1.6 Revenue, Costs, Profits and Cash

Question 1

What’s the formula for Sales Revenue?

Answer 1

Price x Quantity

Question 2

What’s the formula for Total Costs?

Answer 2

Fixed Costs + Variable Costs

Question 3

What’s the formula for Profit?

Answer 3

Total Revenue - Total Costs

Question 4

Define Variable Costs

Answer 4

Costs that change with output

Question 5

Define Fixed Costs

Answer 5

Costs that stay the same in relation to output

Question 6

What’s the formula for Average Costs?

Answer 6

Output

Question 7

What’s the formula for Percentage Change?

Answer 7

      Old Value

Question 8

Define Break-Even

Answer 8

The point at which there is no profit and no loss

Question 9

What’s the formula for the Break-Even point?

Answer 9

Contribution

Question 10

Define contribution

Answer 10

The difference between the price of a product and its variable costs

Question 11

What’s the formula for contribution?

Answer 11

Selling Price - Variable Costs

Question 12

Give 2 limitations of Break-Even analysis

Answer 12

• They are only predictions and fixed costs may change

- External factors may force a reduction in price

Question 13

Define Margin of Safety

Answer 13

The volume by which sales are above the breakeven point

Question 14

What is the formula for the Margin of Safety?

Answer 14

Volume physically able to be sold - Break Even Point

Question 15

What’s Gross Profit?

Answer 15

Profit, not taking fixed costs into account

Question 16

What’s the formula for Gross Profit?

Answer 16

Sales Revenue - Variable Costs

Question 17

What’s Operating Profit?

Answer 17

Profit, taking all costs into account

Question 18

What’s the formula for Operating Profit?

Answer 18

Sales Revenue - Total Costs

Question 19

What’s the formula for Net Profit?

Answer 19

Operating Profit - Interest and Taxes

Question 20

What’s the formula for Profit Margin?

Answer 20

Profit
————- (x100%)
Turnover

Question 21

What’s the formula for Gross Profit Margin?

Answer 21

Gross Profit
———————- (x100%)
Sales Revenue

Question 22

What is the Operating Profit Margin?

Answer 22

A measure of how efficiently resources are being used

Question 23

What’s the formula for Operating Profit Margin?

Answer 23

Operating Profit
———————— (x100%)
Sales Revenue

Question 24

What’s the formula for Net Profit Margin?

Answer 24

Net Profit
———————- (x100%)
Sales Revenue

Question 25

What does the Net Profit Margin tell you?

Answer 25

A firm’s financial Performance

Question 26

What is the Statement of Comprehensive Income?

Answer 26

Profit and loss accounts where you begin with sales revenue and deduct each cost to arrive at a final measure of either profit or loss

Question 27

What is the downside of advertising? (2)

Answer 27

• Costly

- May not work

Question 28

What is the added advantage of Customer Loyalty Rewards?

Answer 28

Allows you to see purchasing patterns

Question 29

Give 2 disadvantages of cutting staff

Answer 29

• Worsens customer service

- Lowers staff morale

Question 30

Give as many ways as possible of lowering costs

Answer 30

• Cut staff
• Cut wages
• Move location
• Change supplier

Question 31

Give as many ways as possible of increasing revenue

Answer 31

• Change price
• Advertising
• Customer loyalty rewards
• Expansion

Question 32

Define cash outflow

Answer 32

The amount of money coming out of a business

Question 33

Define net cash outflow

Answer 33

The amount of money coming in and out of a business over a given time

Question 34

What’s the formula for Net Cash Flow?

Answer 34

Cash Inflow - Cash Outflow

Question 35

Give the main 2 advantages of Cash Flow Forecasts

Answer 35

• To show potential investors that they are a financially viable investment
• To predict necessary stock levels

Question 36

Give 2 evaluation points of using Cash Flow Forecasts

Answer 36

• Is a prediction and can be inaccurate

- Doesn’t take unexpected factors into account