Cost of Running a Business and Income Statements
What are the four units of sale
Retail/Manufacturing - 1 item Service - 1 man hour Wholesale - multiple of same item Combination - combinations of items expressed as average sale/customer
Where are start-up costs found
They are on the balance sheet no the income statement
Depreciation
an expense associated with the use of a piece of equipment, deducted each year until the value of the item is zero. Cost/Expected life
Risk
Chance of Losing Investment Higher Risk/Higher Return Lower Risk/Lower Returen
Variable Costs
Change on the number of units sold COGS - directly to product (materials/labor) Other Variable Costs - vary but not required to produce product (Commission/Shipping)
Start-up Costs
Costs associated with establishing a business, also called "original investment" EX. Computers, property, equipment, inventory, furniture, Cash Reserve
Fixed Costs
Costs that the business must pay regardless of the number of units sold - Utilities, Salaries, Advertising, Insurance, Interest, Rent, Depreciation
What are the Two types of profit
Gross Profit - Profit directly from producing products before Fixed Costs Net Profit: Total Revenue - All Costs
Return on Investment
How efficiently you are using "outside" investors money - Net Profit/ Investment Amount x 100 = %
Return on Sales
How much of each sales dollar is kept as profit - Net Profit/ Sales Revenue
Profitability can be calculated 2 ways -
In total or Profitability of One Unit
The scorecard: measures income over a period of time
Income Statements - also known as a Profit and Loss Statement
What are the three types of cost
Variable Cost - COGS/Other Variable Fixed Costs -USAIIRD Start-up Costs -captured on Balance sheet (not on income statement)
What are Very Low, Moderate, and Very high Return on Sales
Very Low: 2-5% Moderate 11-20% Very High: 30%+
How do you do Same Size analysis
You divide each number by the total revenue to get a percentage - shows where you need to cut costs to improve profit
