LO4

Question 1

Define Fixed costs

Answer 1

expenses that stay the same no matter how much activity a business is doing

Question 2

Define Variable costs

Answer 2

Costs that are directly related to the amount produced

Question 3

Total costs formula

Answer 3

Fixed costs + Variable costs

Question 4

Sales revenue formula

Answer 4

Selling price per unit x Quantity of units sold

Question 5

Define cashflow

Answer 5

Refers to the money that flows into and out of the business over a period of time

Question 6

Define Net cashflow

Answer 6

The difference between the cash flowing into a business and the cash flowing out of the business, over a given period of time

Question 7

Define profit

Answer 7

obtained from from a good/service

difference between :
amount earned from selling product

the cost of providing it

Question 8

Define break-even

Answer 8

The point at which profit is zero

Question 9

The Business is neither making a profit or a lass, what is this?

Answer 9

Break-even

Question 10

Why is it important a business is aware of it’s break-even point?

Answer 10

Can aid in decisions about whether a product is worth producing

Question 11

Define Margin of safety

Answer 11

the amount by which output could fall before a loss is made

Question 12

Define revenue

Answer 12

The money that a business receives

Question 13

Profit calculations- positive

Answer 13

A profit has been made

Question 14

Profit calculations - negative

Answer 14

a loss has been made

Question 15

Profit formula

Answer 15

Total revenue - total costs

Question 16

break even formula

Answer 16

break even profit= fixed costs/ selling prices - variable costs

Question 17

Define income statement

Answer 17

records:
revenue received

expenses incurred

“is a profit made?”

Question 18

Gross profit formula

Answer 18

Gross profit= revenue - variable costs

Question 19

Operating profit

Answer 19

Net profit= gross profit - expenses

Question 20

Define Liabilities in terms of finances?

Answer 20

Debts that the business has, which has not been paid

Question 21

Define Equity

Answer 21

Money that has been invested into the business

Question 22

Define Assets

Answer 22

Items owned by business

Question 23

What are The three financial statements?

Answer 23

income statement
balance sheet
cash-flow forecast

Question 24

‘Records the actual money flow of a business’

What does this define?

Answer 24

Cash flow statement

Question 25

Define creditors

Answer 25

People that are owned money by an organisation or business

Question 26

Define debtors

Answer 26

People that owe money to an organisation or business

Question 27

What is the difference between cashflow and cashflow forecast? (2 marks)

Answer 27

A cash flow statement shows what has happened in the business (1)

In contrast, a cash flow forecast is only a prediction (1)

Question 28

A _______ shows the historic figures

Answer 28

cashflow

Question 29

Explain two ways a business could lower it’s break-even point

Answer 29

Increase selling price

decrease variable costs/fixed costs

Question 30

Natalie is a sole trader, she makes footstools in her workshop at home. She estimates her costs and revenues for 2017 will be as follows:

• Fixed costs: £4200 per annum
• Raw materials: £8 per footstool
• Labour costs: £6 per footstool
• Selling price £38 per footstool

If Natalie makes and sells 300 footstools in 2017 her profit would be:

Answer 30

£38 × 300 – (£4200 + £14 × 300) = £11400 – £8400 = £3000.

Question 31

• precious metal: £26 per bracelet
• labour: £60 000 per annum
• overheads: £120 000 per annum.
  13. A bracelet manufacturer has costs as follows:

If the average selling price of a bracelet is £62, the break-even level of output would

Answer 31

£62 - 26

=5000

Question 32

Who is most responsible for decision-making in a public-limited company?

Answer 32

directors

Question 33

The partnership act requires a business operating as a partnership to:

Answer 33

share profits between partners

Question 34

A deed of partnership is:

Answer 34

a recommened document that includes how a partnership should be run

Question 35

A sole trader is considering taking on a business partner to share their workload.
identidy one disadvantage to a sole trader of taking on a business partner.

Answer 35

Shared profits

Question 36

A partnership is owned by three brothers. The partnership goes bankrupt with debts of £30,000. According to the partnership act:

Answer 36

ach brother is jointly and severally liable for the full £30,000

Question 37

A business which has a unique selling point:

Answer 37

has an advantage over it’s competitors

Question 38

Which of the following would increase a firm’s break-even point? (a) Giving employees a pay rise (b) Increasing selling prices (c) Paying a lower rent (d) Using a cheaper supplier

Answer 38

a) giving employees a pay rise