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WorksheetsUnit 3 Personal & Business Finance - Formulas Exam Practice
Total questions: 18
Worksheet time: 30mins
A firm sells a product at £25 per unit. The variable cost per unit is £15, and fixed costs are £40,000.
Using the formula provided, what is the break-even point in units?
1,600 units
2,000 units
2,500 units
4,000 units
4,666 units
A company sells a product for £50 per unit and sells 3,000 units.
The total variable cost is £90,000, and the fixed costs are £30,000.
Based on the formula provided, what is the company’s profit?
£30,000
£60,000
£120,000
£150,000
£180,000
A business sells 8,000 units and has a break-even point of 6,200 units.
Using the margin of safety formula, how many units above the break-even point is the business currently selling?
1,200 units
1,600 units
1,800 units
2,200 units
2,400 units
A business starts the month with an opening bank balance of £12,000.
During the month, it receives cash inflows of £8,500 from sales and £3,000 from a loan.
Its cash outflows total £4,000 for expenses, £2,500 for rent, and £1,000 for wages.
Using the formula, what is the closing balance at the end of the month?
£16,000
£21,000
−£9,000
£6,000
£17,000
A retailer reports revenue of £500,000 and a gross profit of £150,000.
What is the gross profit margin?
20%
25%
30%
35%
40%
A business sells handcrafted candles in a local market.
Last month, the cost of producing the candles (cost of sales) was £24,000, and the business achieved a gross profit of £8,000.
Using the mark-up formula, calculate the mark-up percentage that the business adds to its costs when setting its selling price.
43.33%
33%
40%
34%
33.33%
A business earns a profit of £60,000 from total revenue of £750,000.
Using the formula, calculate the business’s profit margin.
6%
7%
8%
9%
10%
A business has current assets of £200,000 and current liabilities of £125,000.
Using the formula, what is the current ratio?
0.63:1
1.25:1
1.4:1
1.6:1
2:1
Using the liquid capital (acid-test) ratio formula, calculate the ratio if:
Current assets = £300,000
Inventory = £120,000
Current liabilities = £150,000
What is the acid-test ratio?
1.0:1
1.2:1
1.5:1
1.8:1
2.0:1
Elegant Interiors Ltd buys materials from suppliers on credit terms of 60 days.
At the end of the year, its trade payables are £90,000 and its total credit purchases for the year amount to £450,000.
Using the trade payable days formula, calculate how long the business takes to pay its suppliers on average.
Then, comment on whether this is within or beyond the agreed credit terms.
(Assume a 365-day year.)
45 days
55 days
73 days
60 days
90 days
UrbanStyle Ltd, a fashion retailer, reported an average inventory of £80,000 during the year and a cost of sales of £600,000.
Using the inventory turnover (in days) formula, calculate how long it takes the business to sell its inventory on average.
(Assume a 365-day year.)
UrbanStyle’s target is to sell all stock within 40 days.
Based on your calculation, evaluate whether the business is managing its inventory efficiently.
35 days
49 days
55 days
60 days
70 days
BrightTech Ltd sells electronic accessories.
At the start of the year, its opening inventory was £20,000.
During the year, it made purchases of £150,000, and by the end of the year, its closing inventory was £35,000.
Using the Cost of Goods Sold (COGS) formula, calculate the cost of goods sold for the year.
Then, explain what this figure tells the business about its trading performance.
£115,000
£135,000
£150,000
£170,000
£185,000
Luna’s Boutique Ltd, a small fashion retailer, reported sales revenue of £420,000 for the year.
The cost of goods sold (COGS) — including materials and supplier costs — totalled £300,000.
Using the gross profit formula, calculate the gross profit.
Then, comment on what this figure indicates about the business’s profitability and cost control.
£90,000
£100,000
£110,000
£120,000
£140,000
If Luna’s Boutique wants to improve its gross profit margin to 35%, what maximum cost of goods sold should it aim for next year?
270,000
373,000
273,000
370,000
Bright Transport Ltd purchased a delivery van for £50,000.
The van has an estimated residual (resale) value of £5,000 and an expected useful life of 5 years.
Using the straight-line depreciation formula, calculate the annual depreciation charge for the van.
Then, briefly explain why businesses record depreciation each year.
£7,000
£8,000
£9,000
£10,000
£7,000
If Bright Transport Ltd replaced the van after 3 years, how much accumulated depreciation would be recorded, and what would its net book value be at that point?
£26,000
£28,000
£25,000
£29,000
ProTech Manufacturing Ltd purchased a new machine for £80,000.
The machine is expected to depreciate at a 20% reducing balance rate per year.
Using the reducing balance method, calculate the net book value (NBV) of the machine at the end of Year 3.
£51,200
£47,680
£40,960
£44,800
£44,800
Depreciation Methods: Reducing Balance vs. Straight-Line
When it comes to accounting for machinery depreciation, the reducing balance method offers a significant advantage in terms of financial statements. This method accelerates depreciation, meaning that a larger portion of the asset's cost is expensed in the earlier years of its life. As a result, the book value of the machinery decreases more rapidly, which can be beneficial for companies looking to reduce taxable income in the short term. However, this can also lead to lower net income figures in the initial years, which might not be favorable for companies seeking to present strong financial performance to investors.
On the other hand, the straight-line method spreads the cost of the asset evenly over its useful life, resulting in consistent depreciation expenses each year. This can simplify financial forecasting and budgeting, as the expense remains predictable. However, it may not accurately reflect the actual wear and tear of machinery, which often depreciates more quickly in the initial years. This discrepancy can lead to a mismatch between the asset's book value and its market value, potentially impacting financial analysis and decision-making.
From a tax perspective, the reducing balance method can offer immediate tax benefits by lowering taxable income more significantly in the early years. This can improve cash flow, as companies may have more funds available for reinvestment or other operational needs. Conversely, the straight-line method provides a more stable tax deduction over time, which might be preferable for long-term financial planning. Ultimately, the choice between these methods depends on a company's specific financial strategy and operational goals.
What is one advantage of the reducing balance method of depreciation?
Accelerates depreciation, reducing taxable income in the short term
Provides consistent depreciation expenses each year
Simplifies financial forecasting and budgeting
Reflects actual wear and tear of machinery accurately
How does the straight-line method of depreciation affect financial forecasting?
It simplifies financial forecasting by providing consistent expenses
It accelerates depreciation, complicating financial forecasting
It leads to lower net income figures in the initial years
It offers immediate tax benefits by lowering taxable income
Why might a company choose the reducing balance method for tax purposes?
To lower taxable income more significantly in the early years
To provide a stable tax deduction over time
To simplify financial forecasting and budgeting
To match the asset's book value with its market value
