Finance - Profit And Loss

Question 1

How is Gross Profit calculated?

Answer 1

Revenue - Cost Of Goods Sold
Examples of COGS, livestock feed, machinery, seeds.

Question 2

How is Gross Profit Margin calculated? Why is this important?

Answer 2

(Gross Profit / Revenue) x 100
Used to assess efficiency.

Question 3

How is Net Profit calculated?

Answer 3

Gross profit - all expenses (includes labour costs, overheads and taxation)

Question 4

What are direct costs? What are some examples?

Answer 4

Expense directly linked to the production of goods or services.
E.g. livestock feed, seeds for crop-growing, raw materials.

Question 5

What are indirect costs? What are some examples?

Answer 5

General business expenses that cannot be directly traced to a specific product or service.
E.g. utility bills, office supplies for administrative costs, general machinery maintenance.

Question 6

What are fixed costs? What are some examples?

Answer 6

Costs that remain the same regardless of business activities.
E.g. rent/mortgage, salaries for ft employees.

Question 7

What are variable costs? What are some examples?

Answer 7

Expenses that fluctuate depending on the level of business activities.
E.g. fuel for farm machinery, packaging materials for farm shop products, veterinary costs.

Question 8

What is gross profit margin and how is it calculated?

Answer 8

Difference between money received from goods and services and the cost of making/providing them
(Gross profit / revenue) x 100

Question 9

What is the net profit margin and how is it calculated?

Answer 9

The percentage of total income after all expenses and taxes are paid
(Net profit / total revenue) x 100

Question 10

What are some external factors causing financial loss?

Answer 10

Increased inflation rates
Increased costs of raw materials
Change in consumer preferences
Increased competition.

Question 11

What are overhead costs? Give 3 examples.

Answer 11

Costs/expenses not related to the level of production and must be paid regardless of sales.

Mortgage and rent
Loan repayments
Running costs

Question 12

What are 3 key components of a profit and loss statement?

Answer 12

Revenue - all incom from day to day operations
Expenses - utilities, insurance, shipping, equipment rental
Sales - money received through selling.