BU121 Study Guide - Midterm Guide: Accounts Payable, Contribution Margin, Fixed Cost

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23 Feb 2018
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BU121 Review Guide 6
Leverage
Degree in which a company incurs combination of variables and fixed costs
o As an entrepreneur, how would you try to increase CM?
Minimize costs
o What could be the trade off for investing in a newer piece of machinery
Overhead (fixed costs) increases
o What is the risk-reward tradeoff
Spending more now, saving more over time
Finance Math
Finance & breakeven
1. Human and financial capital must be rented
2. Risk and expected reward, must take a current risk for a long-term reward
3. Accounting is the language of business, cash is the currency
a. Cash position gives better insight of what we can do today
Just eause you hae posted the profit, if you don’t hae the ash on hand you ill not
be in a good situation, creditors care about getting their money back
Sales revenue - accounts receivable
o You posted the profit, ut you don’t hae the ash to use
Expenses - accounts payable
o You have cash on hand, but you actually owe it to creditors
Amortization or depreciation
o Not cash expenses - does not impact your cash balances
Breakeven
Contribution
o Equivalent of the word value
o Value = what you get - what you give
o Total contribution = revenue - COGS (or sum of all VCs)
o (total sales level)
Contribution = selling price per unit - VC per unity
Units required
Contribution margin (margin = %)
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