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Economics > 1.6 > Flashcards

1.6 Flashcards

(67 cards)

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1
Q

what is sales revenue/turnover?

A

the amount of money coming into the firm from selling the product or service

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2
Q

how do you calculate sales revenue/turnover?

A

price per unit x quantity sold

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3
Q

what is sales volume?

A

total physical number of products sold

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4
Q

what are average costs?

A

how much it costs to make one unit

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5
Q

how do you calculate average costs?

A

total cost / output

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6
Q

what are fixed costs?

A

costs which stay the same at all levels of output in the short run eg rent, salaries, insurance

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7
Q

what are variable costs?

A

costs of production which increase directly as output rises eg raw materials, comission

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8
Q

how do you calculate variable costs?

A

variable costs per unit x units sold

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9
Q

how do you calculate total costs?

A

total fixed costs + total variable costs

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10
Q

what is percentage change?

A

the measure of an increase or decrease in value

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11
Q

how do you calculate percentage increase
decreases
change?

A

x1 + (%change as a decimal)
x1 - (% change as a decimal)
(change/original) x100

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12
Q

what are semi-variable costs?

A

costs that are both fixed and variable eg phone bill and overtime wages

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13
Q

what do fixed costs usually relate to?

A

time

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14
Q

what do variable costs usually relate to?

A

units

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15
Q

when is there Break even?

A

total costs=total revenue

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16
Q

what is BEO?

A

the number of items that need to be sold to reach BEP

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17
Q

how do you calculate BEP?

A

fc / (sp - vc)

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18
Q

what does money generated in a firm contribute to?

A

1st = VC
2nd = FC
3rd profit

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19
Q

how do you calculate contribution?

A

sp-vc

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20
Q

what are the 2 ways of calculating total contribution?

A

total sales revenue - TVC
or
cont x total units

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21
Q

what is contribution?

A

profit/loss after BE

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22
Q

what is MOS?

A

how much AO is above BEO

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23
Q

how do you calculate MOS?

A

AO - BEO

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24
Q

what are the 2 ways of calculating profit?

A

MOS x cont
or
TR - TC

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25
what are variables that might change?
fixed costs variable costs selling price
26
what fixed cost variables might change?
landlords put up rent bank changes interest rates management want pay increase
27
what variable cost variables might change?
raw materials change in price minimum wage increases utility companies change price
28
29
what selling price variables might change?
new competition enters the market positive word of mouth increases demand
30
what are the 3 positives of Break Even?
shows profit and loss at different levels aids decision making and provides a target can predict the outcome of changing variables
31
what are the 3 negatives of BE?
based on predicted costs and revenues fixed costs can vary in the long run it doesn’t ensure sales will actually happen
32
What is market exit?
the moving away of resources from unprofitable industries or giving them a change of use
33
what is market entry?
where resources move into attractive and profitable industries
34
what causes market exit?
falling demand and low prices meaning falling profit and revenue meaning resources exit industry
35
what causes market entry?
rising demand and high prices meaning rising profit and revenue meaning resources attracted
36
what are barriers to entry?
obstacles deterring new entrants eg high investment, start up costs and legal barriers
37
why does profit stay high in some industries?
because barriers to entry protect existing firms and give them more power
38
what is a statement of comprehensive income (profit and loss account)?
a record of how much profit or loss a firm has made during a year
39
how do you calculate gross profit?
sales revenue (sp x quantity) - COS
40
how do you calculate operating profit?
gross profit - overheads
41
how do you calculate net profit?
operating profit - tax and interest
42
how do you calculate GPM?
GP / revenue x 100
43
what does it mean if GPM is low and falling?
COS may not be effectively managed or sales are in decline
44
how do you calculate OPM?
OP / revenue x 100
45
what does it mean if OPM is low and falling?
expenses may not be effectively managed or sales are in decline
46
how do you calculate NPM?
NP / revenue x 100
47
what does it mean if NPM is low and falling?
GP or OP is in decline or interest/tax rates have changed
48
how can profits be improved?
reducing COS reducing overheads increasing prices increase advertising decreasing prices
49
how can COS be reduced?
changing supplier, decreasing labour costs, making employees more efficient
50
how can overheads be reduced?
cheaper premises or energy supplier, reducing salaries
51
how can prices increase?
if the market is growing and inelastic
52
how can prices decrease?
if the product is elastic
53
what is a cash flow forecast?
a table showing the expected flow of money in and out of the firm calculated on a monthly basis
54
how do you calculate opening balance?
closing from previous month
55
how do you calculate NCF?
total inflows - total outflows
56
how do you calculate closing balance?
opening balance + NCF
57
how is a cash flow forecast useful for decision making?
helps identify shortages and surplus of cash helps to plan or the future can be accurate in the short term
58
how is a cash flow not useful for decision making?
figures are only estimates it needs updating regularly new competitors may take away sales
59
how is negative cash flow a problem?
extra money is needed to overcome the shortage, money owed may have to be delayed and the firm may be unable to buy stock
60
how is negative cash flow not a problem?
it may only be temporary
61
what are the 5 uses of cash flow forecasts?
identifying potential shortfalls identifying possible corrective action to help secure finance to give confidence about survival to provide a guide against which to measure actual cash flow
62
what are the 3 factors that can affect cash flow?
timings transaction types nature of business
63
give examples of timings
seasonal sales and timings in and out
64
give examples of transaction types
sales and purchases (credit and cash)
65
give examples of nature of businesses
start-up capital and costs
66
what are the 4 cash flow problems?
firms need enough cash to meet working capital not enough liquid cash funds may mean not being able to meet short term debts limited cash may result in missed opportunities a firm may survive short term cash flow problems however long term cash flow problems can be insurmountable
67
how can cash flow be improved (5)?
increasing the volume of the inflow of cash speeding up the timing of the inflow of cash reducing the volume of the outflow of cash slowing down the timing of the outflow of cash get an overdraft

Economics (11 decks)

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