Formulas

Question 1

Formula for Total Costs (TC)

Answer 1

Fixed Costs (FC) + Variable Costs (FC)

Question 2

Formula for Total Revenue (TR)

Answer 2

Price (P) X Quantity (Q)

Question 3

Formula for Gross Profit (GP)

Answer 3

Sales Revenue (SR) - Variable Costs (VC)

Question 4

Formula for Net Profit (NP)

Answer 4

Sales revenue (SR) - Total costs (TC)

Question 5

Formula for Gross Profit margin

Answer 5

GP
—— X100
SR

Question 6

Formula for Net profit margin

Answer 6

NP
—— X100
SR

Question 7

What does Average rate of return Do?

Answer 7

Works out how much (On average) a business will make back over the life of an investment

Question 8

How do you work out (formula for) (ARR) ?

A furniture maker intends to purchase a new wood cutting machine. The expected cost and incomes generated by the machine for the next three years are shown in the table below.

Cost of machine £6,000
Income year 1 £3,000
Income year 2 £3,000
Income year 3 £3,000

The expected average rate of return for this purchase is:

A £1,000
B £3,000
C 16.67%
D 33.33%

Show your workings below:
3000+3000+3000=9000
9000-6000=3000
3000/3=1000
1000/6000*100=16.67%

Answer 8

1. ADD UP HOW MUCH YOU MAKE OVER THE AMOUNT OF YEARS.
2. That number - Cost of investment
3. That number / the amount of years
4. Then that number / by cost of investment X100

Question 9

Formula for break even

Answer 9

Contribution

Contribution = Price of unit sold - Variable Cost per unit