Revenue, Costs, Profits and Cash | Edexcel A-Level Economics B (9EB0)

Revenue, Costs, Profits and Cash

131 questions
9 subtopics
Theme 1: markets, consumers and firms
Paper 1 and Paper 3

Revenue, Costs, Profits and Cash is examined in Paper 1, Markets and how they work, and in Paper 3, The economic environment and business.

It covers sales volume and sales revenue, fixed, variable, total and average costs, percentage change in revenue, costs and profit, contribution and the break-even point, margin of safety and the limitations of break-even analysis, profit as an incentive: market entry and exit, gross, operating and net profit, profit margins and how firms increase profit and cash flow, cash-flow forecasting and business survival.

Sample questions from Revenue, Costs, Profits and Cash

Answer each one closed book first, then open the answer.

Sales volume and sales revenue

A firm's sales revenue is £81,000 and its selling price is £18 per unit. Calculate its sales volume.

Show the answer
Sales volume is 4,500 units.
Fixed, variable, total and average costs

A firm with fixed costs of £24,000 and a variable cost of £6 per unit produces 5,000 units. Calculate its average cost.

Show the answer
Average cost is £10.80 per unit.
Percentage change in revenue, costs and profit

A firm's sales volume of 12,000 units rises by 15%. Calculate the new sales volume.

Show the answer
The new sales volume is 13,800 units.
Contribution and the break-even point

Define the break-even point.

Show the answer
The break-even point is the level of output and sales at which total revenue exactly equals total costs, so the firm makes neither a profit nor a loss.
Margin of safety and the limitations of break-even analysis

A firm's margin of safety is 2,000 units and its selling price is £25. State the margin of safety in terms of revenue.

Show the answer
The margin of safety is £50,000 of sales.
Profit as an incentive: market entry and exit

Define supernormal profit.

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Supernormal profit is any profit above normal profit, that is, a return greater than the resources could earn in their next best use.
Gross, operating and net profit

State the formula for operating profit.

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Operating profit = gross profit − operating expenses.
Profit margins and how firms increase profit

A firm has an operating profit of £135,000 on sales revenue of £900,000. Calculate its operating profit margin.

Show the answer
The operating profit margin is 15%.

The 9 subtopics

One subtopic is one session. Work down the list.

Subtopic	What it covers	Questions
Sales volume and sales revenue	Sales volume and sales revenue, the formula for sales revenue and calculating revenue, volume and price from it, sales volume against sales value, how a price rise changes revenue, turnover, why revenue alone is a poor measure of success, and promotional discounts.	13
Fixed, variable, total and average costs	Fixed and variable costs, the formulae for total and average cost and calculating each, why average fixed cost falls as output rises, average variable cost, costs when nothing is produced, classifying costs, semi-variable costs, the time period, and falling average total cost.	15
Percentage change in revenue, costs and profit	The formula for percentage change, calculating percentage changes in revenue, costs, profit and sales volume, why profit changes faster than revenue, successive percentage changes and why they cannot be added, percentage changes against percentage point changes, and comparing firms of different sizes.	12
Contribution and the break-even point	Contribution per unit and total contribution, the break-even point and its condition, the contribution formula for break-even output, calculating break-even output, break-even revenue and profit or loss, how changes in price, variable cost and fixed cost move break-even, target profit output, and the break-even chart.	17
Margin of safety and the limitations of break-even analysis	Recall questions on the margin of safety and its formula, calculating it in units, as a percentage and in revenue, what a narrow one tells a manager, and the assumptions break-even rests on.	13
Profit as an incentive: market entry and exit	Profit as an incentive and a signal to other firms, how entry lowers price and profit, normal and supernormal profit, why firms exit loss-making markets and what happens to price, barriers to entry, sunk costs as a barrier to exit, profit as a source of growth finance, and freedom of entry and exit.	12
Gross, operating and net profit	Gross profit and cost of sales, operating profit and operating expenses, profit for the year after finance costs and tax, calculating each, the statement of comprehensive income, why interest follows operating profit, a healthy gross profit alongside a loss, and why profit for the year matters to shareholders.	15
Profit margins and how firms increase profit	Profit against profitability, the formulae for gross profit, operating profit and profit for the year margins and calculating each, working back to cost of sales, a falling operating margin, low-margin supermarkets, raising margins with or without price changes, price cuts and volume, adding value, and cutting costs.	16
Cash flow, cash-flow forecasting and business survival	Cash flow against profit, how a profitable firm runs out of cash, liquidity and working capital, growing and seasonal firms, improving cash flow without more sales, depreciation, cash-flow forecasts, net cash flow and closing balances and calculating them, negative balances, credit sales timing, and identifying credit needs.	18

Revenue, Costs, Profits and Cash is 131 of the 2,933 questions in the guide.Get the guide, £8

How the guide is worked

Answering a question from memory stores it far better than reading the answer again. The guide runs that as a fixed procedure on one subtopic at a time, about twenty minutes a session.

Step 1 · Closed book
Cover the answers. Work through one subtopic and write down what you can. Leave blanks where you have nothing.
Step 2 · Open book
Go back to the top. Read each printed answer and write it out in full, including the ones you had right.
Step 3 · Closed book again
Same questions, same order, from memory. The gap between pass one and pass three is the session result.

Read the full method, the return schedule and the research behind it.