Business Understanding

Questions: 1. Discuss elements of cost, gross profit persentages and selling prices for products and services? 2. Evaluate methods of controlling stock and cash in business and services environment? Answers: 1. In the production of goods and services, cost states the value of money used in manufacturing of goods and services. Additionally in businesses, the expenditure incurred in the acquisition of goods and services is also termed as cost. The gross profit percentage is the monetary difference between the sales price of a product and its cost price. The gross profit percentage is expressed in the following manner: Selling Price- Cost Price/Selling price*100. Example of calculations of profit can be explained with the help of the following table:- Cost Price 10000 Selling Price 20000 Gross Profit 10000 Gross Profit Percentage =10000/100= 100percent Selling prices defines the monetary value at which the product or services is offered to consumers. Thus, it is an essential pricing strategy, which influences the demand of the product largely (Boehmer, E. and Wu 2013, p.287). The selling price and gross profit if a product are related. As such, higher the selling price of a product, the greater is the gross profit achieved on the sales. However, selling price depends on a large number of factors like demand, market condition and the general economic condition of the buyers. 2. Following are the methods to control stocks and cash in a business enterprise Reorder lead-time - This is the time, which measures the time period between placing an order and receiving it, and makes necessary recommendation to make the process faster. Economic order quantity (EOQ) It is the most effective method to determine the balance between holding extra or less amount of stock and cash inventory. It helps to reduce the holding and operational costs of the firm. Batch Control- Batch control deals with the production of goods in group or batches (Srivastava 2014, p.661). In this case, the operational policies of the brands ensure smooth production, until the succeeding group of raw material arrives. First in, first out- First in, first out method determines that the perishable inventory is utilized within the time, to prevent wastage of stock. References Boehmer, E. and Wu, J.J., 2013. Short selling and the price discovery process.Review of Financial Studies,26(2), pp.287-322. Srivastava, A., 2014. Selling-price estimates in revenue recognition and the usefulness of financial statements.Review of Accounting Studies,19(2), pp.661-697.