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2.4 Making Financial Decisions Practice Questions

Question 1

3 marks
(a)

Which one of the following is the formula for gross profit?

A Sales revenue − cost of sales

B Sales revenue − total costs

C Gross profit − other operating expenses and interest

D (Gross profit ÷ sales revenue) × 100

(b)

Table 1 contains financial information about a business for one year.
Gross profit £486 000
Other operating expenses and interest £214 000

Table 1

Using the information in Table 1, calculate the net profit for the year. You are advised to show your workings.

£ ..............................................................

Question 2

4 marks
(a)

Which two of the following would increase a business's gross profit margin? Select two answers.

A Reducing the price paid to suppliers for raw materials

B Increasing the rent paid on head office

C Increasing the selling price of the product

D Increasing the salary paid to the marketing manager

E Increasing the interest paid on a bank loan

(b)

Table 2 contains financial information about a business for one year.
Sales revenue £840 000
Net profit £126 000

Table 2

Using the information in Table 2, calculate the net profit margin for the year. You are advised to show your workings.

.............................................................. %

Question 3

3 marks

Read the following extract before answering the questions.

Extract A

Calvera plc designs and manufactures LED lighting for offices and warehouses. The business started in Manchester in 2009 and now employs 1 400 people. It has factories in the UK and in Poland, and sells to customers in 30 countries. Last year, 62% of its sales revenue came from outside the UK.

The cost of sales for Calvera plc includes the aluminium and the electronic components used in its lights. The price of these components rose sharply last year. Calvera plc's directors review the financial performance of each sales region every year before deciding where to send its sales teams.

Table 1 shows Calvera plc's sales revenue and cost of sales by region for last year.

Table 1 – Calvera plc sales revenue and cost of sales by region

Region Sales revenue Cost of sales
Europe £18 400 000 £11 960 000
North America £12 750 000 £8 160 000
Asia £9 300 000 £6 975 000
Africa £4 550 000 £2 730 000
(a)

Using the information in Table 1, identify the region with the lowest cost of sales.

(b)

Using the information in Table 1, calculate Calvera plc's gross profit in Europe. You are advised to show your workings.

£ ..............................................................

Question 4

3 marks
(a)

Which one of the following is the formula for gross profit?

A – Sales revenue − cost of sales

B – Sales revenue − total costs

C – (Gross profit ÷ sales revenue) × 100

D – (Average annual profit ÷ cost of investment) × 100

(b)

Table 1 contains financial information about a business for one year.
Sales revenue £420 000
Cost of sales £168 000
Other operating costs £135 000

Table 1

Using the information in Table 1, calculate the net profit for the year. You are advised to show your workings.

£ .......................................................

Question 5

3 marks

Read the following extract before answering Questions (a) and (b).

Velora plc

Velora plc is an activewear business that sells leggings, running tops and trainers through its website and through 40 stores in the UK, Germany and Spain. It was founded by Helen Carter and became a public limited company in 2018. A pair of its best-selling leggings sells for £48. Velora's cost of sales includes fabric bought from suppliers in Portugal and payments to the factories that make its clothing.

Sales are seasonal. Demand for warmer layers rises in the autumn and before Christmas, while many stores are quiet from April to June.

Helen uses the quarterly sales revenue figures in Figure 1 to decide when to order stock and when to run promotions. She also compares Velora's gross profit margin with the margins the business achieved in previous years. Velora's directors are now discussing whether the financial information they receive each quarter is enough to judge how well the business is performing.

Figure 1 – Velora plc quarterly sales revenue

00.40.81.21.62.02.4Quarter 1Quarter 2Quarter 3Quarter 4£1.2m£1.0m£1.6m£2.2mQuarterSales revenue (£ million)

(a)

Using the information in Figure 1, identify the quarter in which Velora plc had the lowest sales revenue.

(b)

Using the information in Figure 1, calculate Velora plc's average quarterly sales revenue. You are advised to show your workings.

£ .......................................................