Concepts in Financial Management (Costs (The variable cost per unit…
Concepts in Financial Management
The statement of financial performance
Preference shareholders dividends=Profit attributable to ordinary shareholders-Dividends to ordinary shareholders=Retained profit-reserves=Undistributed profit for one year
Furnishes details about the manner in which the profit/loss for a particular period was arrived at & how it has been distributed(income statement)
Gross income(sales)-Returns & cash discounts=Net sales-Cost of products sold=Gross profit-Operating costs=Operating profit-Interest paid=Profit before tax-Provision for tax=Net profit(After tax)
Profit or loss=(𝑃𝑟𝑖𝑐𝑒×𝑈𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑)−𝐶𝑜𝑠𝑡
Is the favourable difference between the income earned & the cost incurred to earn the income.
Profit or loss=Income−𝐶𝑜𝑠𝑡
A loss-results when the cost exceeds the income
The variable cost per unit produced remain more or less constant irrespective of the quantity produced.
Variable cost-is that portion of total costs that changes according to a change in the volume produced.
Total costs involved in the production of a specific number of products produced in a particular period consist of the total fixed costs & the total variable costs incurred in the production of these products
The fixed cost per unit produced will decrease with an increase in the quantity produced
Can be subdivided into direct costs, indirect costs, overhead expenses, fixed costs & variable costs
Fixed cost-is the portion of cost that remains unchanged regardless of an increase or decrease in the quantity of products & services produced.
Are the monetary value sacrificed in the production of products and/ or services produced for the purpose of resale.
The income of a business consists of receipts resulting from the sale of products and/or services
Income can also be obtained from other sources such as interest earned on investments
Income=𝑈𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑×𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
The remaining need for working capital will vary according to factors such as seasonal influences & contingencies that result in an increase/decrease in production activities
Business has a permanent need for a certain minimum portion of working capital
A business needs capital for investment in non-current assets(Fixed capital) & in current assets(working capital)
Is the monetary value of the assets of a business at a specific time