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.

1. New Venture Creation 4

2. Module 5: Apply the principles of costing and pricing to a business venture

6. 1.1 Explain and illustrate the flow of the trading cycle for a new venture

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

10. New terms

19. 1.3 The difference between fixed costs, variable costs and total costs

22. Total costs Fixed Costs Variable Costs Total Costs Quantity produced Quantity produced Quantity produced

27. 2.1 Internal and external factors impacting upon pricing decisions

30. Elasticity of demand Demand Demand Q 1 Q 2 Q 1 Q 2 P 1 P 1 Elastic Demand Inelastic Demand

33. High demand elasticity Demand Q 1 Q 2 P 1 P 1 Elastic Demand Demand Q 1 Q 2 P 1 P 1 Elastic Demand R 1 R 1

34. High demand elasticity Demand Q 1 Q 2 P 1 P 1 Revenue lost Revenue gained

35. Elasticity of demand Demand Demand R 1 R 2

36. Elasticity of demand Demand Revenue lost Revenue gained

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

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

52. 3.1 Review available costing methods in relation to own business

53. Table 2

55. Table 3 Item Revenue Direct costs Gross profit Total cost Contri-bution to net profit Net profit margin Paving blocks R718 750 R326 600 R392 150 R552 426 R166 324 23.1% Building blocks R533 750 R245 830 R287 920 R413 530 R120 220 22.5% Garden tables R14 256 R9 168 R5 088 R13 647 R609 4.3% Statues R6 624 R 3 360 R3 264 R5 441 R1 183 17.9% Fountains R17 550 R9 801 R7 749 R15 315 R2 235 12,7% R1290930 R1000359 R290 571

56. Table 4

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

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

68. Table 6

69. Table 7

70. Table 8

72. 3.5 Distinguish between types of profit in relation to own business venture

74. 3.5 Distinguish between types of profit in relation to own business venture

77. 3.9 Assess suppliers and new products in terms of potential contribution to profit and market share