Business - Unit 2

One off costs paid before a new product is introduced e.g advertising

Costs involved once a new product or service has been launched in order to continue its production e.g rent

Expenditure on items which does not change with the number of items sold or produced e.g rent, loans, mortgage

Costs which vary according to the number of items sold or produced e.g raw materials, wages

Total amount of money spent running a business over a certain period of time

Day to day costs e.g wages

A liability is when a business has not paid debts

Its a form of budget which shows the inflows and outflows of a business within a certain period of time. It is an important business document.

Advantages:

• shows financial position based on estimated sales
• important for applying for a loan

Disadvantages:

• amount of sales are not reliable
• the longer the forcast the more unreliable it is

Inflows:

• sales
• capital from owners
• bank loans
• grants

Outflows:

• payment to suppliers
• rent and rates
• wages and salaries
• power
• advertising

Fixed Costs + Variable Costs = Total Costs

Quantity Sold x Price = Total Revenue

Actual Sales - Break Even Output = Margin Of Safety

(revenue - costs of goods sold)

------------------------------------------       = gross profit margin

                revenue

gross profit - expenses = net profit

Current assets - Current liabilities = working capital

                   Fixed costs

-------------------------------------------- = break even point

(selling price - variable cost per unit)