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GCSE: Accounting & Finance
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How to calculate 'break even'
- 1 There are three ways this can be done. All will give the same answer which is the number of products the business must make or sell to ‘break even’. This means they receive as much revenue as their costs.
- 2 A break even table will list the fixed cost, variable cost, total cost (fixed plus variable cost), revenue and profit or loss for each level of output. As profit or loss is the revenue minus the total cost this can be calculated relatively easily, especially if you use a spreadsheet program..
- 3 A break even graph plots the total cost and revenue for all the levels of output. Where the total cost and revenue intersect is the break even point. This can be easily produced from the table using the chart wizard.
- 4 The break even formula gives you the break even output. The formula is fixed cost divided by the price of one unit minus the variable cost.
- 5 The margin of safety is the number of items being produced, over and above the break even point.
What is cash flow?
- 1 Cash flow looks at the cash flowing through a business. It is not the same as the profit being made as businesses may be receiving goods on credit or giving credit to customers. This means that although a business may be profitable, it may still run out of cash. This could cause the business to go bankrupt.
- 2 A cash flow forecast predicts the flow of cash going through the business. A business may use it to see if there are any months when it will run out of cash.
- 3 Knowing that it may run out of cash in any month means that a business can plan for this by possibly arranging a bank overdraft.
- 4 A bank overdraft is an agreement arranged with a bank whereby if the business runs out of cash, the bank will lend it money to keep it trading. This overdraft will normally be at a high rate of interest but is better for a business than running out of cash.
- 5 A business may also cover a period of negative cash flow by deferring payment to suppliers or getting payment early from customers.
What could be a source of finance?
- 1 Many students go wrong when discussing sources of finance by not relating them to the size of the business or the reason they need it. A new business starting up has different needs to an existing business looking to expand.
- 2 Sources of finance available to sole traders and partnerships include the owner’s funds, borrowing from friends and relatives, bank borrowing or funds from venture capitalists that specialise in lending to new businesses.
- 3 A problem for sole traders and partnerships is unlimited liability. This means that the owner is responsible for all the debts of the business, not just the amount they have invested.
- 4 Private limited companies and public limited companies have limited liability. This means that investors in the businesses can only lose the amount they have invested. This makes it much easier for them to raise finance as people are more likely to lend to them knowing the maximum amount they can lose.
- 5 A benefit of selling shares compared with borrowing from the bank is that the money does not need to be repaid. Share holders will expect a share of the profits. With a loan, the amount borrowed has to be repaid with interest.
- Marked by Teachers essays 5
- Peer Reviewed essays 7
(Source: www.brunswickis.co.uk) Budgetary control is a process of monitoring and analysing financial control within organisation. Budget "A budget is a plan, which is set out in numbers. It sets out figures that an organisation or company hopes to achieve in the future." (Source: THE TIMES 100) Budget is a financial plan, sets out financial targets and a plan expressed in money over a given period. Organisations prepare budgets for sales, production, costs, assets, liabilities and cash flow and prepare in advance then compared with actual performance. Managers are responsible for the controllable costs within their budget and they are require to take appropriate action if there are any mistakes.
- Word count: 1263
Many of the investors had to borrow money to buy stocks but they only had to have 10% equity and 90% margin to buy securities. Speculations on stocks stimulated further price rises and created an economic bubble. The P/E ratios in 1929 were far beyond historical norms. The high level of speculations increased anxiety of the investors, so when on October, 24 prices started falling, many investors decided to sell their shares. The leading Wall Street bankers tried to stabilize the situation on Friday, but could not find a proper solution.
- Word count: 1225
Calculation based on the difference between 4,010 and 3,600, over 3,600. At the same time cost of sales fell. We can straight away tell the company's gross profit has also increased. Taking these into account, we are able to calculate the Return on capital employed (ROCE), which for 2002 is 12.1, 2003 figures are better but 2004 are even better (13.0), showing the company is making use of its assets. An increase of 0.9 % in ROCE can be significant, especially in comparison to the amount of money the company may have borrowed. Therefore the company needs to ask it self is the ROCE sufficient enough, if it is in need of extra funds by means of debt.
- Word count: 1344
This makes them hard to deal with, notably in break-even analysis. Examples of semi-variables include maintenance expenditure and telephone bills. In the latter case, it is clear that although a doubling of customer demand would not necessarily double a firm's telephone calls or bills, it is reasonable to expect that they would increase. Therefore the telephone is neither a fixed nor a variable cost. It is important to classify costs because it helps with spending, it helps with budgets and help in producing break-even charts.
- Word count: 1342