9 - Finance Continued

Question 1

What is a variable cost

Answer 1

A cost that changes as output does

Question 2

What is a variable cost also know as

Answer 2

Direct

Question 3

What is a fixed cost

Answer 3

Costs that don’t change, no matter the level of output

Question 4

What is meant by stepped fixed costs

Answer 4

Fixed costs that may change in the long term eg rent

Question 6

What are business rates

Answer 6

Council tax for a business

Question 7

What are the three lines that are found in a break even chart

Answer 7

Total revenue
Total costs
Fixed costs

Question 8

Where is the break even point found in a break even chart

Answer 8

Where total revenue crosses total costs

Question 9

What area shows a loss on a break even chart

Answer 9

Left of break even point

Question 10

What area on a break even chart shows profit

Answer 10

Right of break even point

Question 11

Why is using break even useful

Answer 11

• Helps to set targets
• Helps to monitor business success
• Helps to justify obtaining finance

Question 12

What are problems with using break even

Answer 12

• Fixed costs may change
• Assumes price doesn’t change
• Assumes you sell that quantity

Question 13

What is the formula for calculating break even

Answer 13

Fixed costs/contribution

Question 14

What is meant by contribution

Answer 14

Selling price - variable cost

Question 15

What is meant by margin of safety

Answer 15

The difference between the number of products sold and the break even point

Question 16

What is meant by a profit centre

Answer 16

A separately-identifiable part of a business for which it is possible to identify revenues and costs (ie calculate profit)

Question 17

What are examples of profit centres

Answer 17

An individual store in a retail chain

A team within a business

Question 18

As aid using profit centres

Answer 18

• Supports budget control as finance can be allocated more efficiently
• Can identify who is responsible, which can help for rewards or blame

Question 19

Disadvantages of profit centres

Answer 19

• Time consuming to monitor individual centres
• Can lead to conflict and competition in a business
• Can be demotivating for a centre who is performing poorly

Question 20

What is a cost centre

Answer 20

A department for which costs can be solely calculated

Question 21

What is meant by full costing

Answer 21

All costs are shared equally amongst all products

Question 22

What is meant by absorption costing

Answer 22

Allocating costs for each product

Question 23

What is an example of absorption costing

Answer 23

Coca Cola allocating 60% of costs for bottles and 40% for cans

Question 24

What are examples of key objectives for a financial director

Answer 24

• Break even
• Secure loans
• Obtain sufficient profit
• Minimize tax costs

Question 25

What are internal factors that influence financial objectives of a firm

Answer 25

• Corporate objective
• Existing debt
• management ambition
• Past trends

Question 26

What are external factors that could influence a firms financial objectives

Answer 26

• Level of competition
• Position of economy
• STEEPLE factors

Question 27

What is meant by break even

Answer 27

The number of products that need to be sold to cover all costs