5.3 Revenue, Costs, Profit & Loss Practice Questions

Answer all questions in this section. For each question, choose one answer.

Ridlow Leatherworks

Ridlow Leatherworks is a small business that makes leather wallets. Table 1 shows information about the business for one month.

Table 1

Item	Amount
Selling price per wallet	£14
Variable cost per wallet	£6
Fixed costs for the month	£4 400
Wallets sold in the month	950

Polgrain Garden Centre

Table 1 shows financial information for Polgrain Garden Centre for one year.

Table 1

Revenue	£1 250 000
Cost of sales	£764 000
Expenses	£214 000

Fennick Cycles

Fennick Cycles is a bicycle shop. Table 1 shows financial information for the shop for one year.

Table 1

Revenue	£840 000
Cost of sales	£327 600
Net profit	£126 000

Text 2 — Gullhaven Bakery Ltd

Gullhaven Bakery Ltd is owned by Marisol Tenby. The company bakes bread, pastries and celebration cakes, which it sells in its own shop in a coastal town and supplies to 14 local cafés.

During 2024 two new bakery chains opened branches in the town. Marisol responded by reducing the price of her best-selling sourdough loaf and by adding a range of gluten-free products. She also began charging the cafés a delivery fee.

Marisol wants Gullhaven Bakery Ltd to open a second shop in a nearby village in 2026. She knows she will need to look closely at the company's profit before she makes this decision.

Financial data for Gullhaven Bakery Ltd in 2024 is shown in Table 1 below.

2024
Revenue	£486 000
Cost of sales	£201 000
Wages	£168 000
Rent and business rates	£54 000
Other expenses	£37 000

Table 1

Text 2 — Hartley Bay Cycles Ltd

Dervla Mahon is the owner of Hartley Bay Cycles Ltd, a private limited company that assembles and sells electric bicycles from a showroom in a small coastal town. The company buys its frames and batteries from a supplier based overseas and employs six members of staff.

In 2024 the price Hartley Bay Cycles Ltd paid for frames rose by 12%. Dervla decided not to increase her selling prices, because a new competitor, Chainyard, had opened a store in the same town. Revenue grew during 2024, but Dervla is concerned that the company's net profit margin is lower than it was in 2023.

Financial data for Hartley Bay Cycles Ltd in 2024 is shown in Table 1, below.

2024
Revenue	£460 000
Cost of sales	£276 000
Salaries	£105 000
Rent and rates	£28 000
Other expenses	£19 000

Table 1

Text 2 — Veltro Cycles Ltd

Veltro Cycles Ltd is a private limited company based in Shropshire. It manufactures accessories for electric bikes, including panniers, lights and luggage racks. The company employs 14 staff and sells to independent bike shops as well as through its own website.

During 2024 Veltro Cycles Ltd's main supplier increased the price of the aluminium used in its panniers and racks. The company's cost of sales rose more quickly than its revenue, and the directors, Priya Vasani and Tomas Egerton, were disappointed with the profit the company made.

The directors would like to buy a new cutting machine, which would cost £90 000. They are worried that the company does not currently make enough profit to pay for it.

Financial data for Veltro Cycles Ltd in 2024 is shown in Table 1 below.

2024
Revenue	£735 000
Cost of sales	£448 000
Salaries	£180 000
Rent and rates	£42 000
Other expenses	£31 500

Table 1

Glowmoss Candles

Glowmoss Candles is a small business based in Kendal. The owner, Amira Patel, is a sole trader. She hand-pours soy wax candles into recycled glass jars and sells them at farmers' markets in Cumbria and through her own website. Amira set the business up in 2020 using £3 000 of her personal savings.

Each candle is made from soy wax, a cotton wick, fragrance oil and a glass jar. Amira buys her jars from a wholesaler in Birmingham, which charges £1.80 for each jar. She rents a small workshop and also pays insurance, website costs and market stall fees each month. Sales are highest between October and December.

A wholesaler in Manchester has offered to supply similar glass jars for £1.35 each. However, Amira would have to order at least 500 jars at a time, and the jars would be delivered in plain boxes rather than in protective packaging.

Table 1: Financial information for October

Item	October
Selling price for each candle	£12.00
Variable cost for each candle	£4.60
Fixed costs	£1 450
Candles sold	900

Haldi Hatch

Haldi Hatch is a street food business in Leicester run by Anjali Shah and Sanjay Varma as a partnership. They sell boxes of curry and rice from a converted van at lunchtime on a city centre market pitch, and at music festivals at weekends.

The partners buy chicken, rice and spices from a cash-and-carry three times a week, and also pay for cooking gas and takeaway boxes. The rent for the market pitch has risen from £290 to £360 a month and the price of cooking oil has increased. There are two other food vans on the same market.

Anjali and Sanjay want to increase Haldi Hatch's monthly profit. They are considering two options:

• Option 1: increase the price of a box from £7.00 to £8.00
• Option 2: reduce the variable cost of a box from £2.80 to £2.20 by placing one large order each week with a wholesaler. This would mean buying a second freezer.

Table 1: Current monthly figures for Haldi Hatch

Item	Amount
Selling price per box	£7.00
Variable cost per box	£2.80
Fixed costs per month	£4 200
Boxes sold per month	1 400

Saffron Street Kitchen Ltd

Yasmin Akhtar is a director of Saffron Street Kitchen Ltd (SSK), a private limited company that owns two takeaway restaurants in Leeds. SSK sells pizzas, wraps and salads and employs 14 staff. Last year SSK made a net profit of £28 000.

The main pizza oven at the Headingley restaurant is nine years old. It breaks down about once a month, and each breakdown means the restaurant stops taking pizza orders for the rest of the evening. Yasmin is considering buying a new oven costing £24 000, with an expected life of five years. The new oven cooks pizzas in half the time and uses less electricity.

SSK has £30 000 of retained profit. Left in the company's savings account, this would earn 6% a year. The other director, Imran, thinks the old oven should be repaired instead, because two new takeaways have opened on the same street this year.

Table 1: Expected extra profit from the new oven (before deducting the cost of the oven)

Year	Extra profit
1	£4 000
2	£6 000
3	£8 000
4	£9 000
5	£9 000

Sylvaine Audio plc

Sylvaine Audio plc designs wireless headphones and portable speakers. It was founded in 2011 and sells its products in 22 countries through electrical retailers and through its own website. Its products are assembled in a factory in Vietnam and it employs 2 000 people worldwide.

In Year 2, Sylvaine Audio plc launched a new range of speakers and its revenue rose by £12 million. However, the prices it pays for the batteries and microchips used in its products rose by 15%, and the cost of shipping finished goods from Vietnam also increased. Sylvaine Audio plc decided not to increase the selling price of its headphones, because two low-cost rivals had entered the market and were advertising heavily.

The directors are considering two options to improve the gross profit margin: increase the selling price of its headphones, or find cheaper suppliers of batteries and microchips.

Table 1: Sylvaine Audio plc financial information

	Year 1	Year 2
Revenue	£84 000 000	£96 000 000
Cost of sales	£50 400 000	£62 400 000
Expenses	£21 600 000	£23 520 000

Zendo Foods plc

Zendo Foods plc makes frozen ready meals. It began as a family business in Bristol and became a public limited company in 2016. It now supplies supermarkets in the UK, Poland and the Netherlands from a single factory in Bristol and employs 740 people.

Zendo's gross profit margin has fallen from 34% to 29% over three years. The directors blame the rising prices of the ingredients it buys and the cost of transporting frozen food across Europe. Zendo has £2 million available to invest and must choose between two options:

• Option 1: buy a new automated production line for the Bristol factory. This would cut the cost of sales on every pack by around 8%, but 40 production jobs would be lost.
• Option 2: open a distribution centre in Poland. The forecast profits are based on a market research report published three years ago, which predicted that the Polish frozen-food market would grow by 6% a year.

Table 1: Financial information for the two options

	Option 1: production line	Option 2: distribution centre
Cost of investment	£2 000 000	£2 000 000
Expected total profit over 5 years (before deducting the cost of the investment)	£3 800 000	£4 500 000
Average rate of return	18%