This document discusses principles of costing and pricing for a new business venture. It covers identifying price-setting policies and factors that influence pricing decisions. It also explains the relationships between costs, revenue, and profits, and how to calculate break-even points. Key terms like fixed, variable and total costs are defined. The document provides examples and activities to help understand these concepts and apply them to business planning.
2. Module 5: Apply the principles of costing and pricing to a business venture
3.
4.
5.
6. 1.1 Explain and illustrate the flow of the trading cycle for a new venture
7.
8. Value of inventory Month beginning Purchases Used Month end Average Credit sales Accounts Receivable Jan R 5 000 R 37 600 R 36 050 R 6 550 R 5 775 R 126 200 R 20 400 Feb R 6 550 R 34 500 R 32 950 R 8 100 R 7 325 R 115 300 R 23 600 Mar R 8 100 R 31 400 R 31 400 R 8 100 R 8 100 R 109 900 R 27 400 Apr R 8 100 R 31 400 R 34 500 R 5 000 R 6 550 R 120 800 R 35 500 May R 5 000 R 37 600 R 41 200 R 1 400 R 3 200 R 144 200 R 21 100 Jun R 1 400 R 50 200 R 42 350 R 9 250 R 5 325 R 148 200 R 36 400 Jul R 9 250 R 34 500 R 36 050 R 7 700 R 8 475 R 126 200 R 21 500 Aug R 7 700 R 37 600 R 37 600 R 7 700 R 7 700 R 131 600 R 30 200 Sep R 7 700 R 37 600 R 44 300 R 1 000 R 4 350 R 155 100 R 32 500 Oct R 1 000 R 51 000 R 51 000 R 1 000 R 1 000 R 178 500 R 39 400 Nov R 1 000 R 62 700 R 54 850 R 8 850 R 4 925 R 192 000 R 33 700 Dec R 8 850 R 47 000 R 47 850 R 8 000 R 8 425 R 167 500 R 30 800 Cost of goods sold = R 490 100 Average inventory R 5 929 R 1 715 500 R 352 500
9. Activity 2 Making use of the formulae above plus the information contained in the table calculate the average Operating Cycle for the year for the business concerned. (The answer is given below to allow you to check if you have worked it out correctly). Your challenge is to see if you can get to the right final answer. Tip : Remember you are working this out for the YEAR in question (i.e. use Totals) Inventory Turnover Ratio = 83 times Collection Period = 75 days Age of Inventory = 4 days Operating cycle = 79 days
39. Before After Price Demand Revenue Price Demand Revenue Nett A R 60 34 A+5 R 65 32 A R 60 34 A-5 R 55 36 Price Demand Revenue Price Demand Revenue Nett B R 25 108 B+5 R 30 85 B R 25 108 B-5 R 20 143 Price Demand Revenue Price Demand Revenue Nett C R 40 60 C+5 R 45 51 C R 40 60 C-5 R 35 71
40.
41.
42.
43.
44.
45.
46.
47.
48. 2.3 Calculate variations in pricing decisions in terms of the impact on the break-even point Fixed Costs Variable Costs Total Costs Quantity produced Quantity produced Quantity produced
58. Revenue Direct labour costs Direct material costs Item Unit Units sold Price Amt Cost / unit Amt Cost / unit Amt Paving blocks 1000 575 R1250 R718 750 R341 R196 075 R227 R130 525 Building blocks 1000 R1750 R455 000 R488 R318 R96 990 Garden tables Each 48 R297 R14 256 R115 R5 520 R76 R3 648 Statues Each 24 R276 R6 624 R95 R2 280 R45 R1 080 Fountains Each 27 R650 R17 550 R218 R5 886 R145 R3 915 R1 212 180 R358 601
59. Item Revenue Contri-bution to revenue Contri-bution to overheads Direct labour Direct materials Total cost Paving blocks R718 750 R240 496 R196 075 R567 096 Building blocks R455 000 R152 245 R148 840 R96 990 R398 075 Garden tables R14 256 R4 770 R3 648 R13 938 Statues R6 624 R 2216 R 2 280 R1 080 R5 576 Fountains R17 550 R 5 886 R3 915 R1 290 930 R405 600 R358 601 R236 158 R1 000 359
60.
61. Revenue Direct labour costs Direct material costs Item Unit Units sold Price Amt Cost / unit Amt Cost / unit Amt Paving blocks 1000 900 R1250 R341 R306 900 R227 R204 300 Building blocks 1000 260 R1750 R455 000 R488 148 840 R318 R96 990 Garden tables Each 48 R297 R14 256 R115 R5 520 R76 R3 648 Statues Each 24 R276 R6 624 R95 R2 280 R45 R1 080 Fountains Each 27 R650 R17 550 R218 R5 886 R145 R3 915 R1 618 430 R469 426 R309 933
62. Item Revenue Contri-bution to revenue Contri-bution to overheads Direct labour Direct materials Total cost Paving blocks R1 125 000 R281 940 R306 900 R204 300 R739 140 Building blocks R455 000 28.1% R114 029 R359 859 Garden tables R14 256 R3 573 R5 520 R3 648 R12 741 Statues R6 624 0.4% R 2 280 R1 080 R5 020 Fountains R17 550 1.1% R4 398 R 5 886 R3 915 R14 199 R1 618 430 R405 600 R469 426 R309 933 R1 184 959
63. Statues only Materials Labour Overheads R1 080,00 R2 280,00 R1 660,06 Revenue per statue R276,00 R276,00 No to sell to cover cost 3,913 6,0147
64. Revenue Direct labour costs Direct material costs Item Unit Units sold Price Amt Cost / unit Amt Cost / unit Amt Paving blocks 1000 900 R1250 R1 125 000 R341 R306 900 R227 R204 300 Building blocks 1000 R1750 R R488 R130 855 R318 R85 271 Garden tables Each 0 R297 R115 R5 520 R76 R3 648 Statues Each 24 R276 R6 624 R95 R2 280 R45 R1 080 Fountains Each 27 R650 R17 550 R218 R5 886 R145 R3 915 Gross profit = Revenue – Direct costs = R875 341 R1 620 369 - R446 462 - 298 566
65. Revenue Direct labour costs Direct material costs Item Unit Units sold Price Amt Cost / unit Amt Cost / unit Amt Paving blocks 1000 900 R1250 R1 125 000 R341 R306 900 R227 R204 300 Building blocks 1000 R1750 R488 R130 855 R318 R85 271 Garden tables Each 0 R297 R R R R76 R3 648 Statues Each 24 R276 R6 624 R95 R2 280 R45 R1 080 Fountains Each 27 R650 R17 550 R218 R5 886 R145 R3 915 Gross profit = Revenue – Direct costs =R875 341 R1 620 369 R446 462 298 566
66. Revenue Direct labour costs Direct material costs Item Unit Units sold Price Amt Cost / unit Amt Cost / unit Amt Paving blocks 1000 575 R1250 R718 750 R341 R196 075 R227 R130 525 Building blocks 1000 R1750 R455 000 R488 R318 R96 990 Garden tables Each 48 R297 R14 256 R115 R5 520 R76 R3 648 Statues Each 24 R276 R6 624 R95 R2 280 R45 R1 080 Fountains Each 27 R650 R17 550 R218 R5 886 R145 R3 915 R1 212 180 R358 601 R236 158
67. Revenue Direct labour costs Direct material costs Item Unit Units sold Price Amt Cost / unit Amt Cost / unit Amt Paving blocks 1000 575 R1250 R718 750 R341 R196 075 R227 R130 525 Building blocks 1000 305 R1750 R533 750 R488 R148 840 R318 R96 990 Garden tables Each 48 R600 R28 800 R115 R5 520 R76 R3 648 Statues Each 24 R276 R6 624 R95 R2 280 R45 R1 080 Fountains Each 27 R650 R17 550 R218 R5 886 R145 R3 915 R1 305 474 R358 601 R236 158