Economic Order Quantity EOQ, or Economic Order Quantity, is defined as the optimal quantity of orders that minimizes total variable costs required to order and hold inventory. Every company worries about two things when deciding how to manage their inventory. How much should we order? And how often should we order? These represent variables that come with their own changing costs.
It also helps determine the amount of money available at the end of the business’s financial period which may be used for a subsequent period’s investment. Advantages of the income and cash flow statements. One advantages of the income and cash flow statement they are used to measure the level of performance of the business. Increased levels of profit derived from the income statement and an increased level of cash flows as shown by the cash flow statement are taken to mean that the business is performing well. The vice versa is also true.
The asymmetry between the use-value and exchange-value of labor helps the capitalist to make a profit. The amount of labor needed to provide subsistence does not always equal the length of the work-day. The time in excess of the necessary labor time is surplus labor. Thus, the working day is a variable quantity which is depend on the amount of surplus labor. It can only vary within limits.
BTEC FIRST UNIT 3 P1 All businesses need money to survive in order to buy materials and pay wages and other types of expenses or costs, like utility bills (gas, electricity and water), business rates and advertising. Money coming into a business is called income or revenue and usually comes from customers who pay for the goods and/or services that business provides. If a business' income is greater than its expenditure, it is said to be making profit since money is entering the business than income - then the business is making a loss. Firstly start-up costs are faced once, so they are not too much of a problem. Operating costs, however, are faced every fortnight for the whole time of the business.
A company’s profits are adversely affected by changes in sales price, costs, and the volume of activity (Edmonds, p. 946, 2007). Therefore it is imparitive that management considers probable changes in cost and volume through the use of a CVP analysis. A CVP analysis measures fixed cost and “assumes true linearity among the CVP variables and a constant level of inventory” (Edmonds, p. 946, 2007). Although flexible budgets are based on different levels of volume and change with the changes in activity, flexible budgets lends itself to CVP analysis due its ability of measuring changes in cost and volume. With the use of a flexible budget, a
I believe the direct method is a better way for a business to keep track of cash flow because it accounts for every operating activity. This method may not be convenient for every company but it accounts for every receipt and payment, providing the company more details on each cash transaction. The indirect method is easier and it may be less expensive, it is focus on the difference between net income and cash flow from operating expenses. (Weygandt, Kimmel, & Kieso, 2010. p 618). This method converts net income to net cash from operating activities.
This is because according to Elliot (1986), it stated that historical cost assumes money holds a constant purchasing power. The specific price-level changes (shifts in customer preference and advances in technology), inflation, and fluctuation in exchange rates for currencies that happen in the modern economy cause this assumption less valid. Furthermore, historical cost does not consider the changes in price. In times of rising prices, the companies tend to overstate the profits and distribution of the profits to the shareholders will cause trouble to the company. This is because the historical cost does not
Any kind of change in the output of one product will most likely require changes in other markets, as well, and will start a chain of adjustments. Lower costs can benefit not only its own customers of an enterprise, but those of other competing enterprises as well. Someone or something must decide what is to be produced, how, by whom, and what is to be consumed by whom. This pursuit of profit will encourage firms to produce more efficiently and keep their costs low, encourage firms to produce goods and services that consumers value highly relative to costs, and also discover and develop better products and lower-cost production methods. In turn, the economy can operate more efficiently.
If without the planning of a budget, the company may easily over spending on the cost. In addition, it helps to understand whether the business is in a healthy finance position by comparing with the actual figures with the projected figures. (John Tennent page179) mentioned that for a business planning on budgeting is a process used by management to create the blueprint for achieving that success. Financial planning is the most fundamental task for a business to determining on it strategic goals, objectives and achievement. The Financial plan needs to include the timeframes as well in order to achieve the goal within the budget set.
The revenue principle works on the basis that companies must recognize revenues in the accounting period in which revenue is earned. The matching principle on the other hand allows expenses to follow revenues and by doing this, expenses are matched with revenues in the period when efforts were expended to generate revenues. Another key concept in commercial accounting is, knowing the difference between accrual and cash basis accounting. Accrual basis accounting means that, “transactions that change a company’s financial statements are recorded in the periods in which the events occur, even if cash was not exchanged”. (Kimmel, 164).