Tutor profile: Brittney N.
What is the time value of money? If someone offered you $1000 today or $1000 a year from now, which offer should you accept?
The time value of money is a term that refers to the fact that money, if left alone and not invested, will decrease in value. This is true because of inflation, inflation being the increase in prices over time. Due to the time value of money, money now is always worth more than money later. Not only is this true due to inflation, but additionally, money now can be invested and increase in value over time. So which is better? $1000 now or $1000 a year from now? The answer is $1000 now. Not only will $1000 have less purchasing power in the future, but you can invest that $1000 now so that it is worth MORE in the future!
What is the difference between the mean and standard deviation? What information do these calculations provide?
The mean of a given set of data is another way of saying the average. In other words, if you add all of the data points together and divide by the total amount of data entries, you will find the mean. One might calculate the mean for a wide variety of reasons. One reason might be to find a comparison point for all the data. For example, you may want to calculate the mean of milk prices amongst all your local grocery stores to discover what prices are typically higher or lower. Standard deviation is a calculation that will tell you how much your data set typically deviates from your average. To find the standard deviation, you will need to know the number of data points, what each data point is, and the mean of your data points to complete the formula. Knowing the standard deviation (how much the majority of your data varies from the average) can be very helpful in knowing the risk of an investment, or, in our milk situation, the risk of deciding where to grocery shop. For example, if you find that the standard deviation of milk prices, is 5 cents, the risk of overspending by a large amount is low. Therefore, you may no longer care where you choose to grocery shop since most stores are likely to carry milk extremely close to the average price.
What is FIFO and LIFO? How are FIFO and LIFO used to calculate cost of goods sold?
FIFO and LIFO are two different ways to calculate and record a business's cost of goods sold. FIFO refers to "First In First Out". LIFO refers to "Last In Last Out". For the FIFO calculation of COGS, you will multiply the units sold by the price of your oldest inventory purchases. REMEMBER: cost of goods sold is recording the amount that YOU (the business) paid for the inventory you sold, NOT what your customer paid. For the FIFO method, you will multiply the units sold by the price of your most recent inventory purchases. For both of these methods, it is important to remember that you will only use the inventory per unit price up to the amount of units purchased in that order. If you sold more than the purchase order, you will need to use the per unit price of the next relevant purchase order.
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