Formulae and Calculations

Question 1

Total costs

Answer 1

= Fixed costs + Variable costs

Question 2

Profit

Answer 2

= Total revenue - total costs

or

Profit = total revenue - Total contribution - fixed costs

Question 3

Total variable costs

Answer 3

Total variable costs = (Variable cost per unit) x (Number of units sold)

Question 4

Sales revenue or Turnover

Answer 4

= (Selling price per unit) x (number of units sold)

Question 5

Market capitalisation of a business

Answer 5

= (Number of issued shares) x (Current share price)

Question 6

Expected value of a decision with two possible outcomes (A&B) - Decision trees

Answer 6

= [(Pay off A) x (Probability of A)] + [(Pay off B) x (Probability of B)]

Question 7

In a decision tree Net gain

Answer 7

= Expected value - Initial cost of decision

Question 8

Market size volume

Answer 8

Is the quantity of goods and services produced in a particular market over a period of time (Usually one year)

Question 9

Market size (Value)

Answer 9

Is the total sales revenue generated from selling all the goods and services produced in a particular market over a period of time (Usually one year)

Question 10

Sales volume

Answer 10

Is the quantity of goods and services produced in a particular business over a period of time (Usually one year)

Question 11

Sales Value

Answer 11

= The total sales revenue of a particular business over a period of time (Usually one year)

Question 12

Market share (%)

Answer 12

= [(Sales of one product OR brand Or Business) / (Total sales in the market)] x 100

Question 13

Price Elasticity of Demand (PED)

Answer 13

[(%△QD) / (%△Price)] x 100

Question 14

Added value

Answer 14

= (Sales revenue)- (cost of bought in goods and services)

Question 15

Labour productivity

Answer 15

= (Total cost of production) / (Number of units of output produced)

Question 16

Unit costs

Answer 16

= (Total costs of production) / (Number of units of output produced)

Question 17

Capacity utilisation (%)

Answer 17

= [ (Actual output in a given time period) / (Maximum output in a given period) ] x 100

Question 18

Return on investment (%)

Answer 18

= [ (Return on investment £) / (Cost of the investment) ] x 100

Question 19

Gross profit

Answer 19

= Sales revenue - cost of sales

Question 20

Operating profit

Answer 20

= Sales revenue - Cost of sales - Operating expenses

Question 21

Profit for year

Answer 21

= Operating profit + Profit from other activities - Net finance costs - Tax

Question 22

Variance

Answer 22

= The difference between an actual and a budgeted figure

Favourable: Sales/revenue higher than budgeted, or costs are lower than budgeted
Adverse:Sales/revenue are lower than budgeted, or costs are higher than budgeted.

Question 23

Contribution per unit

Answer 23

= Selling price - variable costs per unit

Question 24

Total contribution

Answer 24

= Contribution per unit x units sold
OR
= Total revenue - Total variable costs

Question 25

Break even output

Answer 25

= (Fixed costs) / (Contribution per unit)

Question 26

Margin of safety

Answer 26

= Actual level of output - Breakeven level of output

Question 27

Gross Profit margin (%)

Answer 27

= [ (Gross Profit) / Sales Revenue) ] x 100

Question 28

Operating profit margin (%)

Answer 28

= [ (Profit for the year) / (Sales revenue) ] x 100

Question 29

Profit for the year margin (%)

Answer 29

= [ (Profit for the year) / (Sales revenue) ] x 100

Question 30

Labour turnover (%)

Answer 30

= [ (Number of staff leaving during the year) / (Average number of staff employed by the business durning the year) ] x 100

Question 31

Employee retention rate (%)

Answer 31

= [ (Number of staff who stay though-out the year) / (Average number of staff employed by the business during the year) ] x 100

Question 32

Employee costs as percentage of turnover

Answer 32

= [ (Employee costs) / (Sales revenue) ] x 100

Question 33

Labour cost per unit

Answer 33

= [ (Labour costs) / (Units of output) ]

Question 34

Return on capital employed (ROCE) (%)

Answer 34

= [ (Operating profit) / (Total equity + Non-current liabilities) ] x 100

Question 35

Capital Employed

Answer 35

= Total equity + Non-current liabilities

Question 36

Current ratio

Answer 36

= [ (Current assets) / (Current liabilities) ]

Question 37

Gearing (%)

Answer 37

= [ (Non-current liabilities) / (Total Equity + non-current liabilities) ]

Question 38

Payables (Creditors) Days

Answer 38

= [ (Payables) / (Cost of sales) ] x 365

Question 39

Receivables (Debtors) Days

Answer 39

= [ (Receivables) / (Sales revenue) ] x 365

Question 40

Inventory turnover

Answer 40

= [ (Cost of goods sold) / (Average inventories held) ] x 100

Question 41

Average rate of return (%)

Answer 41

= [ (Net return from project (£) / number of years) / (Initial cost of project (£)) ] x 100