1. What are the advantages and disadvantages of a bank loan?
Quick and easy to take out
Disadvantage: Pay interest on the load
Advantage: Lower interest rate than for overdraft
Disadvantages: Paying back monthly installments, increasing fixed costs
Advantage: Spreads costs of equipment over years rather than one off lump sum
Advantage:
Can help cover a shortfall in the companies cash flow
What are the advantages and disadvantages of a bank loan?
Define fixed cost and give examples?
A fixed cost is a cost that does not change over the short-term, even if a business experiences changes in its sales volume or other activity levels. Examples: rent, staff salaries, loan repayments, utilities like electricity, gas, phones. This cost has a variable element, but is largely fixed.
Define variable costs and give examples
A cost that varies with the level of output. Examples are:
Direct materials. The most purely variable cost of all, these are the raw materials that go into a product.
Production supplies. Things like machinery oil are consumed based on the amount of machinery usage, so these costs vary with production volume.
Commissions. Salespeople are paid a commission only if they sell products or services, so this is clearly a variable cost.
Short term sources of finance
Overdraft
Trade credit
Long term sources of finance
Bank loan
Venture capital
Personal savings
Financial objectives
Relate to money, e.g. start-up business wants to survive; maximise profit; increase sales volume and market share, financial security
Non Financial objectives
Relate to goals which are not money-related, e.g. Entrepreneurs aim for independence; control of work-life balance; personal satisfaction
Find out
Formula
Total Costs
Total cost (TC) describes the total economic cost of production and is made up of variable costs, plus fixed costs.
Break Even point
The point at which total cost (TC) and total revenue (TR) are equal. There is no net loss or gain, and one has "broken even”
Total revenue
Refers to the total receipts from sales of a given quantity of goods or services. It is the total income of a business and is calculated by multiplying the quantity of goods sold by the price of the goods.
Profit/loss
Profit is the surplus left from revenue after paying all costs. Profit = total revenue - total costs.
A loss is made when the revenue from sales is not enough to cover all the costs of production.
Explain what the difference is between price & cost?
The price is the amount customers pay for a product.
The cost is the amount spent by a business making the product.