paper 2 advanced information Flashcards
What is break even
The point where a businesses costs and total revenue are equal.
How do you calculate break even
Contribution per unit
How do you calculate contribution per unit
selling price - variable cost per unit
How do you calculate total contribution
total output x contribution per unit
What is the margin of safety
The difference between break even point and the current level of output.
How do you calculate margin of safety
current level of output - break even point
What are the benefits of break even analysis
Useful guideline to help business make decisions.
Analyse effects of changing customers, prices and costs.
What are the negatives of break even analysis
Costs are rarely constant.
Presumes businesses will sell all output.
What are the negatives of budgets
Unexpected changes affect budgets
If they are unrealistic demotivating
Past data doesn’t mean you know the future
What are the benefits of budgets
Motivational tool
Help business plan
Identify cash flow problems early
How do you calculate a budget variance
Actual - Budgeted
How do you calculate cash flow
Inflows - outflows
How do you calculate sales revenue
Price x quantity
How do you calculate gross profit
Sales revenue - cost of sales
How do you calculate operating profit
Gross profit - operating costs
How do you calculate net profit
Operating costs plus or minus interest
How do you calculate profit margin
(type of profit)
——————— x100
Sales revenue
How do you calculate a current ratio
Current liabilities
How do you calculate an acid test ratio
Current liabilities
How do you calculate average rate of return
(Net return from project / Number of years)
————————————————————— x100
Asset’s initial cost
How do you calculate gearing
Non-current liabilities
——————————– x100
Capital employed
How do you calculate return on capital employed
Operating profit
————————– x100
Capital employed
How do you calculate capital employed
Total equity + Non-current liabilities
What is the definition of current asset ratio
How many pounds of current assets a business has for every pound of current liabilities.
