Edexcel GCSE Business Unit 1 – Topic 1(3) Putting A Business Idea into
Practice
Questions
1. What is Tony's main objective likely to be?
( )To help others
( )To provide for his family
( )To be his own boss
( )To maximise sales revenue
2. From the information given in the cash flow forecast calculate the value of A
( )£5,132
( )£2,182
( )£768
( )£644
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3. Which of the following would be the most appropriate response to Jason's cash flow situation?
( )Arrange an overdraft facility with his bank
( )Increase the amount spent on raw materials
( )Take out a 5 year bank loan to cover cash
shortages
( )Do nothing - the cash flow forecast is fine
4. According to the graph, which of the following statements is false?
( )The only month Bennetts made a loss was in
March
( )Sales are greater than costs in 5 of the 6
months
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( )Bennetts total profit was £11,000 over the 6 months
( )The negative cash flow in Jan & Feb shows the
business is in serious trouble
5. The cash flow forecast of a business shows a negative closing balance throughout the next 12
months. Which action would you advise them to take in order to improve the situation?
( )Buy a new piece of machinery to make
more products
( )Move their bank account to a different bank
( )Reduce the credit period given to customers
( )Refuse credit offered by suppliers
6. Which one of the following does not have a direct effect on the total sales revenue for a product?
( )The price of the product
( )The quantity sold of the product
( )The available market size
( )The size of the product
7. Which of these businesses would find it easiest to forecast its likely product selling prices?
( )eBay trader of golf clubs
( )Health club operator
( )Petrol retailer
( )Gold bullion dealer
8. Which of the following is an example of a cash inflow?
( )Buying new stock
( )An increase in cash sales
( )Writing off a bad debt
( )Buying a new photocopier
9. Which of these is a short-term source of finance?
( )Share capital
( )Bank loan
( )Mortgage
( )Bank overdraft
10. A loss on the sale of a single product occurs when...
( )The selling price is less than the cost of the
sale
( )The selling price does not cover the fixed
costs of the sale
( )The selling price is greater than the cost of the sale
( )Total sales of the business are greater than total
costs
11. The weekly revenues of a kebab stall selling 1,500 kebabs at an average price of £3.50 is?
( )£1,530
( )£4,500
( )£3,500
( )£5,250
12. The total revenue for a product in a specific period can be calculated using which one of these
formulae?
( )Total sales less total variable costs
( )Quantity produced x selling price
( )Selling price x variable costs
( )Selling price x quantity sold
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13. Business A has annual fixed costs of £1.2 million. If annual output is 150,000 units and variable cost
per unit of £15, what are the total annual costs?
( )£3,450,000
( )£2,250,000
( )£1,350,000
( )£2,750,000
14. Which one of the following statements about variable costs is true? Variable costs...
( )Arise as direct result of incurring overheads
( )Change in direct relation to changes in output
( )Do not vary in proportion to sales
( )Vary in relation to fixed costs
15. Rachel has just bought a small convenience store in her village. The fixed costs of Rachel's store
would NOT include which one of these?
( )Council tax on the store
( )Payments for shop stocks
( )Wages for store staff
( )Lighting and heating costs
16. Last year a business had sales revenue of £120,000, and incurred total costs of £100,000. This year
it predicts sales revenue will increase by 10%, but total costs are expected to increase by 15%. What
effect will this have on profits?
( )Increase by 5%
( )Increase by £12,000
( )Decrease by £15,000
( )Decrease by 15%
17. Which TWO of the following objectives would be classed as financial objectives?
[ ]To be my own boss
[ ]To survive the first year in business
[ ]To increase sales turnover
[ ]To help others
[ ]To create a business to be proud of
18. Sharon begins trading on eBay, selling a range of hand-made jewelry. Which TWO of these will she
need to finance?
[ ]The council tax on her shop
[ ]The interest received on cash held in the
bank
[ ]The cost of raw materials used in production
[ ]Advertising and other listing charges levied by
eBay
[ ]Cash payments received from customers
19. Identify the TWO factors which would most likely result in a reduction in demand at a luxury
restaurant
[ ]Competitors lower their prices
[ ]The quality of kitchen ingredients goes up
[ ]The restaurant is featured in a national
magazine
[ ]A sales promotion is launched
[ ]A severe economic slowdown is
experienced
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20. Identify the THREE external sources of finance from those listed below:
[ ]Bank loan
[ ]Personal cash of the entrepreneur
[ ]Venture capital
[ ]Retained profits
[ ]Leasing
21. A small unlimited liability business wants to buy three new vans. Which TWO of the following
sources of finance would you recommend?
[ ]Leasing
[ ]Retained profit
[ ]Selling shares
[ ]Venture capital
[ ]Bank overdraft
[ ]Trade credit
22. A business sells 20,000 units at a price of £1.50. It has fixed costs of £14,950 and variable costs of
£1 per unit. Which TWO of the following statements are true?
[ ]The business will not make a loss.
[ ]Their fixed costs are greater than their variable costs
[ ]Their total revenue is greater than their
total costs
[ ]They incur total costs of £34,950
[ ]Total variable costs will be £20,000
[ ]They will make a profit of £4,950
23. Identify THREE important reasons for making accurate revenue forecasts
[ ]To identify whether future trading will be
profitable
[ ]To calculate the dividend required by shareholders
[ ]To justify a substantial advertising campaign
[ ]To estimate what the cash inflows will be for a
period
[ ]To assess whether the business has
sufficient capacity
[ ]To ensure that interest rates are kept as low as
possible
24. Which THREE of the following businesses are best classified as "social enterprises"?
[ ]Ryanair
[ ]One Water
[ ]Friends Reunited
[ ]Churchill Insurance
[ ]Divine Chocolate
[ ]The Coop Bank
25. Which TWO of the following would be classified as being variable costs?
[ ]Buying raw materials
[ ]Mortgage repayments
[ ]Spending on advertising
[ ]Salaries paid to managers
[ ]Heating costs for the office building
[ ]Piece rate wages paid to production workers
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Answers
1
To help others (Providing materials free of charge to students indicates that Tony's main
objective is to help other people)
2
£5,132 (Just add together the amounts for rent, wages and raw materials in month 2)
3
Arrange an overdraft facility with his bank (Jason needs less than £2,000 for a 3 month period,
so an overdraft would be a suitable way of dealing with his short-term cash flow problem).
4
The negative cash flow in Jan & Feb shows the business is in serious trouble – there is no
evidence of the business being in serious trouble
5
Reduce the credit period given to customers (reducing the credit period given to customers
should result in them paying quicker, which will improve the cash flow)
6
The size of the product
7
Health club operator (The health club operator will typically set prices a year in advance and
they will not vary much from year to year. In the other three examples, significant price
volatility can be expected)
8
An increase in cash sales
9
Bank overdraft (a bank overdraft is intended to provide a flexible source of short-term finance)
10
The selling price is less than the cost of the sale
11
£5,250 (revenue = price times quantity sold)
12
Selling price x quantity sold
13
£3,450,000 (variable costs are 150,000 x £15, or £2,250,000. Add the fixed costs of £1,200,000
to these and the total annual costs are £3,450,000)
14
Change in direct relation to changes in output
15
Payments for shop stocks (all the other three are incurred regardless of the amount of trade)
16
Decrease by 15% (the last year's profit figure was £20,000 (£120,000 - £100,000, whilst the
expected profit figure this year is £17,000 (£132,000 - £115,000), which is a decrease of 15%)
17
To survive the first year in business
To increase sales turnover
18
The cost of raw materials used in production
Advertising and other listing charges levied by eBay
19
Competitors lower their prices
A severe economic slowdown is experienced
(If competitors lower their prices, then the restaurant becomes less competitive. An economic
slowdown is likely to reduce demand for all competitors in the market)
20
Bank loan
Venture capital
Leasing
(Personal sources of the entrepreneur and retained profits are considered to be internal
sources of finance)
21
Leasing
Retained profits
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(Both of these are suitable to fund the purchase of new vans)
22
They incur total costs of £34,950
Total variable costs will be £20,000
23
To identify whether future trading will be profitable
To estimate what the cash inflows will be for a period
To assess whether the business has sufficient capacity
24
One Water
Divine Chocolate
The Coop Bank
25
Buying raw materials
Piece rate wages paid to production workers
(Both of these costs will change in direct relation to the number of units produced)
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