Comparison of B2B and B2C E-commerce

	B2C	B2B (direct purchasing)	Implications for B2B
Number of participants in market	Many	Few	Bulk of potential customers may be known. Switching costs for buyers may be high.
Number of people involved in purchasing process	Few	Many	“Automation” of buying process should take into account work flow.
Level of customer’s product expertise	Usually fairly low	Usually fairly high	Customer may demand certain product specifications.
Number of transactions	High	Low	Customer interface may not have to be integrated with back-end order/sales system in real time.
$ Value of transactions	Low	High	Sales process may include price negotiation.
Important buying decision criteria	Price Perceived quality Availability	Availability Quality Price Likelihood of long-term relationship	Customers must reduce risk of not having raw materials, shipping and delivery are important ways to manage inventory costs.
Sales process	May be conducted completely online	Often face-to-face interaction needed, online transactions occur once relationship is established.	Online presence may be how customers find out about you, but between this and the sales transaction, trust may be built using face-to-face communication.
Methods of understanding customers	Traditional consumer research, analysis of web logs (clickstreams)	Sales force gathers information, web log (clickstream) analysis	The smaller the number of customers, the more personal interaction defines product offerings and web functionality.
Integration of systems with customer	Low or none	Potentially high	Complexity of implementation rises sharply when customer wants to integrate his systems with yours.
Fulfillment	Usually single shipment	Often multiple shipments on demand or schedule	Shipment details may be determined offline.
Payment	Credit card, PayPal	(Purchase order, invoice, check), EDI, corp. purchase card	EBPP systems may need to be implemented

 

Assumptions of Break Even point and Cost Volume profit

Assumptions:

1. The behavior of both costs and revenues in linear throughout the relevant range of activity. (This assumption precludes the concept of volume discounts on either purchased materials or sales.)
2. Costs can be classified accurately as either fixed or variable.
3. Changes in activity are the only factors that affect costs.
4. All units produced are sold (there is no ending finished goods inventory).
5. When a company sells more than one type of product, the sales mix (the ratio of each product to total sales) will remain constant.

Difference between CASH FLOW and FUND FLOW

FUND FLOW:

*Statement of source of fund and application of funds for a particular accounting period.

* It shows the future fund activities.

* It explains the increase or decrease of Working capital.

* This helps inverstors to know the future funding activities.

CASH FLOW:

* Factual presentation of inflow and outflow of cash.

* explains cash and cash equivalent movements for a particular accounting period.

*Types:

   1. Direct -  i. Operating Activities.

       ii. Investment Activiites.

    iii. Financial Activities.

   2. Indirect -  Net Income and adjustments to that income

* It explains to investors to understand the operations and functions for company how they have spent and from where the money is coming to the company.

Calculation of Marginal Cost

Calculation of Marginal Cost.

Plus:   Sales             xxx

Less:   Variable cost

    a.Direct Material Cost xxx

    b.Direct Labour   Cost        xxx

   c. Variable Manufacturing overheads xxx

------------

     Total cost of manufacturing 

-------------

Plus :Begining cost of inventory               xxx

 Less:   Ending cost of inventory            xxx

  -----------

     Cost of good manuf & sold       xxx  

      

Contribution(Manuf..) xxx

 Less :  Varaible non-product costs

 Selling and distribution cost xxx

Admin cost xxx

other cost xxx

---------------------

Contribution Final XXX  

Less : Fixed Costs:

Fixed prod costs xxx

Fixed non-prod cost xxx

Net income b4 income tax xxx

Less : Income Taxes xxx

Net Income after income tax xxx

      

 

what is Variable cost ? 

what is marginal cost ? advantages of marginal cost ? Cost calculations ?

Contribution , variable manufacturing overheads.

Management >> Accounting >> Marginal Cost

Liquidity Analysis Ratios

1 . Current ratio

Current Assets 

------------------------
Current Liabilitites

(Cash, debtors receivable, bank acc, Inventory)  

2 Quick Ratio:

    Quick Assets

=  ------------------------ 
    Current Liabilities
(No inventory)

3 Net Working Capital Ratio 

Net Working Capital

---------------------
Total Assets.

4. Acid Test Ratio

Profit Analysis Ratio

1. Return on Assets (ROA)

 Net Income
--------------
Aveg Total Assets

 Aveg total assets = 

starting Assets +Ending Assets
-----------------------
               2
2. Return on Equity(ROE)

 Net Income

----------------
Aveg. Stockholders’ equity

3. Return on Common Equity(ROCE)

 Net Income

------------
Aveg Common stockholder’s equity

4. Profit margin

 Net Income

-----------
Sales

5. Earning per share (EPS)

Net Income

-------------
No. of commons shares outstanding

Activity Analysis Ratio

1. Assets turnover ratio

 Sales

---------
Aveg total assets

2. Acc.receivable turnover ratio

 Sales

-----------
Aveg acc receivable

  
3. Inventory Turnover ratio:

 Cost of goods sold

------------------
Aveg Inventories 

Capital Structure Analysis Ratio

1. Debt to Equity Ratio

Total liabilities

----------------
Total stockholder’s equity

2. Investment coverage ratio

Income b4 interest and IT expenses

--------------
Interest expense

Capital Market Analysis Ratio
1. Price Earning Ratio (PE)

Market price of common stock per share

-----------------------------------------
Earning per share

2. Market to Book ratio

Market price of common stock per share
--------
Book value of equity per common share

3. Dividend yield

Annual dividends per common share

---------------------------------------
Market price of equity per common stock per share

4. Divident payout ratio

Cash dividends 

---------------

net income 

Marginal and Absorption Cost

Marginal Cost

  Marginal cost distinguishes between fixed cost and variable cost.

  >> It is an accounting system in which variable costs are charged to cost units and fiexed costs of the period are written-off in full against aggregate contribution. Its special value is in decision making.

 Note : Contribution = Sales - Marginal Cost.

 

Marginal cost = Var. Direct Labour cost +Direct Material +Direct Expenses+ Variable overheads

Explanation:

  If a firm produces X unit at 300$ and X+2 cost 320$, the cost of an additional unit is 20$, ie., Marginal cost = 20$ in this case.

        Additional Cost  20$

Marginal cost/unit =  --------------------- = --------------    =  10$

         Additional Units          2

  Basic principles

1. For a given time, Fixed cost is same, any in production or sales  will affect..

i. Revenue will increase.

ii. Costs will increase by variable cost per unit.

iii. Profit will increase by amount of contribution enarned from the extra item.

2. similarly on decrease on sale

     i. Revenue will decrease .

     ii. Costs will decrease  by variable cost per unit.

     iii. Profit will decrease by amount of contribution enarned from the extra item.

3. So profit analysis should be based on contribution. 

        Note : Contribution = Fixed cost+ profit

                   at Break-even point : Profit will be zero so.  Contribution = FC.

4. when a unit of product is made, extra cost incurred in its manufacture are variable production costs. Fixed costs are unaffected and no extra fixed costs are incurred when output is increased.

Features:

1. Cost Classification:

        MC makes distinction b/w fixed and variable cost. Based on MC, the  production,sales policies are designed by firm.

2. Stock/Inventory

      Under MC, Inventory/stock for profit measurement is valued at marginal cost.

3. Marginal Contribution

MC uses marginal contribution (Sales - MC), it forms basis for judging the profitablity of different products or departments.

Advantages

1. Simple to understand.

2. by not changing fixed overhead to cost of prod, effect of varying charges per unit is avoided.

3. Effects of alternative sales or production policies and decision will be taken.

4.Helps in short-term profit planning .

Disadvantages

1. Separation of costs into fixed and variable is difficult.

2. Exclution of fixed cost from inventories affect profit, and fair view of financial affairs of an organization may not

be clearly transparent.

3. MC data becomes unrealistic in case of highly fluctuating levels of production.