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Accounting U2
Unit 2 - Trading Firms and STock ch10-12
| Question | Answer |
|---|---|
| minimum desired profit | a lowest acceptable profit figure, usually similar to previous income plus a return on the amount invested |
| RRP - recommended retail price | a selling price that is recommended by the wholesaler/manufacturer |
| trading firm | a business which aims to generate a profit by purchasing goods and then selling them at a higher price |
| RRP pros | less work for retailer, easy starting point, many other retailers follow this price |
| RRP cons | does not ensure that business makes a profit, market reaction may be low/high, |
| competitors prices | prices charged by businesses competing in the same market |
| competitors prices effects on s.p | if too high, sales lost to competitors and profit suffers. if too low, business may not be able to cover expenses and profit suffers. |
| market reaction | the response of customers in a particular marketplace to price levels for a particular g/s |
| mark up | determining selling prices by adding to the cost price a predetermined profit margin. |
| mark up formula | s.p = cost price x ( 1 + mark up/100 ) |
| NB about s.p | includes GST |
| cost-volume-profit analysis | a analysis tool that allows a business to determine a sp or volume of sales that will let them achieve a specific profit goal |
| break even pt | the level of sales where total revenue equals total expenses and the business neither makes a profit or loss. |
| variable costs | costs that vary directly with the level of activity |
| fixed costs | costs that do not vary with the level of activity |
| cost-volume-protif formula: | no.sold = (total FC + profit) / (SP p.u - VC p.u.) |
| Contribution Margin | Gross Profit/Variable Profit : the Gross Profit from each sale that goes towards covering fixed expenses and contributing to /Net Profit. ( calculated by sp-vc) |
| sales revenue formula: | sales rev = sp X no.sold |
| info generated by a cost-volume-profit analysis is presented in what acc report? | Income Statement and can also be represented in a graph |
| Stock | goods purchased by a trading from for the purpose of resale at a profit |
| why is stock so important? | sale of stock = main source of rev for trading firm (essential to earning a profit) _______ stock is (most likely) one of the most significant assets in the B.S of trading firm |
| perpetual inventory system | system of accounting for stock that involves the continuous recording of stock movements in stock cards. |
| stock card | a subsidiary acc record that records each individual transaction involving the movement in and out of the business of a particular line of stock |
| sales | revenue earned by a trading from from the sale of stock |
| purchases | the stock bought by a trading firm for the purposes of resale |
| Cost of Sales | the expense incurred when stock flows out of the business due to a sale |
| Gross profit | the profit earned purely from the purchase and sale of stock, measure by Sales Rev - COGS |
| value of stock formula: | value = quantity X unit price |
| is GST recorded in stock card? | NO |
| FIFO | the assumption that the stock that is purchased first will be sold first |
| stock gain value is taken from the lowest unit price | |
| stocktake | the process of counting every item of stock on hand to verify the accuracy of stock cards and detect any stock loss or gain. so that stock figure in B,S is free from bias (RELIABLE) |
| stock loss | an expense that occurs when stocktake shows less stock than is shown on the stock cards |
| reasons for stock loss | theft, damage, undersupply by suppliers, oversupply to customers, a recording error in the stock cards or during the stocktake |
| stock cards pros | assists in re-ordering of stock, fast and slow moving lines of stock can be identified, stock losses/gains can be detected comparing stock card/stocktake |
| COGS | a heading used in the I.S for all costs incurred to bring stock into location and condition ready for sale |
| COGS e.g.s: | freight in, COS, import duties, custom duties, packaging, modifications |
| Adjusted Gross Profit | Gross Profit less Stock loss ) or plus stock gain |
| Stock Sheet | a listing of the quantity and value of each line of stock on hand |
| STO | an efficiency indicator which measures the average number of days it takes for a business to convert its stock into sales. |
| STO formula: | STO = (av.stock x 365) / COGS |
| av stock formula | Av stock = (stock at start + stock at end) / 2 |
| how to assess STO | past figures for STO____budgeted STO____STO of similar businesses/industry averages |
| acceptable rate of STO depends on: | nature of stock, spoilage, technological obsolescence |
| if STO too low improve by: | increase sales: improve stock mix, increase marketing/ads, discounts/promos _________ decrease stock holdings, reduce stock on hand, discount slow selling items |
| stock management strategy: set min/max levels | insufficient stock on hand=loss of sales=loss of profit, min stock assists in re-ordering, max level ensures that business does not have too much=lead to additional storage costs, go out of fashion/obsolete, business is not burdened with stock itcan'tsell |
| Stock management strategies: | set min/max stock levels___rotate stock (perishable/older items stocked at front___ensure stock is up to date___maintain apron stock mix___promote sale of complementary goods___effective marketing |
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