Finance

Question 1

What are fixed costs?

Answer 1

Costs that do not vary with the level of output

Question 2

What are overheads/indirect costs?

Answer 2

Costs that can not be attributed to a particular unit of output

Question 3

What are direct costs?

Answer 3

Costs that are directly attributable to a unit of output

Question 4

What are variable costs?

Answer 4

Costs that change in proportion to the level of good or services a business produces

Question 5

How can total costs be calculated?

Answer 5

Fixed costs + variable costs

Question 6

What is marginal cost?

Answer 6

The cost of producing one extra unit

Question 7

What is unit cost?

Answer 7

Cost of producing one unit

Total costs ÷ output

Question 8

What are the different types of costing method?

Answer 8

Standard costing 
Cost centres 
Profit centres 
Absorption costing 
Contribution or marginal costing

Question 9

What is contribution?

Answer 9

Revenue - variable costs

Question 10

What is contribution per unit?

Answer 10

Price - Variable costs per unit

Question 11

What is profit in relation to contribution?

Answer 11

Total contribution - fixed costs

Question 12

What are the three ways to find the break even level?

Answer 12

Using a chart
Calculating
Using a graph

Question 13

How can you calculate break even?

Answer 13

Break even = Fixed costs ÷ contribution per unit

Question 14

What is break even?

Answer 14

The point when total revenue = total costs , this is when all costs have been covered

Question 15

What is total revenue?

Answer 15

Price x sales/output

Question 16

What is the margin of safety?

Answer 16

The difference between the actual level of output and the break even level
(This will be a number of units not a monetary value)

Question 17

Calculating ARR (average/accounting/annual rate of return)

Answer 17

1) find total cash inflows
2) subtract cost of investment from total inflows
3) work out average annual profit
4) work out the return on investment as a percentage
(Average annual profit ÷ cost of investment)

Question 18

What is gross profit?

Answer 18

Revenue - cost of sales

Question 19

What is operating profit?

Answer 19

Gross profit - expenses

Question 20

What are the cost of sales?

Answer 20

The direct costs of producing the good

Question 21

What is profit for the year also known as?

Answer 21

Retained profit

Calculated by net profit - tax and dividends

Question 22

What is an asset?

Answer 22

What a business owns

Question 23

What is a liability?

Answer 23

What the business owes

Question 24

What is liquidity?

Answer 24

The ability to convert assets into cash

Question 25

What are the three types of current asset?

Answer 25

Cash (cash in hand, cash in bank)
Debtors
Stock

Question 26

The types of stock

Answer 26

Raw materials
Unfinished goods
Finished goods

Question 27

Calculate working capital

Answer 27

Current assets - current liabilities

Question 28

Calculating standard deviation

Answer 28

1) find mean value of results
2) record deviation (variance) of each result from mean
3) square all deviations to ensure positive
4) find sum of squared deviations and ÷ by number of units of data
5) square root the answer and you have your standard deviation