Answer: Business Transactions
Introduction of the Equation and the Variables
Calculation of the gross profit margin is essential as it shows how much money the business is making against the costs of production/ goods so that the business owner can interpret the profit potential of the business. I recently started a hotdog business in my school that run 3 hours daily from Monday to Friday. It costs me 3 dollars to make one hot dog and sell it for 5 dollars and has to pay my employee a salary of 420 dollars per month. The general profit margin ratio is net income/ sales. The general equation for the GPM = (XP)- (MX+B)/ XP. XP represents the revenue function, X = the number of hotdogs sold per month, P= price per hotdog. On the other hand, MX+B is the cost function, M = the cost of each hotdog and B the salary expense. Given that the cost of making one hot dog is (m) $ 3, the salary expense(B) is $ 4200 and the selling price is $5 per hot dog, the GPM= (5X- (3X+4200))/ 5X. Business Transactions
Solutions to the Equation
At breakeven cost of production= revenue, therefore, assuming that the business is operating at break even, the equation is 3X+4200= 5X. Hence we can calculate the number of hot dogs that we need to sell in order to break even. 3X-3X+4200=5x-3x. which implies that 4200= 2x, thus 2100=x. We should, therefore, sell 2100 pieces of hot dog daily in order to breakeven. Assuming that, the target gross profit margin is 10% then the number of sales must be higher. Given the equation, GPM= (5X- (3X+4200))/ 5X. It implies that the equation would be 0.1 =2x-4200/ 5x. Hence the number of hotdogs sold should be 4,198.5 which is approximately 4,199 hotdogs.
Importance of Business Transactions’ Equations
A business transaction is an activity that can be measured in terms of money and affects the financial position or operations of the business entity. Equations in business transactions, they help an individual understand the financial position of the company. Additionally, it helps the management/ owners to judge the efficiency of the transactions, thus facilitate more informed decisions (Warren, Reeve, & Duchac, 2017) . Finally, the equations act as a guideline and are used to establish trends of the organization’s financial performance. The equations can be applied when buying an item on hire purchase, the equation is P= (1+in). P is the hire purchase price, I, the interest rate while n is the period of the hire purchase. A second example is when selling a property, you calculate the rate of return which is the amount that the owner receives after the cost of the initial capital is calculated in percentage form. Rate of return= ((Current value- initial value)/ initial value * 100 Business Transactions
Business transactions equations are a viable way of weighing the appropriate financial decision and positioning the company (Greenwood, 2002). The equations make it easier for the management, investors, and creditors to understand the business as well as make financial decisions. The equations are also an important tool that shows you the relationship between the items of the financial statement. Business Transactions
Greenwood, R. P. (2002). Handbook of Financial Planning and Control. Aldershot, England: Gower Publishing.
Warren, C., Reeve, J. M., & Duchac, J. (2017). Accounting, Chapters 1-13. Boston, MA: Cengage Learning. Business Transactions
Question: Business Transactions
For this Assessment, you will write a one-page, four-paragraph essay explaining an equation you will develop. Your essay must be carefully planned and written using well-constructed sentences and paragraphs. Make sure that your grammar and spelling are correct. Points will be awarded for content as well as composition. Your essay must be a minimum of one page in length with standard 1-inch margins and is required to have at least one reference from a reliable source. This means that you cannot use sites like Wikipedia, Ask.com®, and Yahoo® answers and that only references from reliable sources will earn points. All resources should be cited both as an in-text citation as well as being listed on a reference page in APA format. Business Transactions