3.1
3.2
3.3
100
What is the role of finance for businesses?
Finance is needed for starting a new business or funding an existing firm's expansion
100
What is the formula for total revenue?
TR = Price x Quantity
100
What is the equation for contribution per unit?
Contribution per unit = Price - Average variable costs
200
Give 2 examples of external sources of finance
Share capital, loan capital, overdraft, trade credit, grants, venture capital, business angels, leasing, debt factoring and subsidies
200
Give examples of indirect costs
Rent, water, electricity, marketing
200
What is the equation for Break Even Quantity?
Fixed Costs / Contribution per Unit
300
What are retained profits? What kind of source are they?
Retained profits are surplus funds reinvested into the business rather than being distributed to shareholders in the form of dividends.
Internal source of finance
300
What is the difference between fixed costs and variable costs?
Fixed costs are costs that don't change with quantity produced
Variable costs are dependent on quantity produced
300
What are the limitations of break even analysis?
- Makes several assumptions:
- Fixed costs must be paid regardless of output
- Variable cost increases linearly
- Ignores economies of scale
- Sales revenue increases linearly
- Ignores discounts for large orders and price discrimination
- Assumes only one product is sold
- Every unit of output is sold
- Selling price is constant regardless of units sold
- Provides a static model (e.g. production costs can change)
- Depends on reliability of data
- Other factors can have an effect (e.g. competitors, staff motivation)
- Only suitable for single product firms
500
Draw a break even graph on the table
