3.3

Question 1

Cost

Answer 1

the amount of money it takes to produce a product

Question 2

Fixed cost

Answer 2

costs that do not vary with output level

Question 3

Variable cost

Answer 3

costs that do very with output level

Question 4

Direct cost

Answer 4

costs directly associated with unit production

Question 5

Indirect/overhead

Answer 5

costs indirectly associated with unit production

Question 6

Price

Answer 6

the amount of money a product is sold for; sum paid by customer to purchase product

Question 7

Revenue
- P x Q
- AR x Q

Question 8

Revenue streams
- types include: merchandise, advertising revenue, dividends, subscription fees

Question 9

Margin of safety = current qunatity - BEP

Question 10

INCOME STATEMENT INFO.

Question 11

Limitations of Income statement (OVER TIME)

Shows historical performance; no guarantee for the future
Final accounts can be manipulated to look more attractive and impress its stakeholders
Difficult to compare - no standard

Question 12

How to calculate COGS?

Answer 12

OPENING STOCK + PURCHASES - CLOSING STOCK

Question 13

NOTE:

AFTER NET PROFIT BEFORE INTETREST AND TAX IS FOUND, TAKE AWAY INTEREST FIRST!

WHEN CALCULATING TAX, REMOVE FROM INTEREST BEFORE TAX!!!!

Question 14

BALANCE SHEET INFO

Question 15

FIXED ASSETS

Answer 15

ASSETS THAT WILL BE IN THE BUSINESS LONG-TERM

LAND, EQUIPMENT, MACHINERY
INTANGIBLE ASSETS
TECHNOLOGY LIKE COMPUTERS

Question 16

CURRENT ASSETS

Answer 16

ASSETS THAT CAN BE TURNED INTO CASH WITHIN THE NEXT 12 MONTHS

CASH, ACCOUNTS RECIEVABLE
SUPPLIES AND INVENTORYYY

Question 17

CURRENT LIABILITES

Answer 17

DEBTS THAT HAVE TO BE SETTLED IN ONE YEAR

OVERDRAFTS, ACCOUNTS PAYABLE, CREDITOR, MORTGAGE PAYMENT

Question 18

NET CURRENT ASSETS (WORKING CAPITAL) = CA - CL

Question 19

CAPITAL EMPLOYED = TA - CL

Question 20

LONG-TERM LIABILITIES

Answer 20

WILL TAK ELONGER THAN A YEAR TO PAY OFF

20 YEAR BANK LOAN, DEBENTURES

Question 21

NET ASSETS = TA - TL OR CAPITAL EMPLOYED - LTL

Question 22

FINANCED BY…
SHARE CAPITAL
RETAINED EARNINGS

SUM = EQUITY/NET ASSETS

Question 23

LIMITATIONS OF BALANCE SHEET (SNAPSHOT)

Static - things can change the next day
Estimates of the values of assets and liabilities - the market value of an asset is not necessarily the book value
No standard - difficult to compare between firms
intangible assets & the value of human capital are not included on the balance sheet

Question 24

Intangible assets = non-physical fixed assets that have the ability to earn revenue for a business like brand names, patents, trademarks, etc.

Question 25

GOODWILL

Answer 25

WHEN THE VALUE OF A FIRM EXCEEDS ITS BOOK VALUE (VALUE OF NET ASSETS)

Question 26

Patents provide legal protection for inveNtors, preventing others from copying their creations Copyright provides legal protection for original artstic work Registered trademarks - uniquely identifies a brand

Question 27

LIQUIDITY RATIO QUESTION: WHAT'S A GOOD RATIO FOR CURRENT ASSETS RATIO? ACIDE TEST RATIO?