Entrepreneurship 1 Marks Question

Usage rate in inventory control refers to the average rate at which inventory is drawn down over a period of time.

Inventory control is a process which facilitates the entrepreneur to take important decisions about his production line and material movement.

Re-order point is the point or level at which the new order must be placed so that the inventory is replenished before the stock level reaches zero.

Sales budget is an estimate of future sales, often broken down into both units and currency. It is used to create company sales goals.
Marketing budget is an estimate of the funds needed for promotion, advertising, and public relations in order to market the product or service.

Two forms of budgeting process are:

1. Traditional budgeting.
2. Zero-based Budgeting.

1. Investment.
2. Financing.
3. Dividends.

1. Cash and bank balances.
2. Account receivables:

1. Bills receivable.
2. Debtors.

3. Short term investments/ Temporary investment.
4. Prepayment:

1. Prepaid rent.
2. Unexpired insurance, etc.

5. Accrued Income.

Taxes are compulsory payments made to the government for no direct returns.

It is defined as the cost of holding and handling materials inside or outside the stores. It is important to examine the inventory level and to maintain optimum balance of inventory.

Cash inflow is defined as the movement of money into the business.

Cash flow: Cash flow refers to the movement of money in and out of a business during a specific period of time.
Example: Loan Received, Sales Receipts, Sale of Assets.

Cash outflow is defined as the movement of money out of a business.

The key aspects of financial decision making relate to investment, financing and dividends.

Reorder point = Usage rate × Order lead time
Reorder point = 300 × 5 = 1500 units

Cash inflow: All receipts of money in the business is known as cash inflow like rent received and loan received.

The Unit Cost refers to the variable cost like raw-materials, packing material, sales commission, freight, etc.

Gross profit is not the final profit of the business as indirect expenses and overheads are yet to be charged to it.

The financial management is the process of procurement, allocation and control of financial resources of a concern.

Break-even point is the level of output, at which total revenue is equal to total cost.

ROE (Return On Equity) is a good indicator to know a true measure of how own money is being used.

The length of time a product may be stored without becoming unsuitable for use or consumption. Items like vegetables, fruits, flowers and fish are perishable in nature. This calls for special storage conditions and equipments- cold storage, freezers, etc. These have financial implications. Similarly some of the manufactured food or medicinal products have expiry dates- beyond which they are not fit for consumption. This imposes certain constraints on inventory management.

Depreciation is applicable for tangible assets (Building, Machinery) and amortisation is available for intangible assets (Goodwill, Patent, Trademark). Depreciation may write off slow but amortisation may write off fast.

As part of a business plan, Cash Flow Projection will always give an entrepreneur a much better idea, of how much capital investment a business idea needs to start and to run the business.

• Re-order point: It is a level at which a new order must be placed so that the inventory is renewed before the stock reaches zero level.

It is estimated by using the formula Reorder Point = Usage Rate x Lead Time.

Reorder point = usage rate × order lead time Reorder point
= 40 × 25 = 1,000 units.

ROI (Return On Investment) is a good indicator to know a true measure of how total money is being used. ROI, on the other hand, gives an indication of how the total money is being used.

1. Bank overdrafts
2. Accounts Payable:

1. Creditors.
2. Bills payable.

3. Outstanding Expenses: wages, rent, commission, etc.
4. Income received in advance.
5. Dividend Payable.
6. Provision for doubtful debt.

Profit helps a business to sustain and grow.

It is an average rate at which the inventory is drawn down over a period.

The acronym EBITDA stands for Earnings Before Interest, Tax, Depreciation and Amortisation.

Gasoline, other combustible items, some hazardous chemicals, etc.

Cost of unit can be defined as the cost incurred by a company to produce, store and sell one unit of sale of a particular product or service.

Variable costs are directly proportional to the level of output.

Profitability ratios help an entrepreneur to compare:

1. The profitability of their venture between two time periods.
2. The profitability of their venture as compared to competing firms.

Desirable behaviour of any inventory item is "Availability". It means that there should never be any stock out. In other words, moment the need (demand) arises we should be able to supply the item, without losing any time.

The French word bougette, meaning purse (referring to money), is the origin of the word budget.

These funds are referred to as 'capital'.

Cash flow refers to the movement of money in and out of a business during a specific period of time.

ICMA London defines a budget as "financial and quantitative statement, prepared and approved prior to a defined period of time, of the policy to be persued during that period for the purpose of attaining a given objective.”It may include income, expenditure and capital.

It refers to the period for which a budget is prepared and implemented.

Excess of unit price over unit cost is known as the unit gross profit.
So, Gross Profit Per Unit = Unit Price - Unit Cost.

The two components of capital invested are as follows:

1. Equity.
2. Debt.

Being a tangible asset, machinery will be depreciated.

Earnings Before Interest, Tax, Depreciation and Amortization.

It is an average time that elapses between placing an order and receiving the goods.

1. Bulky items with low value- straw for use in paper mill.
2. High value items with low volume- Diamond.

Being an intangible asset, patents will be amortised.