1.3 Cash And Finance

Question 1

Cash flow- definition

Answer 1

The movement of cash into and out of a business over a period of time

Question 2

Insolvency- definition

Answer 2

Occurs when a business does not have enough cash to pay its debts by their due dates

Question 3

Cash out flow- definition

Answer 3

The money which leaves the business e.g bills and salaries

Question 4

Cash inflows- definition

Answer 4

Money coming into the business e.g revenue

Question 5

Cash flow forecast- definition

Answer 5

The process of predicting future cash inflows and outflows

Question 6

Cash flow forecast- advantages

Answer 6

• Can identify potential negative closing balances in advance
• Can monitor actual cash flows against predicted
• Can help set targets
• Can allow a business identify positive closing balances

Question 7

Calculating Costs-
Fixed costs = £2000
Produces 1000 items at £1 per product
Total costs?

Answer 7

£2000 + (1000 x 1) = £3000

Question 8

Calculating costs 2-
A. 50p per cake
Baker payed £4 per cake
Variable costs?

B. Makes 25 cakes per week
Variable costs per week

Answer 8

A. £4 + £0.5 = £4.50
£4.50 per cake

B. 25 x £4.50 = £112.50
£112.50 per week

Question 9

Profit- formula

Answer 9

Revenue- Total costs = profit

Question 10

1. Revenue = £4000
Total Costs = £3200
Profit?
2. £20 selling price, sells 200
Total costs = £2750

Answer 10

1. £4000 - £3200 = £800

2. (20 x 200) - 2750 = £1250

Question 11

What is break even?

Answer 11

The point where a business is not making a profit of a loss

Question 12

What happens if variable costs increase?

Break even

Answer 12

If variable costs increase then total costs will also increase so the point of break even is higher so the business has to sell more products to break even

Question 13

What happens if selling price increase?

Break even

Answer 13

The point of break even would be lower as less products have to sold to break even

Question 14

What would happen if total costs increased?

Break even

Answer 14

The break even point would rise as costs have been increased

Question 15

Margin of safety formula?

Answer 15

Number of products sold - break even point