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BU121 Supplemental Instruction Midterm Review.docx

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Department
Business
Course
BU121
Professor
Laura Allan
Semester
Winter

Description
BU121 Midterm Review (SI) Using a balance sheet, how can a company that is profitable go bankrupt?  look @ accounts receivable (all of the sales that you made that are on credit). It shows as profit to the company but you don’t have the cash yet  look @ accounts payable (all of the expenses that you haven’t paid off yet, so it can show as ‘profitable’ but wont be when you pay them off) Impact on cash activities on cash flows *selling $2000 of goods on account no change! Youre selling it using accounts receivable. They wont pay you until later *in April there was 10k of goods sold w. 10% being paid in cash, 40% on credit due in the next mths, and 50% on credit due in 2 mths. What is the impact on the cash flow statement in May?  increase in cash flow *in April you purchased a piece of equip for $15k on credit. 10% due the month of purchase, 60% due the following mth and remaining due the next mth after that. Whats the impact on the cash flow statement in july?  it’ll depreciate so there will be no change in the cash flow statement.. its not a cash item Statement of Cash Flows  Operating Activities: o Start with net income o Add back depreciation/amortization  Receivables  Inventory  Payables  Account liabilities  Investing Activities o Gross fixed assets  Financing Activities o Loans o Stock o Cash dividends Contribution Margin and Rate Your product sells for $20/each. It costs your company $5k annually to build this product and $15 in variable costs per unit. In 2011 your product earned $50k in revenue. Determine the following calculations and their impact on your investors:  Contribution margin (you want them to be bigger but as long as your price per unit > VC then youre still making $$ but its not taking into account your fixed costs)  Contribution rate Contribution margin = price per unit – variable cost = $20 - $15 = $5 Contribution rate = (price per unit – VC) DIVIDED BY price per unit = $5 / $20 = 0.25 Calculate Breakeven Your product sells for $20/each. It costs your company $50k to produce the product and $15 in VC per unit. In 2011 your product earned $50k in revenue. (same example except it costs 50k instead of 5k) Breakeven volume = CFC / (price – VC) = 50k / (20 – 15) = 10k. Aka you have to sell 10k units to breakeven. If you sell less, youre operating at a loss. Note- CFC is cash fixed costs aka fixed costs. Graphically  see where the two lines intersect. ((look up which lines they are and whats on the x/y axis)). Below the POI, operating at a loss. Above the POI, operating at a profit. IE: Calculate Survival Revenue Your product sells for $20/each. It costs your company $5k annually to build this product and $15 in variable costs per unit. In
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