FINANCE-3.4

• What is breakeven (output)?


  Point at which a business' total revenue equals their total costs.
• how do you calculate breakeven?

  Break even = fixed costs

  (units) contribution per unit
• What is the margin of safety?


  The difference between the actual or expected sales and the break-even output.
• How do you calculate margin of safety?

  Margin of Safety = actual output - breakeven output
• What is contribution?


  Looks at the profit made on individual products and is used in calculating how many items need to be sold to cover all the business' total costs.
• What is contribution 2?

  • the difference between sales and variable costs of production.
  • gives an indication as to whether a product is contributing towards FC.
• How do you calculate contribution?

  Contribution=sales revenue- total variable costs
• How do you calculate total contribution?

  Total contribution= contribution per unit X units sold
• How do you calculate total contribution?

  Total contribution = total sales revenue - total variable costs
• How do you calculate contribution per unit?


  Contribution per unit=selling price per unit - variable costs per unit
• How do you calculate profit/loss?

  Profit/loss=total contribution - fixed costs
• how do you calculate breakeven?

  Breakeven = Total contribution= Fixed costs
• What are payables?


  Payables refer to the length of time taken by as firms to pay suppliers and other creditors.
• What are receivables?


  Receivables describe the tine taken by business customers to pay fro the products it has supplied.
• what is profit?


  Financial gain or reward/return obtained from a business activity for taking risks and making investments.
• What is profit is absolute terms?

  Profit = total revenue - total costs
• what is profit in relative terms?

  profit X100

  revenue
• What is gross profit margin (GPM)?


  It is gross profit as a percentage of sales.
• how do you calculate gross profit margin (GPM)?


  GPM= gross profit X100

  sales revenue
• How do you calculate gross profit?

  Gross profit = sales revenue - costs of sales

  -Variable/direct costs
• What is positive about GPM?


  You can compare with previous years.
• What is operating profit margin (OPM)?


  Operating profit margin measures operating profit as a percentage of sales.
• how do you calculate operating profit margin (OPM)?


  OPM= operating profit X100

  sales revenue
• How do you calculate operating profit?

  Operating profit= gross profit-expenses

  -Fixed/indirect costs
• What are 4 positives about using breakeven?

  • Focuses on what output is required.
  • Helps management understand the risk of an idea.
  • MOS shows how much a sales forecast can prove over-optimistic before losses are incurred.
  • Shows importance of keeping fixed costs low.
• What are 5 negatives about using breakeven?

  • Unrealistic assumptions.
  • Variable costs down always stay the same.
  • Sales are unlikely to be the same as output.
  • Most firms sell more than 1 product.
  • Planning aid rather than a decision making tool.
• What is an overdraft?


  The bank lets the business 'owe money' when the bank balance goes below 0, in return for changing a high rate of interest.

  A short-term and flexible source of finance.
• What are 3 benefits of an overdraft?

  • Easy to arrange
  • Flexible-use as cash flow requires
  • Interest- only paid on the amount borrowed under the facility
• What are 2 drawbacks of an overdraft?

  • High rates of interest
  • Can be withdrawn at any notice