Btec Business Revision 2023 with verified questions and answers

Breakeven When revenue and expenditure are the same. there is no profit or loss variable costs raw materials, change as output increases margin of safety is the amount by which sales would have to fall before the break-even point is reached total costs fixed costs plus variable costs break-even point when a business has made enough money through product sales to cover the cost of making the product selling price total revenue divided by maximum number of products increasing the price break even point falls reduce the price break even point becomes higher break even analysis planning tool that helps businesses to make the right decisions and increase their chances of success benefits of break even analysis business knows the fixed and variable costs linked to a product. the business can set the best price for a product. it allows the business to set a margin of safety. risks of ignoring breakeven analysis the business does not know the costs of production and running costs. the business does not know how many items it must sell to make a profit. the business may make a loss without realising or knowing why. break even point will change if costs change or if the selling price changes if costs fall the breakeven point is lower so the business makes a profit the lower the breakeven point the fewer the sales needed to make a profit total sales revenue formula number of sales times price per unit to make a profit revenue must be higher than expenditure profit formula revenue take away expenditure netflow/outflow formula inflows take away outflows net inflow increases money already in the bank net outflow reduces the money already in the bank improving inflows chase up late payments. avoid giving credit to unknown customers. give discounts for early payment. improving outflows delay some payments. reduce stock levels. make cutbacks to reduce expenditure. cash flow forecasting planning tool, it helps businesses avoid the risk of serious money problems and to plan for success benefits of cash flow forecasting expensive items can be bought at the best time. the timing of inflows and outflows is known. surplus cash can be invested. risks of not forecasting cash flow late inflows may not be identified. there may not be enough cash to pay for bills or wages. the business may run out of money and have to cease trading. costs of sales money it costs to make a product gross profit formula revenue take away cost of sales gross profit money made from selling a product after the cost of producing it has been deducted positive gross profit good news to the business. money to pay for expenses. money available for better equipment or expansion. the cost of sales is not too high. negative gross profit cost of sales is higher than revenue bad news to the business. no money to pay for expenses or wages without a loan or overdraft which increases costs. cost of sales is too high. sales revenue is too low. net profit is the money made from selling a product after all costs have been deducted amount you have left after you have deducted your expenses from your gross profit net profit formula gross profit take away expenditure positive net profit - good news to the business gross profit is more than expenditure. expenditure is less than gross profit. the business has money it can use to expand or improve. negative net profit - bad news to the business gross profit is less than expenditure. expenditure is too high. the business is losing money. buying cheaper raw materials improve gross and net profit financial statements shows whether or not a business is doing well assests items owned by the business that are worth money. liabilities debts or obligations owed by the business income statement, profit and loss account shows profit or loss made by the business over a period of time statement of the financial position, balance sheet this lists assets and liabilities fixed assets needed for the business to be able to trade current assests which are cash or which can be easily converted into cash. stock - which is sold to customers. cash - received from customers and paid out to buy new stock. trade receivables - debtors customers who owe money current liabilities debts that must be paid soon trade payables creditors suppliers that the business must pay overdrafts short-term. bank loans long-term liabilities funds borrowed over a long time working capital the money the business needs every day to trade. needs to be enough to run the business working capital formula current assets take away current liabilities capital money from internal sources such as shareholders or from external sources such as bank loans retained profit earlier profits the owner has kept in the business; an internal source of capital stock too much, sell it off too little, buy some more trade receivables if this is high then collect payments from debtors cash if this is low, chase up debts or sell off slow-moving stock trade payables of debts to suppliers are high, they may stop providing goods