paper 2 revenue, costs, profit and loss

Question 1

what is revenue

Answer 1

income to the business from sales

Question 2

how is revenue calculated

Answer 2

quantity sold x selling price

Question 3

what are costs

Answer 3

payments business makes so it can make goods

Question 4

examples of costs (5)

Answer 4

wages
materials
rent
interest on a loan
transport costs

Question 5

why might a business want to minimise cost (2)

Answer 5

to increase profit
to be more competitive

Question 6

how can you minimise costs (2)

Answer 6

use new technology
find a cheaper supplier

Question 7

2 types of cost

Answer 7

fixed and variable

Question 8

what are fixed costs

Answer 8

they dont change when a business changes amount produced eg rent

Question 9

what are variable costs

Answer 9

they changed when amount produced changes eg raw materials used in production

Question 10

how do you calculate variable cost

Answer 10

quantity soldx variable price cost per unit

Question 11

how do you calculate total cost

Answer 11

add together total of all fixed and variable

Question 12

what is profit and loss

Answer 12

loss is when costs are more than revenue so more money going in than coming out
profit is money left over from revenue once operating costs are paid

Question 13

2 types of profit

Answer 13

gross and net

Question 14

what is gross profit

Answer 14

profit as a result of buying and selling goods but doesnt take into account expenses

Question 15

how do you calculate gross prosit

Answer 15

revenue-sales

Question 16

what is net profit

Answer 16

profit as a result of buying and selling but takes into account running costs

Question 17

how do you calculate net profit

Answer 17

gross profit- running costs

Question 18

what are profitability ratios

Answer 18

calculations using financial data to measure performance of business

Question 19

2 profitability ratios

Answer 19

gross profit margin and net profit margin

Question 20

how do you calculate GPM

Answer 20

as a % gross proffit/revenue x100

Question 21

how do you calculate NPM

Answer 21

as a % of sales revenue net profit/revenue x 100

Question 22

yr1 yr2
revenue 150,000 225,000
cost of sales 80,000 140,000
gross profit 70,000 85,000
business expenses 40,000 55,000
net profit 30,000 30,000

what does a fall in gross profit indicate what action could you take
why has the net profit fallen what action should be taken
what do you note from the table

Answer 22

whilst sales increased business is paying more than it did in y1- could they buy from a different seller or ask supplier for discount (it is selling more books)

although gross profit has increased reduction in net profit is because of expenses have increased - look at why expenses have increased , can they cut doen on anything

revenue has increased by £75,000
gross profit has increased by £15.000
cost of sales has increased
business expenses have increased
net profit has stayed the same

Question 23

if a business sells more by cutting prices is this always a good thing, explain

Answer 23

no revenue is increased but there is a loss of income on each item sold

Question 24

is price increase ever beneficial explain

Answer 24

it might put someone off buying but lead to an increase in revenue particulaly if high end

Question 25

what factors effect revenue due to price change (3)

Answer 25

number of competitior - no competitiors you can raise prices without fall in revenue as customers have nowhere else to go
if a lot of competitors sales and revenue may fall as customers buy elsewhere

action of competitors - if competitors raise prices you too can raise prices without loss of customer = increase revenue

starting price of product - if already cheap % rise will not effect consumer and revenues still might rise

Question 26

if a business advertises will this always result in increase revenue

Answer 26

not always so need to ensure value for money

Question 27

what is another way to increase revenue

Answer 27

increase product range

Question 28

if a business has high fixed costs what must it ensure

Answer 28

it sells a high number of the products to cover costs

Question 29

why do variable costs need to be analysed

Answer 29

materials can increase in price which increases variable costs which effect net profit

Question 30

if this happens what should the business do

Answer 30

look at variable cost savings elsewhere ; buy from a different supplier or negotiate with the supplier

Question 31

if a company makes large profit what can they do (4)

Answer 31

buy new equipment, take over another business, pay increase dividends to share holders, develop new products

Question 32

If a company makes a loss what could they be faced with (4)

Answer 32

delaying decisions to buy new equipment and buildings
look to be taken over by another business
reduce or scrap dividends - shareholders may sell shares
decide if it can invest in new products or services , if they can,t they may face problems because competitors do

Question 33

what is rate of return

Answer 33

amount you receive from making an investment

Question 34

what is average rate of return

Answer 34

the average rate of return on average over the life of the investment

Question 35

a gardening business spend £5000 on a mower which lasts 5 years costs £5000

income
y1 2000
y2 2500
y3 3000
4 3000
yr5 2500
total 13000

how do you calculate ARR

Answer 35

step 1 - profit from the mower
13000-5000=8000

step 2 average profit for 5yrs total profit/years
5000/5=1600

step 3 average rate of return = annual average profit x 100/cost of investment
1600/5000x100=32%

Question 36

when is ARR useful

Answer 36

when comparing different investments you can look at what wlse you can do with your money eg 2% return from a bank so why take risk if ARR is only 4% 32% is a good return so a good investment

Question 37

what could be the reason for a fall in GPM

Answer 37

fall in revenue
rise in cost sales

Question 38

what action could the business take

Answer 38

fall in revenue - increase revenue by better marketing
reduce cost at sale