Test: Business Arithmetic- 1 - Commerce MCQ

Formula Return on Investment (ROI)

• First method:
  
• Second method:
  

To calculate the break-even point in units use the formula: Break-Even point (units) = Fixed Costs ÷ (Sales price per unit – Variable costs per unit) or in sales dollars using the formula: Break-Even point (sales dollars) = Fixed Costs ÷ Contribution Margin.

The basic formula for the reorder point is to multiply the average daily usage rate for an inventory item by the lead time in days to replenish it. This formula alteration means that replenishment stock will be ordered sooner, which greatly reduces the risk that there will be a stockout condition.

To calculate the break-even point in units use the formula: Break-Even point (units) = Fixed Costs ÷ (Sales price per unit – Variable costs per unit) or in sales dollars using the formula: Break-Even point (sales dollars) = Fixed Costs ÷ Contribution Margin.

Unit of sale: A unit of sale is what a customer actually buys from you. It's the amount of product (or service) you use to figure your operations and profitability. The unit of sale is really the basic building block of your business. If you were a retailer who sold athletic shoes, your unit of sale would be a single pair of shoes.

Variable cost: A variable cost is a corporate expense that changes in proportion to how much a company produces or sells. Variable costs increase or decrease depending on a company's production or sales volume, they rise as production increases and fall as production decreases. A variable cost can be contrasted with a fixed cost.
Common examples of variable costs include costs of goods sold (COGS), raw materials and inputs to production, packaging, wages and commissions, and certain utilities (for example, electricity or gas that increases with production capacity).

• The Total Cost is the actual cost incurred in the production of a given level of output.
• The total cost includes both the variable cost (that varies with the change in the total output) and the fixed cost (that remains fixed irrespective of the change in the total output).

ABC analysis is based on the presumption that controlling the few most important items produces the vast majority of inventory savings. ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.

Carrying costs are the various costs a business pays for holding inventory in stock.
Examples of carrying costs include warehouse storage fees, taxes, insurance, employee costs, and opportunity costs.

ROP = Lead time demand + Safety stock
Where:

Lead time demand = Daily demand × Lead time

Given:

Daily demand = 30 units

Lead time = 5 days

Lead time demand = 30 units/day × 5 days = 150 units

Since no safety stock is mentioned, we'll assume there is none.

Therefore, the reorder point (ROP) = Lead time demand = 150 units.

The basic formula for calculating ending inventory is: Beginning inventory + net purchases – COGS = ending inventory.
Your beginning inventory is the last period's ending inventory.
The net purchases are the items you've bought and added to your inventory count.

The economic order quantity, or EOQ, is a calculation designed to find the optimal order quantity for businesses to minimize logistics costs, warehousing space, stockouts, and overstock costs.
The formula is: EOQ = square root of: [2(setup costs)(demand rate)] / holding costs.