• Created by: Skye241
• Created on: 31-03-14 22:33
What are the 5 different types of resources in a business?
Material, Physical, Finance, Human and Information
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Define costs
Costs are the expenditure a firm incurs whilst trade lie. Aka; the cost to the firm of making the product or providing the service
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Define Price
This is the cost of something bought or sold to a customer
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What are fixed costs?
Any costs which do NOT vary with the level of output. They exist even if a business is not producing any goods and services. An example is rent. If more items are made or sold, the cost would stay the same. Key word: per week or per month.
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What are variable costs?
The costs which DO vary directly with the level of output. Includes payments which are made for the use of inputs such as labours, fuel and raw material. If a manufacturer doubled output, these costs would rise. Key words: per unit e.g. per sandwich
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What are Semi-variable costs?
The costs which are partially fixed and partially variable.
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How do you work out Total Costs?
Fixed Costs + Total Variable Costs = Total Costs
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How do you work out Total Variable Costs?
Variable Cost Per Unit x Quantity Of Units = Total Variable Costs
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How do you work out Profit?
Revenue - Total Costs = Profit
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How do you work out Variance?
Actual - Budget = Varience
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How do you work out Revenue?
Quantity Sold x Selling Price = Revenue
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How do you work out Contribution?
Selling Price - Variable Costs = Contribution
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How do you work out Break-even?
Fixed Costs / (Selling Price - Variable Costs) = Break-even Point
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What is Break-Even?
A firm breaks-even if it does NOT make a profit OR a loss (Profit = 0). Businesses MUST make a PROFIT to survive. To make a profit, income MUST be higher than costs.
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How do you work out Margin of safety?
Actual Sales - Break-even Point = Margin Of Safety
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Define Break-even?
It is the level of sales or output where total costs are exactly the same as total revenue.
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Define Cash Inflow
This is the money coming into the business (receipts)
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Define Cash Outflow
This this the money going out of the business (payments)
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How do you work out Net Cash Flow?
Total Inflows - Total Outflows = Net Cash Flow
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How do you work out Closing Balance?
Opening Balance + Net Cash Flow = Closing Balance
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What is Cash Flow?
NOTHING to do with profit - a profitable business can have poor cash flow and still go bankrupt.
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Remember:
(If not given) January's opening balance is 0. Closing balance of one month is the opening balance of the next. A negative closing balance does NOT mean that the firm is bankrupt.
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What is Higher Purchase?
Source of Finance. Buy product and pay it off over a few months - own it but pay more
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What is Low Purchase (Lease)?
Never own the product but is on rent - always have the up to date (newest) equipment
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What are the causes of Cash Flow Management?
Unforeseen costs change. External factors. Seasonal demands. Poor stock management. Over-trading. Allowing too much credit. Poor credit control
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Unforeseen Costs Change?
Cash-flow difficulties can arise from Unforeseen Costs Change e.g. machine break down
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External Factors?
Can include changes in government legislation or policy e.g. rise in interest rates meaning higher bank loan interest repayments.
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Seasonal Demands?
Demand for many products is seasonal and during off-season a company may experience cash-flow difficulties.
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Poor Stock Management?
Companies might hold excessive stock levels, which ties up cash that could be used for other purposes e.g. summer clothing goes on sale during winter as no one buys it
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Business may become over-confident and expand too quickly without organising sufficient long-term funds - can put strain on working capital
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Allowing Too Much Credit?
Giving people too long to pay of debts - puts strain on short-term cash-flow
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Poor Credit Control?
May not chase debtors quickly enough e.g. given 30 days credit but business does not chase them up until 40 days have elapsed - can put strain on short-term cash-flow
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Methods od improving cash-flow?
Negotiate improved terms for trade credit. Offer less trade credit.Debt factoring. Arrange sort-term borrowing - overdraft. Sale and lease back. Cut costs. Improve inflow of cash.`
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Owned by 1 person. Has unlimited liability meaning that if the sole trader gets into debt and can't pay these off then their personal possessions such as transport will be taken.
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East to set up. Can make all the decisions. Can keep all the profits.
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Unlimited liability. Can be long hours. Difficult to raise finance. Business cannot be run if owner is ill or on holiday.
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What is a partnership?
Owned by 2 - 20 people. Has unlimited liability. To set up a partnership a document called 'Deed of Partnership' needs to be drawn up.
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What are the advantages of a partnership?
Each partner can contribute different skills and experience. Someone to share problems with. Easier to raise capital.
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What are the disadvantages of a partnership?
Unlimited liability. Possible disagreements between partners. Partnership is dissolved if a partner becomes bankrupt or dies.
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What are Private and Public Limited Companies?
Private Limited Companies have Ltd at the end of its name and Public Limited Companies have PLC at the end. Owned by Shareholders and controlled by a Board of Directors.
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What are Private and Public Limited Companies? (Continued)
Have Limited Liability meaning if company goes bust, the shareholders only lose the amount of money they have invested in. Documents needed to set up a company are: 'Memorandum of Association' and 'Articles of Association'.
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What are Private and Public Limited Companies? (Continued)
Each year a company must have a meeting for shareholders called an 'AGM (Annual General Meeting'. Shares in a private limited company are sold to shareholders. Shared in a public limited company are sold to the market.
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What are the advantages of a Private and Public Limited Companies?
Shareholders have limited liability. Easier to raise finance as seen as less of a risk. Does NOT need to be dissolved if an owner dies.
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What are the advantages of a Private and Public Limited Companies?
More expensive to set up. Needs to produce annual reports.
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Other cards in this set

Card 2

Define costs

Back

Costs are the expenditure a firm incurs whilst trade lie. Aka; the cost to the firm of making the product or providing the service

Define Price

Card 4

Front

What are fixed costs?

Card 5

Front

What are variable costs?