Business Calculations (Edexcel GCSE Business): Revision Note

A small skateboard manufacturer sells its products to retailers for £35 per unit. Variable costs are 2/5ths of the selling price, with monthly fixed costs being £4,200. It sells 1,200 skateboards a month. 

Calculate the business's net profit for the year.

(4)

Step 1: Calculate the variable cost per unit

$$\begin{gathered} =⅖of\pounds 35 \\ =\pounds 14 \end{gathered}$$          (1)

Step 2: Calculate the gross profit per unit

$$\begin{gathered} =\pounds 35-\pounds 14 \\ =\pounds 21 \end{gathered}$$ 

Step 3: Calculate the gross profit per month (gross profit per unit x units sold)

$$\begin{gathered} =\pounds 21\times 1,200 \\ =\pounds 25,200 \end{gathered}$$ 

Step 4: Calculate the gross profit per year

$$\begin{gathered} =\pounds 25,200\times 12 \\ =\pounds 302,400 \end{gathered}$$       (1)

Step 5: Calculate the annual fixed costs

$$\begin{gathered} =\pounds 4,200\times 12 \\ =\pounds 50,400 \end{gathered}$$       (1)

Step 6: Subtract fixed costs from gross profit

$$\begin{gathered} =\pounds 302,400-\pounds 50,400 \\ =\pounds 252,000 \end{gathered}$$ (1)

You may not be asked to complete all of these calculations in one question. The question may, for example, provide the gross profit and some other information and then ask you to calculate the net profit.

Look at the data carefully to ensure you are doing the correct calculation.

Head to Toe Wellbeing’s revenue in 2022 was £124,653. Its gross profit was £105,731.

Calculate Head to Toe Wellbeing Ltd’s Gross Profit Margin in 2022.

(2)

Step 1: Substitute the values into the formula

      $$\begin{gathered} \frac{\mathrm{Gross}\mathrm{Profit}}{\mathrm{Sales}\mathrm{revenue}}\times 100 \\ =\frac{\pounds 105,731}{\pounds 124,653} \\ =0.8482 \end{gathered}$$         (1)

Step 2: Multiply the outcome by 100 to find the percentage

 $$\begin{gathered} =0.8482\times 100 \\ =84.82\% \end{gathered}$$                  (1)

• 84.82% of Head to Toe Wellbeing’s revenue was converted into gross profit during 2022

Head to Toe Wellbeing’s revenue in 2022 was £124,653. Its net profit for the year was £57,596.

Calculate Head to Toe Wellbeing Ltd’s Net Profit Margin in 2022.

(2)

Step 1: Substitute the values into the formula

$$\begin{gathered} \frac{\mathrm{Net}\mathrm{Profit}}{\mathrm{Sales}\mathrm{revenue}}\times 100 \\ =\frac{\pounds 57,596}{\pounds 124,653} \\ =0.4621 \end{gathered}$$        (1 )

Step 2: Multiply the outcome by 100 to find the percentage

$$\begin{gathered} =0.4621\times 100 \\ =46.21\% \end{gathered}$$        (1 )

• 46.21% of Head to Toe Wellbeing’s revenue was converted into profit for the year

The table below contains information about a new piece of machinery that a business wants to buy

Calculate the average rate of return, You are advised to show your workings.

(2)

Step 1: Insert the values into the formula

$$\begin{gathered} \mathrm{ARR}=\frac{\mathrm{average}\mathrm{annual}\mathrm{profit}}{\mathrm{initial}\mathrm{outlay}}\times 100 \\ =\frac{\pounds 200,000}{\pounds 475,000} \\ =0.42 \end{gathered}$$ (1)

Step 2: Multiply by 100 to get a percentage

$$\begin{gathered} =0.42\times 100 \\ =42\% \end{gathered}$$                 (1)

In 2019 a business sold three products, X, Y and Z. Table 1 shows the sales revenue generated for each of these products.

Table 1

Using the information in Table 1, calculate, to 2 decimal places, the percentage of total sales revenue made by product X in 2019. You are advised to show your workings.

(2)

Step 1: Identify annual sales of product x in 2019

• £300,000 

Step 2: Substitute figures into the formula

$$\begin{gathered} \frac{\mathrm{Sales}\mathrm{revenue}\mathrm{of}\mathrm{product}\mathrm{X}}{\mathrm{Total}\mathrm{sales}\mathrm{revenue}\mathrm{of}\mathrm{all}\mathrm{products}}\times 100 \\ =\frac{\pounds 300,000}{\pounds 1000,000}\times 100 \\ =30\% \end{gathered}$$ (2)

Table 2 contains information about the price of a Toyota Rav 4 car between 2016 and 2018.

(a) Using the information in Table 2, calculate the percentage reduction in the price of a Toyota Rav 4 car between 2016 and 2018.

(2)

Step 1: State the formula to calculate a percentage change

 $\mathrm{Percentage}\mathrm{change}=\frac{\mathrm{New}\mathrm{value}-\mathrm{Old}\mathrm{value}}{\mathrm{Old}\mathrm{value}}\mathrm{x}100$

Step 2: Substitute figures into the formula

 $$\begin{gathered} \mathrm{Percentage}\mathrm{change}=\frac{26,500-32,000}{32,000}\mathrm{x}100 \\ =\frac{-5,500}{32,000}\mathrm{x}100 \\ =-17.12\% \end{gathered}$$ (2) 

(b) Using the information in Table 2, calculate the average price of a Toyota Rav 4 car over the three year period between 2016 and 2018. 

(2)

Step 1: State the formula to calculate an average

$\mathrm{Average}\mathrm{price}=\frac{\mathrm{Sum}\mathrm{of}\mathrm{all}\mathrm{prices}}{\mathrm{Number}\mathrm{of}\mathrm{price}\mathrm{points}}$

Step 1: Insert values into an average formula

 $$\begin{gathered} =\frac{32,000+29,000+26,500}{3} \\ =\frac{87,500}{3} \\ =\pounds 29,166.67 \end{gathered}$$ (2)