Feedback on Finance test 1

Feedback on Finance test 1

Question 7

A business budgeted its total revenues as £150 000 and total costs at £90 000 for a period of trading. However, actual total revenue was £145 000 and actual total costs £98 000, reducing actual profit.Calculate the difference between the actual profit figure and the budgeted profit figure. Show your calculations.

Multiple Select

A business has the following:

budgeted revenue of £150,000 and total costs of £90,000

actual revenue of £145,000 and total costs of £98,000

• Budgeted profit £60,000

• Actual profit £57,000

• Budgeted profit £70,000

• Actual profit £47,000

Question 8

Leanne wants to start a gardening business. There is a large market for gardening services in her local area but there is also competition from other gardeners.Explain how Leanne could use break-even analysis to plan her new business.

• 
  

Multiple Choice

Breakeven is...

• ...the point when a business starts to make a profit

• ...the point at which a business neither makes a profit nor a loss

Using the case study what do we know

• Break even analysis will help a business to determine the price of its goods/service.will

• Break even analysis will help a business to find out how many it needs to sell to make a profit.

• Break even analysis can help you know your margin of safety.

• This is a new business - they are a garden services business.

• There is a lot of competition in the local area.

Exemplar answer - Amelie

Leanne can use break even anaylsis to plan her new business by using it to tell her when she will make a profit. This will help her decide how she prices her services, in order for her to make a good profit. Break even analysis can also help Leanne to understand how many times she needs to sell her gardening services in her local area in order to make a profit and pay off her fixed costs, furthermore it can also tell her how many supplies she needs to buy according to the number of sales required

Question 9

Asha has a manufacturing business. The following information for her business is available.

Calculate the profit Asha will make if she sells 1000 units in a year.

• Fixed costs per year £12,000

• Variable costs per unit £40

• Selling price per unit £60

Multiple Choice

When Asha sold 1,000 units her fixed costs were £12,000. If Asha sold no items in a year, her fixed costs would be...

• £0

• £12,000

Multiple Choice

If fixed costs are £12,000.

Variable cost per unit is £40, when Asha sold 1,000..

Her total costs will be...

• £40,000

• £12,040

• £16,000

• £52,000

Multiple Choice

If fixed costs are £12,000.

Her selling price per unit is £60 when Asha sold 1,000 units.

Her total revenue will be...

• £72,000

• £60,000

• £6,000

• £13,000

Therefore...

• Total revenue = £60,000

• Total costs = £52,000

• Profit = £8,000

Question 10

The following information is available for a manufacturing business. Calculate how many units will need to be sold per year to break-even. Show your calculations.

• Fixed costs per year £440,000

• Variable costs per unit £3,500

• Selling price per unit £5,500

Multiple Choice

To work out the contribution (the bottom part of the break even formula).

It is _ variable cost - price

• TRUE

• FALSE

Multiple Choice

Fixed costs per year £440,000

Variable costs per unit £3,500

Selling price per unit £5,500

What is the contribution?

• £2,000

• - £2,000

• £8,000

Multiple Choice

The contribution is £2,000

Fixed costs are £440,000

What is the break-even?

• 220 units

• £220

• £2,220

• 2,220 units

Question 11

The following information is available for a furniture business. Calculate how many units will need to be sold per year to break-even. Show your calculations.

• Average variable costs per unit £800

• Average selling price per unit £1,500

• Annual rent of storage space £120,000

• Other fixed costs per year £90,000

Question 11

Contribution

• Average selling price per unit £1,500

• Average variable costs per unit £800

• Contribution £700

Question 11

Total costs

• Annual rent of storage space £120,000

• Other fixed costs per year £90,000

• Therefore total costs - £210,000

• Contribution is £700 / £210,000 = 300 units

Poll

What does an adverse sales budget of £30,000 mean?

• The actual sales are £30,000 less than the budgeted sales.

• The actual sales are £30,000 more than the budgeted sales.

• The actual costs are £30,000 less than the budgeted costs.

• The actual costs are £30,000 less than the budgeted costs.

Question 12

The Riverside cafe has recently opened. After it's first 3 months of trading, the owners Sue and Camilla calculated that they had an adverse sales budget of £30,000. Give one cause for this happening.

• An adverse sales budget means that the Riverside cafe, has £30,000 less revenue than they budgeted for.

• This could be caused by the business being new and therefore, not having enough research and sales data to predict sales accurately.

Multiple Choice

Question 13

Using the following figures what would be the budgeted profit budget for the following business.

Budgeted income = £2,140

Actual income = £2,130

• £110

• £10

• - £10

• - £110

Question 13

Using the following figures what would be the budgeted profit budget for the following business.

Income variance = - £10

• Budgeted expenditure £1,990

• Actual expenditure £2,010

• Expenditure variance - £20

Question 13

Using the following figures what would be the budgeted profit budget for the following business.

Income variance = - £10

• Income variance = - £10

• Expenditure variance - £20

• Therefore (-£10) - (-£20) = £10

Question 14

Tanvir has accepted a profitable contract from a vacuum cleaner manufacturer to supply parts for its vacuum cleaners....

.....analyse how this cash-flow forecast can help Tanvir plan for the contract with the vacuum cleaner manufacturer.

• work will begin in July

• a new machine costing £50 000 to make these parts will be needed

• the business will not start to receive payments from the new contract until October.

Question 14

Two elements to this question.

What is going on with the cashflow?

How will the cashflow analysis help?

• work will begin in July

• a new machine costing £50 000 to make these parts will be needed

• the business will not start to receive payments from the new contract until October.

Question 15

He also employs five staff. The break-even chart shows a monthly break-even chart for the business in November. Analyse the usefulness of break-even analysis to Gowda Chanda Ltd.

• The planned output of pellets for the month is 1,000 tonnes

• Unfortunately there was a machinery breakdown on 12 November and the monthly output was only 700 tonnes.

Question 15

Structured answer

• Definition of break even

• The impact of the monthly output of only 700 tonnes - loss

• High fixed costs, small margin of safety.

• How BE analysis can help - identify the loss, identify he needs to improve his margin of safety for the future, maybe looking ay fixed costs.