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Flashcards in Chapter 3 Deck (14):
1

Over trading

Growing your business to quickly to the detriment of net working capital

- this happens when a business buys more and more inventory on credit to increase sales but has difficulty selling merchandise or collecting money on time

If bank balance is positive then business is not guilty of over trading

2

Calculate gross profit percentage

Gross profit / sales

3

Working capital

CURRENT ASSETS :

SAVINGS ACCOUNT

ACCUED INCOME

PREPAID EXPENSES

FIXED DEPOSIT


CURRENT LIABILITIES :

BANK OVERDRAFT

CREDIT CARD

ACCRUED EXPENSES

INCOME RECEIVED IN ADV

OUTPUT VAT

4

Net working capital

Current assets - current liabilities

5

Prime overdraft rate

3-3.5 % above repo rate

6

NOMINAL INTEREST RATE

Interest that is not compounded annually

- covert to effective


EAR = (1 + nr/period) period - 1

7

SUNK COSTS

Costs which have already been incurred and which cannot be changed now or in the future

E.g. Long term loan

8

Variable costs

Expenses that vary due to change in volume of production...

Unit cost stays the same in variable costs

9

Fixed costs

Expenses which are not affected by change in volume of production

More produced the lower the unit cost for fixed costs

10

Semi variable cost

Expenses which remain fixed until a certain production volume

E.g. Wages X1,5 after 40 hours worked

11

Semi fixed costs

Expenses that contain variable and fixed costs

E.g. A salaried salesperson

12

Break even analysis

Indicates how many units of a product need to be sold before a company starts making a profit

Break even point in units

TOTAL FIXED COSTS / MARGINAL INCOME PER UNIT


Break even point in rands

TOTAL FIXED COSTS / MARGINAL INCOME RATIO

OR

SELLING PROCE PER UNIT X BREAKEVEN POINT IN UNITS

13

MARGINAL INCOME

VAT EXCLUSIVE SELLING PRICE - VARIABLE COSTS

14

MARGINAL INCOME RATIO

SALES - VC / SALES X 100

= X%