2.4 - Making Financial Decisions

Question 1

Formula for: Break even point (in units)

Answer 1

Fixed cost ÷ contribution = Fixed cost ÷ (Sales price - VC)

Question 2

Formula for: Break even revenue (or cost)

Answer 2

BE point (in units) x price

Question 3

Formula for: Margin of safety

Answer 3

Actual Sales (or budgeted sales) - BE sales

Question 4

Formula for: Total cost

Answer 4

FC + VC = Fixed cost + Variable cost

Question 5

Formula for: Revenue

Answer 5

Price x Quantity

Question 8

Formula for: Net cash flow

Answer 8

Cash inflows - Cash outflows

Question 9

Formula for: Gross profit

Answer 9

Sales revenue - cost of sales

Question 10

Formula for: Net profit

Answer 10

Gross profit - other operating expenses

Question 11

Formula for: Gross profit margin

Answer 11

(Gross profit ÷ sales revenue) x 100

Question 12

Formula for: Net profit margin

Answer 12

(Net profit margin ÷ sales revenue) x 100

Question 13

Formula for: Average Annual rate of return (%)

Answer 13

(Av. Annual profit ÷ cost of investment) x 100

Av. Annual profit = total profit / n.o of years

Question 14

Formula for: Opening balance

Answer 14

Closing balance of previous month

Question 15

Formula for: Closing balance

Answer 15

Opening balance + Net cash flow

Question 16

What is quantitive business data used for?

Answer 16

To support, inform and justify business decisions

Question 17

Why is using financial data not always reliable? (2)

Answer 17

> May not be able to directly compare two different sources of data
Doesn’t include qualitative data such as customers’ opinion which may be useful in determining what changes a business should make.