Finance

Question 0

What does revenue mean?

Answer 0

Income earned from selling a product/service i.e. Revenue = selling price X quantity sold

Question 1

What is the role of finance department?

Answer 1

• Make sure business makes profit by preparing job costing statement
• Make sure don’t run out of money by preparing cash budget.
• Calculate what point products start making profit by break even chart
• make sure customers pay on time (credit control)
• make sure bills get paid (staff wages, money owed to suppliers

Question 2

What are fixed costs?

Answer 2

Stay the same even if more or less are produced e.g. Rent

Question 3

What are variable costs?

Answer 3

Change depending upon the amount produced e.g Raw materials

Question 4

What does the term total mean?

Answer 4

Total amount of money spent on producing product i.e. Fixed costs and variable costs

Question 5

What does profit mean?

Answer 5

The amount left over after all costs deducted.

Profit = revenue - total costs

Question 6

What does a loss mean?

Answer 6

When the revenue is not enough to cover costs.

Question 7

When can businesses make a profit?

Answer 7

Revenue is greater that costs

Question 8

When can businesses make a lost?

Answer 8

When revenue is less than costs

Question 9

Businesses can break-even when?

Answer 9

Revenue equals costs

Question 10

What is the purpose of Job costing statements?

Answer 10

They are used to calculate the selling price charged to customers for the product/service provided. This should include an element for profit and cover all costs ie fixed and variable.

Question 11

How is selling price decided?

Answer 11

Total costs + profit = selling price

Question 12

What is a cash budget?

Answer 12

• A detailed plan for a future period of time eg month
• expressed in monetary terms £’s
• shows the opening/closing balance, cash receipts (money coming in) and cash payments (money going out)

Question 13

What are benefits of preparing a cash budget?

Answer 13

• to show if the business will have a surplus (more money coming in than out) or a deficit (more money going out than coming in).
• allows business to arrange additional finance in advance if required e.g. Bank overdraft
• it helps management and owners make decisions

Question 14

What are causes of poor cash flow?

Answer 14

• Buying too much stock which is not selling
• allowing customers too long to pay for goods
• charging to low a selling price
• paying suppliers too much or too quickly

Question 15

How can cash flow be improved?

Answer 15

• better stock control
• offer customers a discount for paying quickly
• increase marketing to increase the levels of sales
• shop around for cheaper suppliers or offers longer time to pay
• sell any equipment or machinery not needed

Question 16

What are profit statements used for?

Answer 16

Used to calculate the amount of profit for a particular time period eg year.

Question 17

What is gross profit?

Answer 17

Profit from buying and selling goods ie the difference between the cost of purchase and value of sales.

Question 18

What is net profit?

Answer 18

Profit after adding other income (rent received from tenants or commission for selling on behalf of another business) and subtracting expenses (all bills which need to be paid by business rent, wages, electricity).

Question 19

Why are spreadsheets used?

Answer 19

A spreadsheet package is used to record and edit numerical information.

Question 20

What can Microsoft excel be used for?

Answer 20

• Calculate break even point
• Prepare Cash Budgets
• Calculate profit
• Prepare Job Cost Statements
• Record movements of stock

Question 21

What are advantages of using spreadsheets?

Answer 21

• Graphs and charts can be produced to make info easier to understand.
• use of formulae to calculate figures reduces the need for repetitive calculations.
• templates can be used from year to year

Question 22

What is Break Even Analysis used to calculate?

Answer 22

calculate the point at which the costs of producing a p/s are covered and above which it starts to become profitable i.e neither a profit or loss is being made

Question 23

Sources of finance?

Answer 23

• Bank Loan: an amount of money is borrowed from the bank then repaid with interest over a set period of time
  adv. structured repayment know exactly how much you have to pay when and for how long
  dis adv. Interest is payable, may not be easy to obtain in today’s economic climate
  -Government Grant: money given to the business by the gov.
  adv. no need to repay the grant
  dis adv. there may be restrictions on what the money can be used for
  -Overdraft: bank allows business to draw more money from their bank account than they actually have
  adv. good short term solution to a cash flow problem
  dis adv. interest or charges may be high