Revision Notes- Business Arithmetic | Entrepreneurship Class 12 - Commerce PDF Download

Unit of Sale, Unit Cost and Break Even Analysis

• Unit of sale is required to understand the economies of a business in an easy and standardized manner.

• Gross profit = Selling price per unit – Cost price per unit.
• Break-Even Point is the level of sales that equals all expenses required for generating the sales. It is neither loss nor profit.
• At Break-Even Level: Total revenue = Total expenses
• Break even analysis helps in setting profit goals and sales targets.
• Sales Mix is the proportion in which two or more products are sold.
• The calculation method for break-even point of sales mix is based on the contribution approach method.

Computation of Working Capital

• Money needed to fund the normal, day-to-day operations of a business is known as working capital.
• Operating cycle or cash conversion cycle is the length of time between a firm’s purchase of inventory and the receipt of cash from accounts receivable.
• Gross working capital is the sum total of all current assets of the business. These include cash, inventory (raw materials, work in process, finished goods, spares etc.) and accounts receivable (or trade debtors).
• Net working capital is the excess of current assets over current liabilities.

Inventory Control, Economic Order Quantity (EOQ), Return on Investment (ROI) and Return on Equity (ROE)

• Inventory is required directly or indirectly to make a sale (of the end product) and for also getting the final product.
• Inventory control system is designed to bring about expected control over the inventory and its utilization.
• Economic order quantity is the order quantity of inventory that minimizes the total cost of inventory management.
• Re-order point is the level of inventory when an order should be made with suppliers to bring the inventory up by the economic order quantity.
• Carrying cost refers to the total cost of holding inventories. This includes warehousing cost such as rent, utilities and salaries, financial cost such as opportunity cost and inventory cost related to perishability, pilferage, shrinkage and insurance.
• To determine how much to order, E.O.Q. is used.
• ROI is the ratio that reflects the overall profitability of business.
• Investment means the long term funds deployed in business.