LO4 Flashcards
Finances
Define Fixed costs
expenses that stay the same no matter how much activity a business is doing
Define Variable costs
Costs that are directly related to the amount produced
Total costs formula
Fixed costs + Variable costs
Sales revenue formula
Selling price per unit x Quantity of units sold
Define cashflow
Refers to the money that flows into and out of the business over a period of time
Define Net cashflow
The difference between the cash flowing into a business and the cash flowing out of the business, over a given period of time
Define profit
obtained from from a good/service
difference between :
amount earned from selling product
the cost of providing it
Define break-even
The point at which profit is zero
The Business is neither making a profit or a lass, what is this?
Break-even
Why is it important a business is aware of it’s break-even point?
Can aid in decisions about whether a product is worth producing
Define Margin of safety
the amount by which output could fall before a loss is made
Define revenue
The money that a business receives
Profit calculations- positive
A profit has been made
Profit calculations - negative
a loss has been made
Profit formula
Total revenue - total costs
break even formula
break even profit= fixed costs/ selling prices - variable costs
Define income statement
records:
revenue received
expenses incurred
“is a profit made?”
Gross profit formula
Gross profit= revenue - variable costs
Operating profit
Net profit= gross profit - expenses
Define Liabilities in terms of finances?
Debts that the business has, which has not been paid
Define Equity
Money that has been invested into the business
Define Assets
Items owned by business
What are The three financial statements?
income statement
balance sheet
cash-flow forecast
‘Records the actual money flow of a business’
What does this define?
Cash flow statement
Define creditors
People that are owned money by an organisation or business
Define debtors
People that owe money to an organisation or business
What is the difference between cashflow and cashflow forecast? (2 marks)
A cash flow statement shows what has happened in the business (1)
In contrast, a cash flow forecast is only a prediction (1)
A _______ shows the historic figures
cashflow
Explain two ways a business could lower it’s break-even point
Increase selling price
decrease variable costs/fixed costs
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:
£38 × 300 – (£4200 + £14 × 300) = £11400 – £8400 = £3000.
- 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
£62 - 26
=5000
Who is most responsible for decision-making in a public-limited company?
directors
The partnership act requires a business operating as a partnership to:
share profits between partners
A deed of partnership is:
a recommened document that includes how a partnership should be run
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.
Shared profits
A partnership is owned by three brothers. The partnership goes bankrupt with debts of £30,000. According to the partnership act:
ach brother is jointly and severally liable for the full £30,000
A business which has a unique selling point:
has an advantage over it’s competitors
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
a) giving employees a pay rise
