Equations for 2022 exam

Question 1

Market share

Answer 1

Sales of a business ÷ Total sales in the market) x 100

Question 2

Percentage change

Answer 2

(Difference between the two numbers ÷ original number) x 100

Question 3

Cost plus pricing =

Answer 3

cost per product + (mark-up x unit cost)
E.g. a handbag is £80 plus 25% mark up.
£80 + (25% x £80) = £80 + £20 = £100

Question 4

Sales volume =

Answer 4

total number of units sold over a period of time

Question 5

Sales revenue =

Answer 5

number of units sold x unit price

Question 6

Total variable costs =

Answer 6

number of units sold x variable cost per unit

Question 7

Total costs =

Answer 7

Fixed costs + variable costs

Question 8

Gross profit =

Answer 8

Sales revenue minus cost of sales

Question 9

Operating profit =

Answer 9

Gross profit minus overheads

Question 10

Net profit =

Answer 10

Operating Profit +/- Tax, finance costs (purchase or sales of assets)

Question 11

Opening balance =

Answer 11

previous months closing balance

Question 12

Closing balance =

Answer 12

Opening balance +/- Net cash flow

Question 13

Net cash flow =

Answer 13

Total inflows – Total outflows

Question 14

Break-even =

Answer 14

Fixed costs ÷ Contribution per unit

Question 15

Contribution per unit =

Answer 15

Selling price per unit – Variable cost per unit

Question 16

Total contribution =

Answer 16

Contribution per unit x Number of units sold

Question 17

Margin of safety =

Answer 17

Actual output – break even output

Question 18

Budget Variance =

Answer 18

Actual – Budget

Question 19

Gross profit margin =

Answer 19

(Gross profit ÷ Sales revenue) x 100

Question 20

Operating profit margin =

Answer 20

(Operating profit ÷ Sales revenue) x 100

Question 21

Net profit margin =

Answer 21

(Net profit ÷ Sales revenue) x 100

Question 22

Return on capital employed (ROCE) =

Answer 22

Operating/Net profit ÷ Capital employed) x 100

Question 23

Working capital =

Answer 23

current assets –current liabilities

Question 24

Current ratio =

Answer 24

= Current assets ÷ current liabilities

Question 25

Acid test ratio =

Answer 25

(Current assets – inventory) ÷ current liabilities

Question 26

Gearing ratio =

Answer 26

(Long term liabilities ÷ Capital employed) x 100

Question 27

Productivity (labour) =

Answer 27

Output per period (units) ÷ Number of employees in that period

Question 28

Capacity utilisation =

Answer 28

(Actual level of output ÷ Maximum possible output) x 100

Question 29

3 point moving average

Answer 29

1. Add up three values 2. Divide by 3 to get the average 3. Repeat for each period going down This will create a trend line - smoothing out the peaks and falls

Question 30

4 point moving average

Answer 30

We would take the Jan – April figures and add them together (4680+2970+2610+4950 = 15,210) We would then take Feb – May figures and add them together (2970+2610+4950+3240 = 13,770 ) Then ADD the two totals together and DIVIDE by 8 (15,219+13,770) ÷ 8 = 3623.26 (2dp)

Question 31

**Payback** – This refers to the amount of time it takes for a project to recover its initial outlay (investment). How would you work out the payback for Proposal 2 **Cash flows (£000s)** **Proposal 1** **Proposal 2** **Proposal 3** **Proposal 4** **Year 0** - £120 - £95 - £80 - £160 **Year 1** £80 £10 £30 £30 **Year 2** £60 £40 £40 £50 **Year 3** £40 £40 £30 £90 **Year 4** £20 £60 £30 £80 **Year 5** £40 £50 £20 £60

Answer 31

* Its going to cost the business £95,000 to get this project up and running * Year 1 the project makes £10,000 * Year 2 the project makes £40,000 * Year 3 the project makes £40,000 * So far it has paid back £90,000 Now we need £5,000 more from year 4 so…. _£5,000_ x 12 = 0.9 so 1 month £60,000

Question 32

Average rate of return (ARR) = **Cash flows (£000s)** **Proposal 1** **Proposal 2** **Proposal 3** **Proposal 4** **Year 0** - £120 - £95 - £80 - £160 **Year 1** £80 £10 £30 £30 **Year 2** £60 £40 £40 £50 **Year 3** £40 £40 £30 £90 **Year 4** £20 £60 £30 £80 **Year 5** £40 £50 £20 £60

Answer 32

Average net return per year ÷ Project costs (initial investment amount) X 100 So for the above example **_Proposal 2:_** _Average net cash flow is the sum of year 1 to year 5 net cash flow figures:_ £10, 000+£40,000+£40,000+£60,000+£50,000 = £200,000 Then **take off investment £95,000** leaves £105,000 net return Divided by 5 gives us the net return per annum : 105,000 ÷ 5 = £21,000 Initial investment is £95,000 ARR = (£21,000 ÷ £95,000) x 100 ARR = 22.11%

Question 33

Net Present Value (NPV) =

Answer 33

Each year net cash flow x discount factor (you will be told what to use) Add the discounted net cash flows for each year