Entrep 7 Flashcards
A litmus test for profitability is the
economics of one unit (EOU)
The one-time expense of opening a business.
Seed capital (start-up investment)
This is the estimated time required to earn sufficient net cash flow to cover the start-up investment.
Payback Period
Payback = Start-Up Investment (divided by)
Net Cash Flow per Month
These are expenses that must be paid regardless of whether sales are being generated.
Fixed Costs
A model or pattern that serves as an example of how a product would look and operate if it were produced.
Prototype
These are the emergency funds and a pool of cash resources.
Which should equal at least half your start-up costs.
Cash Reserve
These are expenses that vary directly with changes in the production or sales volume.
Variable Costs
This is the gross profit per unit—the selling price minus total variable
costs plus other variable costs.
Contribution Margin
These are expenses that do not vary with changes in the volume of production or sales.
Fixed Operating Costs
A review of financial and business records to ascertain integrity and compliance with standards and laws, particularly by the U.S. Internal
Revenue Service.
Audit
These are expenses associated with materials and direct labor for production until the product is sold.
Inventory Costs
This is an accounting method wherein transactions are recorded at the time of occurrence, regardless of the transfer of cash.
Accrual method
Why are fixed operating costs not included in the EOU?
Fixed operating costs do not change based on sales activity levels
Why is too much fixed costs dangerous?
If a business does not have enough sales to cover its fixed costs, it will lose money
This is a system wherein transactions are recorded when cash is paid out or received.
Cash Accounting Method
