Scribd
Upload
17 views

notes-unit 6

The document outlines key concepts in business finance and entrepreneurship for the academic year 2024-25, including definitions and examples of unit of sale, fixed costs, start-up costs, and break-even analysis. It emphasizes the importance of understanding costs, expenditures, and expenses for effective decision-making in business. Additionally, it provides a practical example for calculating the break-even point and distinguishes between various financial terms.

Uploaded by

sanaarij4
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
17 views

notes-unit 6

The document outlines key concepts in business finance and entrepreneurship for the academic year 2024-25, including definitions and examples of unit of sale, fixed costs, start-up costs, and break-even analysis. It emphasizes the importance of understanding costs, expenditures, and expenses for effective decision-making in business. Additionally, it provides a practical example for calculating the break-even point and distinguishes between various financial terms.

Uploaded by

sanaarij4
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

(Under the Supervision of Ministry of education and Higher Education, Qatar)

Academic Year 2024-25


School Vision: To develop a purposeful and resilient institution to meet with the life-goals and
aspirations of our children, parents and staff.
Unit 6- Business Finance and Arithmetic -Notes
Name: Subject: Entrepreneurship

Class/ Sec: XI Month: January

Grade & Signature: _____________

1. What do you mean by Unit of Sale?


Unit of sales can be defined as the measure of what products are sold.
2. Give four examples of Fixed Costs.
The following is a list of some of the items on which expenses will remain fixed in
nature: Consultancy charges, travel, salary, wages, rent, maintenance, minimum
rent of telephone.
3. Give two examples of Start-up Cost.
(a) Expenses incurred on purchase of assets.
(b) Cost of inaugural ceremony.
4. What do you mean by Start-up Cost?
It is an initial cost incurred by a business for setting up a business before starting
a business. It is associated with setting up a business.
• It includes expenses for: (a) acquiring assets (b) for acquiring initial raw
material and other related items for setting up a business.
• All these expenses incur from the time you start the planning and preparation, i.e.
many months before the actual operation beginning.
• It is also known as non-recurring cost or preliminary expenses or pre-operating
expenses. Examples are : Accountant’s fees, legal fees, registration charges,
advertising* (through newspapers, pamphlets, hoardings boards, local news
channel, workshops) promotional activities, and employee training.
5. Explain Cost, Expenses and Expenditure.
Cost: A cost is a derived value of money consumed to produce a current or
future outcome; hence, costs provide management a decision supporting view to
improve business economics. Costs are expressed as a value measured in
relationship to a causal volume of consumption.
Expenditure is the outflow of money for the purpose of making various
payments. Expenditure is a payment for the purchase of an asset like buying
machinery, paying dues for items bought on credit, a distribution to the owners,
buying raw material, paying for advertising, salaries, etc. In simple terms,
expenditure can be equated to outflow of money can be either in cash or cheque.
Expenses are a subset of expenditures or payments made specifically for
consuming goods and services, while expenditure includes payments made to
buy assets. Examples: advertising, salaries, interest, commissions, rent, etc.
6. What do you mean by Break Even Point?
Break-Even Point: Break-even point is a neutral point at which the company
neither makes a profit nor suffers a loss. Calculating the break-even point is a
powerful quantitative tool for managers.
In its simplest form, breakeven analysis provides insight into whether or not
revenue from a product or service has the ability to cover the relevant costs of
production of that product or service.
7. Explain why break-even analysis is of reduced value to a multi-product
firm. Analyze the factors that any business should take into consideration
before using break-even analysis as a basis for decision-making.
Break-even analysis is a technique widely used in the manufacturing unit by the
production manager. It is based on categorizing production costs between two
types of cost (i) Fixed Cost and (ii) Variable Cost.
Total variable and fixed costs are compared with sales revenue in order to
determine the level of sales volume (in Units), sales value (in Rs) as it is a level
of a point at which the business makes neither a profit nor a loss which is also
called as the “break-even point”.
Let us take an example, there are three companies each producing different
commodities like:
ABC Co. — Plastic Bottles
LMN Co. — Computers (one type)
XYZ Co. — Leather Coats
The above examples show that there are three firms and all three are producing
single product, single selling price and single variable cost.
Businesses dealing with multiple products must reduce all the selling prices down
to one selling price, and bring down to one variable cost. This is accomplished by
calculating a weighted average selling price and a weighted average product cost
(variable cost). Further, when the weighted average selling price and weighted
average variable cost are calculated, only then can a business, selling multiple
products, determine their break-even point. Moreover, businesses selling multiple
products will determine their break-even point using the following break-even
formula: Break-even in Units

As you can see, the break-even point formula for businesses selling multiple
products is similar to the formula used by businesses selling a single product.
The only difference is the term “weighted average” placed in front of the selling
price and variable cost. It is important to understand the concept of weighted
averages.
• Calculating the break-even point (through break-even analysis) can provide a
simple, yet powerful quantitative tool for managers.
The analysis provides insight into whether or not revenue from a product or
service has the ability to cover the relevant costs of production of that product or
service.
Entrepreneurs can use this information in making a wide range of business
decisions, including setting prices, preparing competitive bids, and applying for
loans.
• It also helps in Profit Planning and Goal setting.
8. The following information relates to a company, which produces a single
product.
Direct labour per unit Rs 22
Direct materials per unit Rs 12
Variable overheads per unit Rs 6
Fixed costs Rs 4,00,000
Selling price per unit Rs 60
Use the figures above to show the minimum number of units that must be
sold for the company to break-even.
(ii) Distinguish between:
(i) Unit Cost and Unit Price
(ii) Expenses and Expenditure
(iii) Fixed Cost and Variable Cost

You might also like