Financial objectives and sources of finance: Practice Questions

Which of the following is classified as an internal source of finance for an established business?

A firm budgeted its raw material costs at \( £50,000 \) for the quarter. Due to an unexpected supplier price hike, the actual raw material costs amounted to \( £58,000 \). How should this budget variance be classified?

A company has the following balance sheet information:
Total equity: \( £600,000 \)
Non-current liabilities: \( £400,000 \)
Current liabilities: \( £100,000 \)
Operating profit: \( £120,000 \)
What is the company's Gearing ratio?

A company manufactures wooden chairs with a fixed cost of \( £60,000 \) per year. The selling price per chair is \( £50 \) and the variable cost per chair is \( £20 \). What is the break-even level of output?

A company's Statement of Financial Position shows current assets of \( £240,000 \) and current liabilities of \( £160,000 \). What is the company's Current Ratio?

A firm's annual financial records show trade payables of \( £40,000 \) and cost of sales of \( £365,000 \). Calculate the business's payables days.

A manufacturer sells a product for \( £50 \) per unit with variable costs of \( £20 \) per unit. The annual fixed costs are \( £180,000 \), and the business currently produces and sells \( 8,000 \) units per year. Calculate the business's margin of safety in units.

A company reports the following financial data for the year:
• Revenue: \( £800,000 \)
• Cost of sales: \( £480,000 \)
• Operating expenses: \( £200,000 \)
• Total equity: \( £400,000 \)
• Non-current liabilities: \( £200,000 \)

Calculate the company's Return on Capital Employed (ROCE) and its gearing ratio.

A company manufactures and sells a single product. It provides the following financial figures for its monthly operations:

Selling price per unit: \( £40 \)
Variable cost per unit: \( £25 \)
Monthly fixed costs: \( £18,000 \)
Current monthly output: \( 1,600 \text{ units} \)

(a) Calculate the contribution per unit.
(b) Calculate the monthly break-even level of output in units.
(c) Calculate the current monthly margin of safety in units.
(d) Calculate the total monthly profit at the current output level of \( 1,600 \text{ units} \).

The financial performance data for a retail business for the year ended 31 December 2023 is summarized below:

Revenue: \( £600,000 \)
Cost of sales: \( £360,000 \)
Operating expenses: \( £150,000 \)
Total equity: \( £250,000 \)
Non-current liabilities: \( £150,000 \)

(a) Calculate the Gross Profit and the Gross Profit Margin (expressed as a percentage).
(b) Calculate the Operating Profit and the Operating Profit Margin (expressed as a percentage).
(c) Calculate the Return on Capital Employed (ROCE) for the business.
(d) Calculate the Gearing ratio of the business.