ch 34

Question 1

profit types

Answer 1

1 gross profit
2 operating profit
3 profit after tax(net profit)

Question 2

how is profit calculated

Answer 2

total costs subtracted from total revenue

Question 3

gross profit

Answer 3

is the difference between revenue or turnover and cost of sales

Question 4

revenue

Answer 4

price*quantity

Question 5

cost of sales

Answer 5

the direct costs of a business

Question 6

what is the definition of meant by operating profit?

Answer 6

the difference between gross profit and business overheads, such as selling and administrative expenses

Question 7

what is the definition of profit for the year or net profit?

Answer 7

the difference between operating profit and interest and exceptional item

Question 7

op profit cal

Answer 7

gross profit -operating profit

Question 7

What are some examples of cost of sales?

Answer 7

costs of sales is the direct costs associated with the production of the product or service. that would be raw materials, wages and other costs what you may refer to as variable costs

Question 8

What is meant by revenue or turnover?

Answer 8

the total income of a business resulting from sales of goods or services

Question 9

What is gross profit?

Answer 9

gross profit is the measure of how efficiently the business sells it goods and service
you want this to be as high as possible

Question 9

How do you calculate gross profit?

Answer 9

gross profit = revenue (turnover) - lost of sales

Question 10

What is operating profit?

Answer 10

operating profit measures how much profit a business makes after all the business’s costs have been deducted

Question 11

How do you calculate Operating Profit?

Answer 11

Operating profit = Gross Profit - Operating Expenses

Question 12

what are operating expenses?

Answer 12

operating expenses are the indirect costs of the business
indirect costs are the equivalent of the businesses fixed costs and include expenses such as rent, office, heating and salaries of directors

Question 13

What is meant by net profit?

Answer 13

bet profit measures the businesses final profit, before any taxes is calculated or dividend paid to shareholders

Question 14

How do you calculate net profit?

Answer 14

Net Profit = Operating profit - interest and exceptional costs

interest will be the difference between and interest paid by the business (on loans and overdrafts) and interest received (from savings for example)
Exceptional items are large one off items, such as a bad debt

Question 15

ways to increase profit(ppq)

Answer 15

1-adjust the marketing strategy by
invest in more advertising
new promotional campaign
new distribution channel such as online
accept range of payment types
2-fine new markets
3-diversify
4-mergers and takeovers
5-disposal of non profitable activities
areas that are not making profits

Question 16

What is meant by statement of comprehensive income/income statement

Answer 16

a financial document showing or company’s income and expenditure over a particular time period, usually one year

Question 17

what does an income statement include

Answer 17

revenue
cost of sales
gross profit
selling expenses
admin expenses
operating profit
finance costs
net profit
taxation
profit after tax

Question 18

How do you calculate Gross profit margin?

Answer 18

gross profit expressed as a percentage of revenue/turnover
gross profit margin = gross profit / revenue x 100

in this case the higher the ratio the better, it shows how much gross profit is made for each £1 of sales

Question 19

how can you improve gross profit margin?

Answer 19

to improve the gross profit margin a business would look to:

increase revenue by increasing the price. if costs stay the same GPM will increase
Reduce costs, Reducing the costs of sales by reducing raw material or utility cost for example would mean an increase in GPM

Question 20

why will Gross Profit Margin be different in different industries?

Answer 20

as a rule, product with shorter lifespans have a lower GPM, a supermarket for example would make small GPM per item than a car sales dealership however the super market will generate its large profits through sales volume

Question 21

why might Operating Profit be different in different industries?

Answer 21

differences here are linked to the business’ overheads or fixed costs
manufacturing industries will more likely have high overhead costs than office business due to large machinery costs compared to renting a office and buying a new computer every few years

Question 22

how do you calculate operating profit margin?

Answer 22

operating profit expressed as a percentage of revenue/turnover
operating profit margin = operating profit/
revenue x 100

the higher the ratio the better. its shoes how much operating profit is mad for each £1 of sales. It shows a good measure of the business’ true trading profitability, before exceptional item are taken off

Question 23

How do you calculate net profit margin?

Answer 23

net profit before tax, expressed as a percentage of revenue/turnover
net profit margin = net profit/ revenue x 100

-this calculation shows the business’ profitability having taken account of ALL the costs over a course of the year

Question 24

What is the most basic way of improving profitability?

Answer 24

profit = total revenue - Total Costs

increase revenue
lower costs

Question 25

How can you increase revenue?

Answer 25

increase price –> PED
Increase value e.g. packaging, customer service –> increases costs?
increase sales –> increase costs?
improving Brand image –> increase costs? not necessarily going to increase sales
Increasing productivity –> reduce staffing, not necessarily increase sales, staffing may want a raise –>increases costs –> staffing, training, machinery

Question 26

How to reduce costs?

Answer 26

Cheaper costs –> reduce quality, negotiate better pricing with original supplier
Less waste suppliers –> efficiency, buying in bulk may still have extra waste
Reducing packaging –> better for environment, PR, R+D–> new design increases cost
Reduce Storage –> JIT –> not have enough, cant impulse buy, cant handle demand spikes
reduce labour –> reduce morale
reduce wages –> reduces morale

Question 27

what is amortisation?

Answer 27

the writing off of an intangible asset

Question 28

what is meant by exceptional costs?

Answer 28

a-one-off costs such as a large bad debt