BU121 Lecture Notes - Lecture 6: Operating Leverage, Accounts Payable, Cash Flow
Document Summary
Providing value through quality products at a reasonable price. Cash if currency while accounting is the language of business. Owner"s equity = cash to use for business. Common for new venture to have losses called the survival stage. Need to know the level of sales necessary to cover costs and breakeven. Breakeven at ebdat: = ebit + depreciation interest, revenues = expenses. Variable costs are directly providing a product or delivering a service. Fixed costs are expected to remain constant over a range of revenues for a specific time period. X = cfc over price vc = cfc over contribution. X = cfc over contribution margin using percentage. Variable cost revenue ratio represented by vcrr which is what is left over once the variable cost has covered its contribution margin. Less sales are needed at a higher contribution to cover the fixed cost. Increase operating leverage due to the tradeoff accepting higher fixed costs to lower.
