Formulalistfor ASBusinessStudies

EssentialFormulas
Percentages
Percentagechange=(newold)/oldx100ordifference/oldx100whereoldistheprevious valueandnewisthecurrentvalue. Example:calculatethepercentageincreaseifsalesrevenueincreasesfrom120mto150m. Percentageincreaseinsalesrevenue=(150120)/120x100=30/120x100=0.25x100=25%

Revenue
Revenue:incomeearnedfromsellingproducts.Sometimescalledsales,salesrevenueorturnover. Totalrevenueisfoundbymultiplyingsellingpriceperitembythequantity(amount)ofitemssold. Revenue=pricexquantityorTR=PxQwhereTRistotalrevenue,PispriceandQisquantity Example:calculatetotalrevenueif2,000itemspriced30eacharesold.TR=30x2,000=60,000

Totalcost,fixedcostandvariablecost
Costs:theexpensesinvolvedinmakingaproduct.Firmsincurcostsbytrading. TotalCosts(TC):theamountofmoneyspentbyafirmonproducingagivenlevelofoutput.Total costsaremadeupoffixedcosts(FC)andvariablecosts(VC). Fixedcosts:expensesofproductionthatdonotchangewithoutputegrent.Fixedcostsarealmost alwaysindirectcostsandaresometimescalledoverheads. Variablecosts:expensesofproductionthatdochangewithoutputegcomponentsandrawmaterials. Variablecostsarealmostalwaysdirectcosts. Totalcosts=FixedCosts+VariableCostsorTC=FC+VC.ThismeansFC=TCVCandVC=TCFC Example:calculatetotalcostsiffixedcostsare10,000andvariablecostsare40,000. TC=FC+VC=10,000+40,000=50,000

Averagecostandvariablecostperunit
Averagecost(AC)orunitcostisthecostofproducingoneitem.Averagecostisfoundbydividing totalcosts(TC)bytotaloutput(Q). Averagecosts=TotalCost/OutputorAC=TC/Q Example:calculateunitcostifthetotalcostofmaking2,000productsis50,000. AC=TC/Q=50,000/2,000=25.Theunitoraveragecostofmakingoneproductis25. Variablecostperunitoraveragevariablecost(AVC):thecostofmakingoneitemignoringfixed costsandisfoundbydividingvariablecostbythelevelofoutput.AVC=VC/Q Example:calculateunitvariablecostifvariablecostofmaking2,000productsis40,000. AVC=VC/Q=40,000/2,000=20.Theunitvariablecostofmakingoneitemis20.

Markup
Markupisfoundbyaddingagivenpercentagetotheinitialunitcost Example:calculatethesellingpriceofanitemwhereunitcost=5andmarkupis200%.Theselling price=unitcost+(unitcostxmarkup)=5+(5x200%)=5+10=15

Profit
Putsimplyprofitisthesurplusleftoverfromrevenueafterpayingallcosts.Profitisfoundby deductingtotalcostsfromrevenue.Profit=revenuetotalcosts Therearetwotypesofprofit:grossandnet Grossprofitisthesurplusleftoverfromrevenueafterpayingallvariablecosts. Grossprofit=revenuevariablecostsorgrossprofit=salesrevenuecostofsales Example:calculategrossprofitifsalesare60,000andvariablecostsare40,000. Grossprofit=revenuevariablecosts=60,00040,000=20,000 Netprofitisthesurplusleftoverfromrevenueafterpayingbothvariableandfixedcosts Netprofit=revenuetotalcostsornetprofit=grossprofitotherexpenses Example:calculatenetprofitifsalesare60,000andtotalcostsare50,000. Grossprofit=revenuetotalcosts=60,00050,000=10,000

Contributionperunit
Contributionperunit:thedifferencebetweenthesellingpriceofanitemanditsunitvariablecost. Contributionperitemisfoundbysubtractingthevariablecostsofmakinganitemfromitssellingprice. Contributionperunit=sellingpriceperunitunitvariablecosts Example:Calculatethecontributionmadewheresellingpriceis30andunitvariablecostis20. Contributionperunit=sellingpriceperunitunitvariablecosts=3020=10 Contributionpaysofffixedcosts.Oncefixedcostsaremet,eachitemsoldmakesacontributionto profit.Example:ifeachitemcosts20tomake,excludingfixedcosts,andsellsfor30,thenthereis 10surplustoputtowardspayingofffixedcosts.Onceallfixedcostsaremet,10profitismadeon everyitemsold. Totalcontribution=contributionperunitxnumberofitemssold Example:calculatetotalcontributionwheresellingpriceis50,unitvariablecostis20,and800 itemsaresold.Totalcontribution=contributionperunitxnumberofitemssold=(5020)x8,000 =30x800=24,000

Breakeven
Breakeven:theminimumlevelofunitsthatmustbesoldforrevenuetocovertotalcostsexactly Thebreakevenlevelofoutput=fixedcosts/contributionperunit Example:Egiffixedcostsare10,000andeachunitcontributes10thenthebreakevenoutputlevel =10,000/10=1,000.1,000itemsmustbesoldfortotalcoststobecoveredandneitheraprofitor lossmade Profit=contributionfixedcosts Example:Fixedcosts:10,000.Perunitcontribution:10.Calculateprofitmadeselling800and1,400 a) 800unitscontribute800x10=8,000.Fixedcosts=10,000.A2,000lossismade b) 1,400unitscontribute1,400x10=14,000.Fixedcosts=10,000.A4,000profitismade
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Investmentdecisions
Payback:thetimetakentorecoverthesumofmoneyinvested. Example:anewmachinecosts10,000andisexpectedtoincreasereturnsby2,500ayear.The paybackperiodneededtorecovermoneyspentisfouryears. Wherepaybackoccurssometimeduringayearthefollowingformulaisused: Monthofpayback=targetincome/incomepermonth Example:newequipmentcosting12,000generates3,600incomeeachyear.Threeyearsgenerates 10,800income.Paybackissometimeduringyearfour.Targetincomeinyear4isthecostofthe project,12,000lessincometodateof10,800=1,200.Incomepermonth=300.SotheMonthof payback=targetincome/incomepermonth=1,200/300=4months.Paybackis4years3months TheAccountingRateofReturn(ARR)calculatestheannualprofitfromtheinvestmentasa percentageoftheinitialinvestment.ARR=averageannualretur n/initialcapitalcostx100. Example:Anewmachinecosting10,000hasanexpectedaverageannualprofitof2,500ayear.The averagerateofreturnis2,500/10,000x100=25%.

CompanyAccounts
Workingcapital:fundsusedtofinancedaytodaybusinessactivityegwages.AlsocalledNetcurrent assets.Workingcapital=currentassetscurrentliabilities Example:Ifcurrentassets=20,000andcurrentliabilities=5,000thenworkingcapital=15,000

Workforceeffectiveness
Labourturnover:theproportionofstaffleavinganorganisationeachyear. Labourturnover=numberofstaffleaving/averagenumberofstaffemployedx100 Example:if12staffleaveabusinessemploying200thenlabourturnover=12/200x100=6% Labourproductivityisoutputperpersoninagiventimeperiodandisfoundbydividingtotaloutput (Q)bythenumberofworkers(L).LabourProductivity=Q/Landcanbeshownasoutputper workeroroutputperhourworked.Productivityisanindicator(measure)ofefficiency Example:if50workersproduce10,000itemsadaythendailyproductivity=10,000/50=200items

Capacityutilisation
Capacityutilisation:theproportionofcapacitycurrentlyusedandisgivenbytheequation currentoutput/maximumoutputx100. Example:ifcapacityis200unitsandthebusinessiscurrentlymaking180itisoperatingat180/200x 100=90%capacity

|EssentialFormulas 3

MarketSize,shareandgrowth
Marketsize:totalsalesofallthefirmsinagivenmarket.Marketsizebyvalueisfoundbymultiplying thenumberofunitssoldbyprice Example:FirmAsells2,000unitsat8.FirmBsells2,500unitsat5. Marketsizebyvolume=2,000units+2,500units=4,500 Marketsizebyvalue=(2,000x8)+(2,500x5)=16,000+12,500=28,500

Marketshare:measuresthesalesofonebusinessasapercentageoftotalsalesinthemarket. Marketshare=salesoffirmA/totalmarketsizex100 Example:FirmAsells2,000unitsat8.FirmBsells2,500unitsat5.CalculatemarketshareofFirmA Marketsharebyvolume=2,000/4,500x100=44% Marketsizebyvalue=16,000/28,500=56%

Marketgrowth:thechangeinthesizeofamarketovertime.Foundbydividingthechangeinthesize ofthemarketbytheoldmarketsize. Marketgrowth=(newmarketsizeoldmarketsize)/oldmarketsizex100 Example:ifthevalueofmarketsalesin2009of28,500risesto30,000in2010thenthemarkethas increasesinsizeby(30,00028,500)/28,500x100=1,500/28,500=5.3%

Priceelasticity
Priceelasticityofdemand(PED)measurestheresponsivenessofdemandtoagivenchangeinprice PED=percentagechangeindemandofgoodX/percentagechangeinpriceofgoodX. Exampleifa10%fallinpriceresultsina5%increaseinquantitydemandedPED=5%/10%=0.5 IgnorethefactthatPEDisnegativebecausepriceanddemandmoveinoppositedirections IfthePEDvalueisgreaterthanonethendemandispriceelasticandresponsivetoagivenchangein price.Anypriceresultsinaproportionatelylargerchangeinquantitydemanded IfPEDislessthan1,demandispriceinelasticieunresponsive.Agivenchangeinpriceresultsina proportionatelysmallerchangeinquantitydemanded

Priceelasticityofdemandandrevenue
Revenue=pricexquantityorTR=PxQwhereTRistotalrevenue,PispriceandQisquantity Adecreaseinpricehastwoeffectsonrevenue:alowersellingpriceandhighervolumeofsales.The overallimpactonrevenueapricecutdependsonthePEDoftheproduct. Ifdemandispriceelastic,pricecutsraiserevenueandpriceincreasescutrevenue Example:whenpriceis5afirmsells50itemsgenerating250orrevenue.Ifreducingpriceto4 increasessalesto70items,thenrevenueincreasesto280.Revenuehasincreasedby30.PEDis2. Ifhoweverapricecutto4increasessalesbyonly55itemsthenrevenuefallsfrom250to220.PED is0.5.

Incomeelasticity
Incomeelasticityofdemand(YED)measurestheresponsivenessofdemandtoagivenchangein income.YED=percentagechangeindemand/percentagechangeinincome Exampleifa10%riseinincomeresultsina25%increaseindemandedYED=25%/10%=2.5 Luxuryitemshaveapositiveincomeelasticityofdemandvaluegreaterthanone.Demandincreasesby abiggerpercentagethantheincreaseindemand
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