sure you already know that a sole trader and a partnership have unlimited liability. If you want protection from unlimited liability you need to incorporate. As it is a small business it wont be a Public Limited Company. So the answer has to be C S Hughes
• Incorporated • Limited liability • Unlimited liability If you are not quite sure what these terms mean go to Frog Click on the “forms of business” tab and listen to the pod cast. S Hughes
Flow is about how much cash is available to that business. How “liquid” it is. It isn't about income. It isn't about an overview of finances (financial position) It isn't about how many product you have to sell to break even. So the answer has to be D S Hughes
expenditure is about the day to day running costs. C is the only one that fits as a day to day running cost. The others are capital expenditure (Set up costs). S Hughes
A walk through of the March 2018 PPE Exam S Hughes • Revenue Expenditure • Capital Expenditure If you are not quite sure what these terms mean watch this video.
a few key words here. • Potential funders = investors. • Suppliers = who provides you with the products you sell. Imagine a supplier of pencil cases. They would be interested to see some financial information about your shop before they decide whether to give you credit. S Hughes
pair of jeans is sold at £25 a unit. Take of the costs of £15 25-15 = 10 You make £10 for each pair sold. How many do you have to sell to break even? 7500 / 10 = 750 pairs of jeans S Hughes
Even calculations are all about working out costs and price . You use a break even chart to identify how many units you would need to sell to cover your costs. Check your understanding by watching the video on frog and take the quiz S Hughes https://frog.raynespark.merton.sch.uk/6fa8fb5533bec3c0447733ea44adf549 https://www.bbc.co.uk/education/guides/zt2xn39/test https://www.youtube.com/watch?v=ZihWEVWCJYk
profit = £60,000 But, costs were actually 10% lower than forecast! Forecasted costs = £40,000 10% of 40,000 = 40,000 / 100 * 10 =4000 £40,000 - £4000 = £36000 So… now we know what the actual costs were we do the sum again S Hughes
now we know what the actual costs were we do the sum again to work out the profit S Hughes Revenue of £100,000 Costs of £36,000 100,000-36,000 = 64,000 So, actual profit = £64,000
Hughes Actual profit = £64,000 The forecasted profit was £60,000 The variance between them is £4000 It is a Favourable variance because it means more money for Mr Burns!
Hughes So, the difference between the predicted budget and what actually happened is the variance. You can have a positive variance or a negative variance. Do you know when a variance positive? See Frog for help! Click on the Financing tab and then click on Budgets https://frog.raynespark.merton.sch.uk/6fa8fb5533bec3c0447733ea44adf549
is a question about Variable Costs. You would points for explaining what a variable cost was. In this example it would be the commission. It is variable because it varies depending on the number of cars sold.
identify examples of a fixed cost? See Frog for guidance on this: Click on the Costs and Revenue tab and then click on Running Costs A walk through of the March 2018 PPE Exam https://frog.raynespark.merton.sch.uk/6fa8fb5533bec3c0447733ea44adf549
different ways of raising money: • Overdraft • It is quick and easy to raise • It isnt a long term commitment • You have to pay interest (probably higher than a loan) • Selling shares • You are “sharing” the ownership of the business • You will have to pay dividends for life • You don’t pay interest - you’re not borrowing • Loan • Longer term commitment than an overdraft • Have to apply for it • Pay interest • Trade Credit • This is where your suppliers don’t bill you for a few months • You might have to pay a little more • It really helps with your cash flow because you can sell the products before you have paid for them
is the marks scheme for Q8 To get most of the 9 points you first explain the benefits of the way of raising money. Then you relate it back to the scenario.
does a Break Even analysis do? A Break Even analysis is a “What if…” question. There a no exact numbers here so you can highlight the variables. Martha is running a burger stall for festivals. There are loads of variables cost of entry to the site number of people coming (affected by who is playing, the weather) the quantity of burgers she orders Once you have a Break Even Analysis is and identified some variables you can talk about how this helps the business…
you have a Break Even Analysis is and identified some variables you can talk about how this helps the business… It helps to set targets • How many burgers to sell to break even • How many she thinks she needs to buy She could ask What If questions • What if the weather was really bad and only a few people came • What if she was at a festival that charged a lot to let her sell burgers • What if she bought loads of burgers at a discount Having a spreadsheet that allowed Martha to change the variables means she has a much better idea of how much she needs to sell to make a profit. The question says costs might vary so it is important to highlight that she can explore different scenarios such as an expensive festival or the impact of bad weather.
what are the LIMITATIONS of a break even analysis? It is a “what if” analysis not a crystal ball! She cannot be sure how many people will come She might not know how much competition there is She needs to take account of the varying costs of being allowed into the festival
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