs: costs that vary directly with the level of output e.g. raw materials.
Fixed costs + Variable costs = Total Costs
Total revenue total costs
Profits are important because:
They provide a measure of the success of a business.
They are the best source of capital for investment in the growth of a business.
They act as a magnet to attract further funds from investors enticed by the possibility of high returns on their investment.
CASH FLOW FORECAST
Estimating future monthly cash inflows and outflows, to find out the net cash flow.
A cash flow forecast will enable a business to do the following things:
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Anticipate the timing and amounts of any cash shortages
Arrange financial cover for any anticipated shortages of cash.
Review the timings and amounts of receipts and payments.
Obtain loans (if the problems are long term) or overdrafts (if short term)
However, firms need to remember these are only estimates made from assumptions and therefore need to build in some safety margins.…read more