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Financial terms and calculations
Study financial terminology and calculations used to support business investment and break-even decisions.
8
Objectives
10
Flashcards
10
Questions
90 min
Study time
AqaGcseBusinessFinance
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Syllabus checklist
What you need to know
8 objective pages available
Costs, revenue, profit and loss2 objectives
- Distinguish variable costs, fixed costs and total costs.
- Explain revenue, costs, profit and loss.
Average rate of return2 objectives
- Explain investment projects such as investment in machinery, buildings and vehicles.
- Calculate average rate of return for business investment projects.
Break-even4 objectives
- Explain break-even output.
- Interpret break-even charts.
- Identify break-even level of output and margin of safety from a break-even chart.
- Evaluate the value of break-even analysis to a business.
Key terms
Total costProfitAverage Rate of ReturnAverage rate of returnbreak-even outputbreak-even chartbreak-even pointBreak-even analysis
Exam tips
- Separate cost components before calculating: Always identify fixed and variable costs separately before adding them to find total cost.
- Show your calculation steps: Write out each step of your calculation, including units, so examiners can follow your reasoning.
Common mistakes
- Confusing fixed and variable costs: Fixed costs stay constant in the short run, while variable costs change with the level of production.
- Mixing up revenue and profit: Revenue is the total sales income; profit is revenue minus all costs.
Practice preview
- A small manufacturer has fixed costs of £2,000 per month and a variable cost of £5 per unit. If it produces 100 units, what is its total cost for the month?
- A retailer incurs fixed costs of £3,000 per month and a variable cost of £12 per item sold. If the retailer sells 400 items in a month, calculate the total cost for that month.
- A small manufacturer sells 200 units at £15 each and incurs total costs of £2,000. What is the profit?
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