A.1 Answer Sheet 1: Understand the Costs Involved in Business Complete the revision sheet then use the answer sheet to self-assess your answers

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1 Finance Revision Worksheet A.1 Answer Sheet 1: Understand the Costs Involved in Business Complete the revision sheet then use the answer sheet to self-assess your answers No Question Your answer Score 1 What is a start-up cost? A cost that is paid once during the start-up phase of the business 2 State 3 start-up costs for a pizza restaurant. You might state any of these examples: 1. Tables 2. Purchasing premises (if not renting) 3. Initial stock 4. Plates and glasses 5. Cutlery 6. Cookers 7. Utensils 8. Till 9. Decoration 10.Chairs 3 What is a running cost? A cost that must be paid frequently throughout the duration of the life of the business 4 State 3 running costs for a pizza restaurant. You might state any of these examples: 1. Wages 2. Electric/ water/ gas 3. Rent 4. Business rates 5. Stock/ Raw materials 6. Advertising 5. What are fixed costs also known as? Indirect costs 6. What is a fixed costs? A cost that does not change in relationship to the amount of sales or products a business sells 7. Can you give two examples of fixed costs for a pizza restaurant? You might state any of these examples: 1.Wages 2. Electric/ water/ gas 3. Rent 4. Business rates 5. Advertising

2 8. What are variable costs also known as? Direct costs 9. What is a variable costs? A cost that changes in direct relation to the number of products you make or sell 7. Can you give two examples of variable costs for a pizza restaurant? You might state any of these examples: 1. Dough 2. Cheese 3. Tomatoes 4. Serviettes 8. What is the formula for calculating variable costs? Number of Sales x Variable Costs per unit = Variable Costs 9. What is the formula for calculating total costs? Fixed Costs + Variable Costs = Total Costs 10. Calculate the Fixed, Variable and Total Costs for Paul s Pizza s for each quantity of Pizza that Paul sells. His rent is 800 per month, utility bills are 200, wages are 1,000 His Variable Costs are 5 per pizza. Quantities Fixed Costs Variable Costs Total Costs 0 2, , , , , , ,000 1,500 3, ,000 3,500 5, ,000 5,000 7,000 8 I scored / 36 What I did well What I need to improve on

3 Finance Revision Worksheet A.2 Question Sheet 1: Understand how businesses make a profit Complete the revision sheet then use the answer sheet to self-assess your answers No Question Your answer Score 1 What is revenue? Revenue is the money coming in to the business. 2 State 3 sources of revenue Answers could include: Income from sales Leasing or renting of equipment Interest paid on savings in bank account Investment- people buying shares in the business Bank Loan 3 What is the formula for calculating revenue? Sales price X number of sales = Revenue 4 Calculate revenue for these businesses: a) This business sells 100 bags of kitten food per week for 4 b) This business sells 250 sofas per year for 1,000 each c) This business sells 100 cakes per week for 1 each and 250 pies per week for 2 each. a) 100 x 4 = 400 per week b) 250 x 1,000 = 250,000 per year c) 100 x 1 = 100 and 250 x 2 = = What is expenditure? This is the money that a business has to pay out 6. State at least three expenditures for a business. Answers could include: Rent Business rates Wages Raw Materials Stock Telephone bill Electricity Fuel Advertising

4 7. What are overheads? These are the fixed costs of the business, they have to pay them regardless of how busy the business is 8. What is profit and what is loss? Profit is a positive figure, what is left of the revenue once the costs have been taken away. Loss is a negative figure, when the costs are higher than the revenue 9. What is the formula to calculate profit/loss? Revenue Expenditure = Profit/Loss 7. Can you calculate profit/ loss for the businesses shown? Please put losses in brackets Business Revenue Expenditure Profit A B 2,500 2, C 1,800 2,000 ( 200) D 32,000 10,000 22,000 E 16,000 16,100 ( 100) /5 8. Can you help calculate the profit/loss for the Pizza Restaurant in January 2015? The will have rent of 500, wages of 1000 and overheads of 700. They have variable costs of 0.50 for cheese per pizza, 0.50 for tomato per pizza, 1.50 in toppings per pizza and 0.50 per pizza box. They would like you to calculate profit/ loss. They would like you to make calculations based on a variety of sales figures. They sell the Pizzas for 10 each Remember to use brackets for negative figures (losses) c Fixed Costs Variable Costs Total Costs Revenue Profit/ Loss 0 2,200 2,200 0 ( 2,200) 50 2, , ( 1,850) 100 2, ,500 1,000 ( 1,500) 250 2, ,950 2,500 ( 450) 500 2, ,700 5,000 1,300 5 I scored / 46 What I did well What I need to improve on

5 Finance Revision Worksheet B.1 Answer Sheet 1: Understand the planning tools businesses use to predict when they will start making a profit Complete the revision sheet then use the answer sheet to self-assess your answers No Question Your answer Score 1 What is breakeven? When the money coming in to the business (revenue) covers the costs (expenses) of the business. There is no profit and no loss. 2 What does the break even formula tell you? The breakeven formula tells you how many sales you have to make in order for the revenue to match the costs. 3 The formula for break-even will be given to you in the exam, but you must be able to use it. Can you help the Pizza Restaurant plan the break even figures based on the different costs and sales prices they might use next year. The break even formula is: Break-even point = Fixed Costs. (Selling Price Variable Cost Per Unit) Business Fixed Costs Variable Costs Sales Price Break Even A 2, B 2, C 1, D 1, /5 E 1, Why is the fixed cost line on a break even chart horizontal? Because the fixed costs will stay the same, it doesn t matter how many sales are made 5 Which two figures must be even for a business to break even? The total costs and revenue lines

6 6 Can you label the breakeven chart? Letter H B D E C F G I A Label Predicted Sales Figure Profit Total Costs Variable Costs Sales Revenue Fixed Costs Break Even Point Margin of Safety Loss /9 7. Can you state what the effect will be on the breakeven chart in each of these scenarios: a) An increase in sales b) Decrease in sales c) Increase in costs d) Decrease in costs a) An increase in sales: The margin of safety increases b) Decrease in sales: The margin of safety is decreased or break even is not met, a loss is made c) Increase in costs: The breakeven point would be higher and profit would decrease d) Decrease in costs: The breakeven point would be smaller and profit would increase /4 I scored / 22 What I did well What I need to improve on

7 Finance Revision Worksheet B.2 Question Sheet 1: Understand the tools businesses use to plan for success Complete the revision sheet then use the answer sheet to self-assess your answers No Question Your answer Score 1 What is budgeting? Budgeting is setting targets for how much you want to spend and how much revenue you need to make over a future period of time. 2 Name 2 situations when you might use a budget. You could mention any of the following Forecasting start-up costs for a new business Introducing a new product or growing the business Forecasting sales revenue 3 What is budgetary control? Budgetary control is the system in place for checking progress and monitoring if budgets are being kept to. 4 What is the purpose of a cash flow forecast? A cash flow forecast is used to predict the money coming in and out of the business bank account 5 What are cash inflows? Money coming in to the bank account 6 What are cash outflows? Money going out of the bank account 7 Name 2 possible cash inflows for a business. You could mention any of the following Income from sales/ revenue Capital from investors You could mention any of the following 8 Name 2 possible cash inflows for a business. Staff Wages Utilities (gas, electric, water, phone) Materials/ Stock Loan from the bank Property or equipment rental Sale of land Insurance Interest on a loan Rent Dividends

8 9 Can you complete the cash flow forecast for this pet shop. They start will start the business in June with 200. Their inflows will start at 700 per month in June then increase by 100 each month. Their total payments will always be 400. June July August September Total Inflow Total Payments Net Cash Flow Opening Balance Closing Balance / How do you think the business is doing and why? They are doing very well (1), their bank balance is growing every month (1) 11 June July August Total Inflow Total Payments 700 1, Net Cash Flow 200 ( 200) 0 Opening Balance ( 100) Closing Balance 300 ( 100) ( 100) a) It tells me that their business is going to lose money, if they use the plan they have in place then they will be making a loss in their second month. b) They could either: - Increase their sales/ price - Decrease their costs a) What does this forecast tell you about the business? b) What could they do to change this situations? I scored / 35 What I did well What I need to improve on

9 Finance Revision Worksheet C.1 Answer Sheet 1: Understand how businesses measure success Complete the revision sheet then use the answer sheet to self-assess your answers No Question Your answer Score 1 What are costs of sales? The costs of the raw materials to make your product. 2 What is gross profit? The money left from selling the goods (revenue) after taking away the cost of making the product (cost of sales) 3 What is the formula for gross profit? Revenue Cost of Sales = Gross Profit 4 What does a positive gross profit say about a business? It says that they are making more revenue that they are spending on the raw materials of the product. If the utilities are low too they should make an overall net profit 5. What does a negative gross profit say about a business? It says that they are making less revenue than they are spending on making the product. They are not going to make a profit. 6. What is net profit? This is the money made from selling the product after all costs have been deducted, both the costs of sales and the expenses 7. What is the formula for net profit? Gross Profit Expenditure Net Profit 8. What are the impacts of positive net profit on the business? Positive net profit figures mean the business has made a profit 9. What are the impacts of negative net profit on the business? This means the business has not made a profit overall, if this continues the business may go bankrupt.

10 10 What are financial statements? Documents that record the financial activities of the business. 11 Name the two financial statements that are used to record what HAS happened in a business Profit and Loss Account (Income statement) and Balance Sheet 12 What is the purpose of an income statement? To show how the business has performed over a certain time frame, usually one year 13 a) Can you label which section is the trading account and which is the expenses and overheads account in this income statement? (use the blue boxes provided) b) Can you complete the profit and loss account using these figures A business makes bikes and sells them in their shop. The shop has cost them 2,000 to rent this year and they have paid 700 in bills. They spend 10 on the wheels and 15 on the frame for each bike. The business has sold 300 bikes for 50 each. Revenue 15,000 Cost of Sales 7,500 Gross Profit 7,500 Expenses and Overheads Rent 2,000 Utilities 700 Net Profit 4,800 Trading Account Expenses/ Overhead account /8 14 What is the purpose of a balance sheet? To show the financial position of a business at a point in time (a snapshot) 15 Can you put these costs under the correct heading; they are either Fixed Assets, Current Assets or Current Liabilities. Creditors Stock Computer/till Debtors Overdraft Van Fixed Assets Van Computer Current Assets Stock Debtors Cash in Bank Current Liabilities Creditors Overdraft / 6

11 15 a) Can you label which section of the balance sheet shows (A) how a business is funded and (B) how a business is using these funds just put an A and B in the blue boxes. (2 maerks) b) Complete the balance sheet using these figures: (10 marks) The business have 600 in the bank The business has 120 bikes in stock that are worth 50 They have a van which is worth 2,000. They own a computer which Is worth 1,000. They owe the tire company 700 They are owed 200 for bikes that they have sold to the local pizza shop which they are going to pay for at the end of the month. They have an overdraft of 200 The owner invested 5,900 in the business They have kept 3,000 of profit in the business from last year c) Can you calculate the: (7 marks) Total Fixed Assets Total Current Assets Total Assets Total Current Liabilities Working capital Total Net Assets Total Share holders Funds Assets Fixed Assets Van 2000 Computer Current Assets Stock 6000 Debtors 200 Cash in Bank Total Assets 9800 Liabilities Current Liabilities Creditors 700 Overdraft Working Capital 5900 Total Net Assets 8900 Shareholder s Funds Share Capital 5900 Retained Profit B A 9 I scored / 47 What I did well What I need to improve on

12 Finance Revision Worksheet C.2 Answer Sheet 1: Understand how businesses can be more successful Complete the revision sheet then use the answer sheet to self-assess your answers No Question Your answer Score 1 What does a balance sheet show? A snap shot of exactly what the business owes and what they own. 2 When can a balance sheet be created? Any time 3 What needs to balance in the balance sheet? The Total net assets and the Shareholders Funds 4 a) What is a Fixed Asset? b) Give 2 examples A fixed asset is something the business owns that CANNOT be turned into cash easily A building, large equipment, land, interest on savings 5 a) What is a current asset? b) Give 2 examples 6 a) What is a long term liability? b) Give 1 example A current assets is something the business owns that can be turned in to cash easily Cash, stock, debtors, Something that the business will owe over a LONG period of time Mortgage, large loan 7 a) What is a currently liability? b) Give 2 examples? Something that the business OWES over a short period of time Creditors, overdraft, loans, interest on loans 8 How do you calculate working capital (this is also called net current assets)? Current Assets Current Liabilities 9 How do you calculate total net assets? Total Assets Current liabilities

13 10 Can you complete the balance sheet for this business? You need to enter the information in to all of the boxes that are grey. Assets Fixed Assets Van 2,000 Computer 700 2,700 Current Assets Stock 1,000 Debtors 700 Cash in Bank 70 1,770 Total Assets 4,470 Liabilities Current Liabilities Creditors 900 Overdraft 700 1,600 Working Capital 170 Total Net Assets 2,870 Shareholder s Funds Share Capital 1,200 Retained Profit 1,670 2,870 /7 2 1 What are the two main ways that a business can increase profits? (2 marks) -increasing income/ revenue -reducing costs/ expenditure7 2 Can you give an example for each of your suggestions? (2marks) You could include any of the following: -selling more products, increasing selling price, increasing range of products sold, encouraging customers to pay bills on time -reducing cost of materials (new supplier), negotiating cheaper prices with supplier, reducing staffing, cheaper location, delaying paying bills, speed up production to reduce energy bills

14 3 Income Statement (Profit and Loss) Revenue 60,000 Cost of Sale 20,000 Gross Profit 40,000 Expenses and Overheads Wages 30,000 Utilities 7,000 Net Profit 3,000 a) Has the firm made a healthy gross profit? (1mark) b) Explain your answer (1mark) c) Has the firm made a healthy net profit? (1mark) d) Explain your answer (1mark) e) Can you recommend a way that the business could improve their situation? (1mark) a) Yes b) The costs of sales is only a third of the revenue c) No d) They only have 3,00 remaining after paying staff and utilities e) reducing staffing costs /5 Balance Sheet (statement of financial position) 4 Assets Fixed Assets Van 1,000 Computer 500 1,500 Current Assets Stock 800 Debtors 400 Cash in Bank 1,100 2,300 Total Assets 3,800 Liabilities Current Liabilities Creditors 800 Overdraft 500 1,300 Working Capital 1,000 Total Net Assets 2,500 Shareholder s Funds a) Current Assets Current Liabilities b) Yes, they have 1000 working capital and owe 800, so have 200 spare c) Yes, they have 1,100 cash in the bank and owe 800 d) No, they have 0 retained profit e) They could increase sales of stock or chase payments (debtors) /5

15 Share Capital 2,500 Retained Profit 0 a) How is working capital calculated? (1mark) b) Is there enough working capital to pay the amount owed to creditors, explain with numbers to evidence your answer? (1mark) c) Is there enough cash in the bank to pay the pay of their creditors if they needed the money immediately? Explain with numbers to evidence your answer (1mark) d) Have the business kept hold of profit from previous years? (1mark) e) How could the business increase the level of cash in the business? (1mark)

16 Finance Revision Worksheet C.2 Answer Sheet 2: Understand how businesses can be more successful Complete the revision sheet then use the answer sheet to self-assess your answers No Question Your answer Score 1 What does a balance sheet show? A snap shot of exactly what the business owes and what they own. 2 When can a balance sheet be created? Any time 3 What needs to balance in the balance sheet? The Total net assets and the Shareholders Funds 4 c) What is a Fixed Asset? d) Give 2 examples A fixed asset is something the business owns that CANNOT be turned into cash easily A building, large equipment, land, interest on savings 5 c) What is a current asset? d) Give 2 examples 6 c) What is a long term liability? d) Give 1 example A current assets is something the business owns that can be turned in to cash easily Cash, stock, debtors, Something that the business will owe over a LONG period of time Mortgage, large loan 7 c) What is a currently liability? d) Give 2 examples? Something that the business OWES over a short period of time Creditors, overdraft, loans, interest on loans 8 How do you calculate working capital (this is also called net current assets)? Current Assets Current Liabilities 9 How do you calculate total net assets? Total Assets Current liabilities

17 10 Can you complete the balance sheet for this business? You need to enter the information in to all of the boxes that are grey. Assets Fixed Assets Van 2,000 Computer 700 2,700 Current Assets Stock 1,000 Debtors 700 Cash in Bank 70 1,770 Total Assets 4,470 Liabilities Current Liabilities Creditors 900 Overdraft 700 1,600 Working Capital 170 Total Net Assets 2,870 Shareholder s Funds Share Capital 1,200 Retained Profit 1,670 2,870 /7 8 Use your knowledge of balance sheets to answer these questions: f) Is there enough working capital to pay the amount owed to creditors, explain with numbers to evidence your answer? (1mark) g) Is there enough cash in the bank to pay the pay of their creditors if they needed the money immediately? Explain with numbers to evidence your answer (1mark) h) Have the business kept hold of profit from previous years? (1mark) i) How could the business increase the level of cash in the business? (1mark) a) No, because the working capital is 170 and they have 900 they need to pay to their creditors b) No, they only have 70 in the bank and 900 in debt to pay c) Yes, they have kept hold of profit - 1,670 d) They could claim the payments from the debtors, they could sell off more of their stock. /4 I scored / 35 What I did well What I need to improve on