Summary
Edexcel A Level Business Summary Assessment - Finance Calculations
EDEXCEL A LEVEL BUSINESS SUMMARY ASSESSMENT - FINANCE CALCULATIONS QUESTIONS AND ANSWERS
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
Content preview
19. Summary Assessment 5 Mark: /22Robert is the owner of a local garage, situated in a small town in Manchester. The garage sells petrol and a small selection of car
accessories; they also undertake MOTs, services and repair work. Robert’s Repairs average 500 customer visits per month,
spending £45 each visit (average). Robert’s son, Wayne, is due to leave university, with a degree in marketing, and join the family
business. Wayne has an interest in sales. Fortunately, Robert’s Repairs occupy enough land for them to stock a small range of
second hand vehicles. Wayne will purchase vehicles from auctions which would be prepared for resale at the garage by Robert,
although a new part-time mechanic would also be needed. The finances of the vehicle sales will be separate from the current
business.
Following market research Wayne produced a forecast of financial data for the vehicle sales:
Item Forecast Revenue / Cost Robert’s annual fixed costs are currently £120 000,
and the variable costs average £15 per customer
Fixed costs Would add £30 000 pa visit. Wayne has forecast that he would attract 60
Average variable costs per sale £6 500 customers in the first year
Average spend (revenue) per sale £8 000
1 Calculate the profit (loss) currently made each month by Robert’s Repairs. Assume the fixed
costs are spread evenly over each month of the year [5]
£120,000/12 = £10,000 (FC per month)
£17,500 (Costs per month)
500 x 45 = £22,500 (REV per month)
500 x 15 = £7,500 (VC per month)
Revenue – Costs = Profit
£22,500 - £17,500 = £5,000 + (profit)
2 Calculate the current annual break-even quantity for Robert’s Repairs. [5]
£7,500 x 12 = £90,000 (VC per year)
£90,000 + £120,000 = £210,000 (TC per year)
£210,000/£45 (per visit) = 4,666.67
= 4,667 units
3 Calculate the current annual margin of safety for Robert’s Repairs. [3]
500 x 12 = 6,000 (units sold per year)
6,000 – 4,667 = 1,333 units
4 It is decided that the total fixed costs for the two parts of the business would be split 75% to
the existing business and 25% to the vehicle sales. For the vehicle sales calculate the forecast:
(a) Annual break-even quantity [5]
£120,000 + £30,000 = £150,000 (Total FC)
60 x £6,500 = £390,000 (Total VC)
£150,000/4 = £37,500 (Vehicle Sales FC)
£37,500 + £390,000 = £427,500 (TC)
= £427,500/£8,000 = 53.4 units
(b) Annual total contribution [2]
£8,000 - £6,500 = £1,500 (CPU)
£1,500 x 60 = £90,000 (TC per year)
(c) The annual profit (loss) [2]
£427,500 (TC) £8,000 x 60 = £480,000 (Rev per year) £480,000 - £427,500 = £52,500 + (profit)
What are the advantages to a start-up business of calculating the break-even level of output?
It will give an idea of how long it will take before it will reach profitability
Will show that risks will need to be taken
It will remind the start-up business to keep fixed costs down to a minimum
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller SameerL002. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £2.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
83662 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now