AQA AS-Level Business: Financial management (7137) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover 3.1.4 Financial management in AQA AS Business (7137), for first teaching from September 2026, checked on 5 November 2026 against AQA’s 7137/7138 specification, Version 1.1 (November 2025), and its annex of formulae. Revise first with the study guide and the revision notes. Course hub: AQA AS Business. Checklist: AQA AS Business checklist. For a quick check of where you stand, use all free 10-minute diagnostics. All businesses and figures are invented. Show every step.

Questions

1. Define “profit for the year” and state how it differs from gross profit. [3]

2. Skelmanby Bakery had revenue of £520,000, cost of sales of £301,600, operating expenses of £171,600 and finance costs of £7,800. Tax was 20% of profit before tax.

(a) Calculate the gross profit margin. [2] (b) Calculate the profit for the year margin. [3]

3. Jessup Tools invests £120,000 in a new machine that is expected to add £15,600 to profit each year. Its long-term funding is £180,000 of loans and £420,000 of equity.

(a) Calculate the return on investment. [2] (b) Calculate the gearing. [2] (c) Explain one reason why the owner might set a financial objective that limits the level of borrowing. [2]

4. Crowcombe Garden Centre set a budget for one month and recorded the actual results below.

Item	Budget (£)	Actual (£)
Revenue	36,000	38,700
Materials	14,400	16,200
Wages	9,000	9,450
Overheads	5,000	4,700

(a) Calculate the variance for each item and state whether it is adverse or favourable. [4] (b) Calculate the variance in monthly profit. [2] (c) Explain one limitation of relying on variance analysis. [2]

5. Trelowan Surf School expects the following cash flows. It starts April with £1,500.

	April	May	June
Cash in (£)	9,000	14,000	16,000
Cash out (£)	11,000	12,500	12,000

(a) Calculate the closing balance for each month. [3] (b) Explain how an overdraft could help in April and state one risk of relying on it. [2]

6. Belcaster Pottery sells mugs for £18 each. Variable cost is £7 per mug and fixed costs are £38,500 a year. It plans to make and sell 4,500 mugs.

(a) Calculate the contribution per mug. [1] (b) Calculate break-even output. [2] (c) Calculate the margin of safety, in mugs. [1] (d) Calculate the profit at planned output. [2]

7. Belcaster Pottery considers cutting the price to £16, with other figures unchanged.

(a) Calculate the new break-even output, in whole mugs. [2] (b) Calculate the new margin of safety at 4,500 mugs. [1] (c) Explain one reason why a break-even forecast may be unreliable. [2]

8. Define “debt factoring” and state one advantage and one disadvantage of using it. [4]

9. Wrothamby Wholesale buys £31,500 of stock a month from suppliers on 30 days’ credit and sells £48,000 of goods a month to customers on 60 days’ credit. The business is profitable. Analyse why it may still face cash flow problems. [5]

10. Ambleforth Joinery has long-term funding of £150,000 of loans and £450,000 of equity. It needs £150,000 for a new workshop that should add £21,000 a year to operating profit. A bank offers a loan at 8% a year. Alternatively, a private equity firm would buy new shares. Evaluate which source the owner should choose. [9]

11. Quarrenden Signs has revenue of £300,000 and cost of sales of £180,000, which varies with volume. The owner considers two ways to raise gross profit. Option A is a 10% price rise, which is expected to cut volume sold by 6%. Option B is a change of supplier that is expected to cut cost of sales by 5% with no change in volume. Evaluate which option the owner should choose. [9]

12. A start-up selling reusable lunch boxes online faces several established rivals with low prices. Analyse how crowd funding and market conditions might influence its financial decisions. [6]

13. Hesketh Interiors Ltd has the following figures for its latest year.

Item	£
Revenue	400,000
Cost of sales	240,000
Operating profit	36,000
Inventory	30,000
Receivables	50,000
Cash	10,000
Payables	40,000
Overdraft	20,000
Total equity	200,000
Non-current liabilities	100,000

(a) Calculate the return on capital employed. [2] (b) Calculate the current ratio and the acid test ratio. [2] (c) Calculate the receivables days, to the nearest day. [1] (d) Explain one limitation of using these figures to judge the business’s performance. [2]

Answers

1. Profit for the year is operating profit plus any profit from other activities, less net finance costs (such as interest) and tax [1]. Gross profit is only revenue minus cost of sales [1], so it is calculated before operating expenses, finance costs and tax and is larger [1]. [3] Examiner insight: Name what is deducted; “what is left over” alone does not separate the two measures.

2. (a) Gross profit = 520,000 − 301,600 = £218,400 [1]. Margin = 218,400 ÷ 520,000 × 100 = 42% [1]. (b) Operating profit = 218,400 − 171,600 = £46,800; profit before tax = 46,800 − 7,800 = £39,000 [1]. Tax = 20% × 39,000 = £7,800, so profit for the year = £31,200 [1]. Margin = 31,200 ÷ 520,000 × 100 = 6% [1]. [5] Examiner insight: Show the profit line by line so a reader can see which stage went wrong.

3. (a) ROI = 15,600 ÷ 120,000 [1] × 100 = 13% [1]. (b) Capital employed = 420,000 + 180,000 = £600,000 [1]. Gearing = 180,000 ÷ 600,000 × 100 = 30% [1]. (c) Debt brings a fixed commitment to pay interest and repay [1], which can threaten cash flow if profits fall, so a limit protects the business (or keeps ownership with the owner) [1]. [6] Examiner insight: Dividing debt by equity alone gives a different ratio from the one asked for; use total long-term funding as the denominator.

4. (a) Using budgeted − actual: revenue £2,700 (actual above budget), favourable [1]; materials £1,800 (overspent), adverse [1]; wages £450 (overspent), adverse [1]; overheads £300 (underspent), favourable [1]. (b) Budgeted profit = 36,000 − 14,400 − 9,000 − 5,000 = £7,600 [1]. Actual profit = 38,700 − 16,200 − 9,450 − 4,700 = £8,350, so variance £750 favourable [1]. (c) It shows what differed, not why [1], so managers may act on the wrong cause, for example when the budget itself was unrealistic [1]. [8] Examiner insight: The label depends on the effect on profit, not on the sign: a cost above budget is adverse and revenue above budget is favourable.

5. (a) April: 1,500 + 9,000 − 11,000 = −£500 [1]. May: −500 + 14,000 − 12,500 = £1,000 [1]. June: 1,000 + 16,000 − 12,000 = £5,000 [1]. (b) An overdraft would cover the £500 shortfall so bills could be paid until May’s receipts arrive [1]. Risk: interest is charged and the bank can withdraw or limit it [1]. [5] Examiner insight: Link the finance to the month in the table.

6. (a) 18 − 7 = £11 [1]. (b) 38,500 ÷ 11 [1] = 3,500 mugs [1]. (c) 4,500 − 3,500 = 1,000 mugs [1]. (d) Total contribution = 4,500 × 11 = £49,500 [1]; profit = 49,500 − 38,500 = £11,000 [1]. [6] Examiner insight: Use per-unit variable cost in the contribution step; total variable cost would give a wrong figure.

7. (a) Contribution = 16 − 7 = £9 [1]. Break-even = 38,500 ÷ 9 = 4,277.8, so 4,278 mugs [1]. (b) 4,500 − 4,278 = 222 mugs [1]. (c) Break-even assumes everything made is sold at one price and that costs behave in straight lines [1]; in practice demand may change when price changes or discounts are needed, so the figures may not hold [1]. [5] Examiner insight: Round break-even output up to a whole unit; the margin of safety then shows how thin the cushion has become.

8. Debt factoring is selling unpaid customer invoices (receivables) to a specialist firm for immediate cash [1], with the factor collecting the money later [1]. Advantage: releases cash quickly, improving cash flow [1]. Disadvantage: a fee is charged, which reduces income [1]. [4] Examiner insight: Pair each advantage or disadvantage with a short reason; a bare “cheap” or “costly” is thin.

9. Wrothamby pays suppliers after 30 days but receives customers’ money after 60 days [1], a mismatch of about a month [1]. It must pay £31,500 for stock before the related £48,000 arrives [1], so it may be unable to pay wages or bills despite earning a profit [1]. If it grows, it buys more stock before cash arrives, so the funding gap widens, forcing it to borrow or factor invoices [1]. [5] Examiner insight: Build the chain from timing, to the figures, to the effect on the business.

10. Loan: debt rises to £300,000 of £750,000 funding, a proportion of 40% (from 25%) [1]. Interest is 8% × 150,000 = £12,000, cutting the extra £21,000 to £9,000 [1]. Repayments are fixed even if the workshop under-performs [1], but the owner keeps full control [1]. Share issue: debt falls to £150,000 of £750,000, or 20% [1]; there is no interest or repayment to fund [1], but the private equity firm takes a share of ownership and influence, and may want a share of profits [1]. Judgement: the loan suits an owner confident of the £21,000 and keen to keep control, because the net £9,000 gain is kept entirely and 40% is manageable [1]; the share issue suits an owner worried about sales risk, so the answer depends on confidence in the forecast [1]. [9] Examiner insight: An evaluation is stronger when the decision rests on a stated condition, such as confidence in the forecast.

11. Currently gross profit = 300,000 − 180,000 = £120,000 (40%) [1]. Option A: revenue = 300,000 × 1.10 × 0.94 = £310,200 and cost of sales = 180,000 × 0.94 = £169,200 [1], so gross profit = £141,000, a rise of £21,000 [1]. Option B: cost of sales = 180,000 × 0.95 = £171,000, so gross profit = £129,000, a rise of £9,000 [1]. Risks of A: if volume falls by more than 6%, or rivals hold prices, the gain shrinks [1]. Risks of B: a cheaper supplier may reduce quality or reliability, harming sales [1]. The figures are forecasts, and B is easier to reverse [1]. Judgement: A gives more than twice the gain on the forecasts, so it is preferable if demand is not very price sensitive [1]; test the volume assumption first, and prefer B if it looks doubtful [1]. [9] Examiner insight: Calculate both options before judging; a recommendation supported by the figures from the case is easier to credit than a preference stated first.

12. Crowd funding lets the start-up raise small sums from many people online [1], which reduces dependence on bank loans and interest [1], but it takes marketing effort and fees may apply [1]. Market conditions: strong competition and low rival prices limit the price it can charge [1], so margins are thinner and it may set tighter cost objectives or need cash for promotion [1]. Judgement: fund growth cautiously until margins are proven [1]. [6] Examiner insight: Tie each factor to a specific financial decision, such as the source of finance or the profit target, rather than describing the factor in general.

13. (a) Capital employed = 200,000 + 100,000 = £300,000; ROCE = 36,000 ÷ 300,000 × 100 = 12% [2]. (b) Current assets = 30,000 + 50,000 + 10,000 = £90,000; current liabilities = 40,000 + 20,000 = £60,000. Current ratio = 90,000 ÷ 60,000 = 1.5 [1]; acid test = (90,000 − 30,000) ÷ 60,000 = 1.0 [1]. (c) 50,000 ÷ 400,000 × 365 = 45.6, so 46 days [1]. (d) The figures are historic, so they may not show what will happen next year [1]; they also leave out non-financial factors such as staff morale or brand reputation, and one year gives no trend or competitor benchmark [1]. [7] Examiner insight: Capital employed is total equity plus non-current liabilities; the overdraft is a current liability and is left out.

Where marks are usually lost

• Labelling variances by whether the number is positive or negative, not by the effect on profit.
• Calculating gearing as debt ÷ equity instead of non-current liabilities ÷ capital employed.
• Giving break-even output as a decimal without rounding up to a whole unit.
• Mixing up margin of safety and break-even output.
• One-sided “evaluate” answers with no reasoned judgement.

Next steps

• Re-read the study guide and revision notes.
• Course hub: AQA AS Business.
• Printable list: AQA AS Business checklist.
• Check progress with all free 10-minute diagnostics.
• Book a free trial class.

Frequently asked questions

How do you calculate gearing in AQA AS Business? Gearing (%) = non-current liabilities ÷ capital employed × 100, where capital employed is total equity plus non-current liabilities. Calculating debt ÷ equity instead is a common error.

How do you decide whether a variance is adverse or favourable? Judge it by its effect on profit, not by whether the number is positive or negative: higher revenue or lower cost than budget is favourable, and lower revenue or higher cost is adverse.

Should break-even output be given as a decimal? No. Round break-even output up to a whole unit, because a business cannot sell part of a unit and rounding down would leave it short of breaking even.

What is the difference between break-even output and margin of safety? Break-even output is where total revenue equals total costs. Margin of safety is how far planned or actual output is above break-even. Mixing them up loses marks.

Official syllabus

AQA AS and A-level Business (7137, 7138) specification, Version 1.1 (November 2025), for first teaching from September 2026: section 3.1.4 Financial management and Annex 7, Formulae and key data. Checked against these questions on 5 November 2026.