Edexcel GCSE Business: Business calculations (1BS0) – 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.

This set follows Pearson Edexcel Level 1/Level 2 GCSE (9-1) Business (1BS0), Issue 2, July 2022, Theme 2 topic 2.4 Making financial decisions, content item 2.4.1 Business calculations. Calculators may be used and workings should be shown. The formulae are not provided in the examinations, so learn them. All businesses and figures are invented.

Links: the Edexcel GCSE Business hub, the printable checklist, the study guide and the revision notes. Try the free diagnostics as well.

Questions

1. Define the term “gross profit”. [2]

2. A garden centre has sales revenue of £68,500 and cost of sales of £41,100. Calculate its gross profit. [2]

3. A toy shop has gross profit of £52,000, other operating expenses of £38,750 and interest of £2,250. Calculate its net profit. [2]

4. A furniture maker has sales revenue of £240,000, cost of sales of £156,000, other operating expenses of £62,400 and interest of £3,600.

(a) Calculate the gross profit margin. [3] (b) Calculate the net profit margin. [3]

5. A café buys a coffee machine for £30,000. It expects profits from the machine of £4,500, £7,000, £8,500 and £10,000 in the next four years. Calculate the average rate of return. [4]

6. The table shows part of the accounts of a gift shop.

Year	Sales revenue (£)	Cost of sales (£)	Gross profit (£)	Gross profit margin (%)
1	150,000	97,500	52,500	35
2	180,000	120,600	?	?
3	210,000	?	73,500	35

(a) Complete the table by working out the three missing values. [3] (b) Identify the year with the lowest gross profit margin. [1]

7. Explain one reason why a profit margin is more useful than a profit figure when comparing a small shop with a large shop. [3]

8. Rowan Lane Bakery gave these figures for two years.

	Year 1	Year 2
Sales revenue	£120,000	£135,000
Cost of sales	£54,000	£64,125
Other operating expenses	£51,000	£58,300
Interest	£1,200	£1,200

In Year 2 the bakery began a half-price offer on cakes every Saturday afternoon. Its butter supplier also raised its prices.

(a) Calculate the net profit margin for each year, to one decimal place. [4] (b) Analyse how the two changes in Year 2 may have affected the bakery’s gross profit margin. [4]

9. Linden Print Studio has £30,000 in savings and is choosing between two printing presses. Press X costs £40,000 and is expected to give total profit of £70,000 over five years, so £10,000 would need to be borrowed. Press Y costs £25,000 and is expected to give total profit of £30,000 over three years.

(a) Calculate the average rate of return for each press. [4] (b) Justify which press the studio should buy. [6]

10. Merrow Gifts owns three shops.

Shop	Sales revenue (£)	Net profit (£)
A	80,000	6,400
B	125,000	11,250
C	52,000	5,200

(a) Calculate the net profit margin of each shop and identify the shop with the highest margin. [4] (b) Outline one reason why the owner may still regard Shop B as more successful than Shop C. [2]

11. Fennel Court Deli has sales revenue of £75,000 and a gross profit margin of 32%. The owner wants a margin of 40% on the same sales revenue.

(a) Calculate the deli’s present gross profit. [2] (b) Calculate the cost of sales needed to reach a gross profit margin of 40%. [3] (c) Explain one way the deli could lower its cost of sales. [3]

12. Copperfield Lane Kayaks hires out kayaks to visitors. Its sales revenue is £210,000, with a gross profit margin of 42% and a net profit margin of 6.0%. The owner could spend £48,000 on a second fleet, using savings that now earn 4% a year. The forecast profits from the fleet are £6,000, £9,000, £10,500 and £10,500 over four years. Demand depends on the weather and the number of visitors. Evaluate whether the owner should buy the second fleet. [9]

Answers

1. Gross profit is the profit left [1] after cost of sales has been taken away from sales revenue [1]. [2] Examiner insight: Name both parts of the definition, sales revenue and cost of sales.

2. Gross profit = sales revenue − cost of sales = £68,500 − £41,100 [1] = £27,400 [1] [2] Examiner insight: Show the subtraction, because workings should be given.

3. Costs to deduct = £38,750 + £2,250 = £41,000 [1]. Net profit = £52,000 − £41,000 = £11,000 [1] [2] Examiner insight: The net profit formula takes off both other operating expenses and interest. Answers that miss interest give £13,250.

4. (a) Gross profit = £240,000 − £156,000 = £84,000 [1]. Gross profit margin = £84,000 ÷ £240,000 × 100 [1] = 35.0% [1] (b) Net profit = £84,000 − £62,400 − £3,600 = £18,000 [1]. Net profit margin = £18,000 ÷ £240,000 × 100 [1] = 7.5% [1] [6] Examiner insight: Both margins divide by sales revenue. Dividing the net profit by the gross profit would give 21.4%, which is a different measure.

5. Total profit = 4,500 + 7,000 + 8,500 + 10,000 = £30,000 [1]. Average annual profit = £30,000 ÷ 4 = £7,500 [1]. Average rate of return = £7,500 ÷ £30,000 × 100 [1] = 25% [1] [4] Examiner insight: Divide by the cost of the machine, and count the years given.

6. (a) Year 2 gross profit = £180,000 − £120,600 = £59,400 [1]. Year 2 margin = £59,400 ÷ £180,000 × 100 = 33% [1]. Year 3 cost of sales = £210,000 − £73,500 = £136,500 [1] (b) Year 2 [1] [4] Examiner insight: Work each missing value from the formulae, then check that the table is consistent.

7. A margin is a percentage of sales revenue [1], so the size of the business no longer affects the figure [1]. A small shop with lower profit in pounds can then be compared fairly with a large shop [1]. [3] Examiner insight: An Explain answer states one fact and develops it twice.

8. (a) Year 1: gross profit = £120,000 − £54,000 = £66,000; net profit = £66,000 − £51,000 − £1,200 = £13,800 [1]; margin = £13,800 ÷ £120,000 × 100 = 11.5% [1]. Year 2: gross profit = £135,000 − £64,125 = £70,875; net profit = £70,875 − £58,300 − £1,200 = £11,375 [1]; margin = £11,375 ÷ £135,000 × 100 = 8.4% [1] (b) The half-price Saturday offer lowers the average price per cake [1], so each £1 of sales revenue is spread over more cost of sales and the gross margin falls [1]. Dearer butter raises the cost of sales, which rose 18.75% against a 12.5% rise in sales revenue [1], so the gross margin fell from 55.0% to 52.5% [1]. [8] Examiner insight: An Analyse answer should use the bakery’s figures and link each cause to the margin.

9. (a) Press X: £70,000 ÷ 5 = £14,000 [1]; £14,000 ÷ £40,000 × 100 = 35% [1]. Press Y: £30,000 ÷ 3 = £10,000 [1]; £10,000 ÷ £25,000 × 100 = 40% [1] (b) Press Y has the higher average rate of return, 40% against 35% [1]. It costs less than the £30,000 savings, so no borrowing and no interest is needed [1]. Its forecast runs for three years, not five, so there is less time for the forecast to go wrong [1]. Press X gives the larger total profit (£70,000 against £30,000) [1] and the larger average annual profit (£14,000 against £10,000) [1]. Judgement: Press Y is the better choice because it gives the better return on each £1 spent without the cost of borrowing, although Press X would give more profit if the forecast is reliable [1]. [10] Examiner insight: A Justify answer should recommend one option and use figures for both options. Rate alone, or total profit alone, leaves the argument one-sided.

10. (a) Shop A: £6,400 ÷ £80,000 × 100 = 8% [1]. Shop B: £11,250 ÷ £125,000 × 100 = 9% [1]. Shop C: £5,200 ÷ £52,000 × 100 = 10% [1]. Highest margin: Shop C [1] (b) Shop B earns the largest net profit in pounds, £11,250 [1], because its sales revenue is much larger than Shop C’s, even though its margin is lower [1]. [6] Examiner insight: A margin and a profit figure measure different things. An Outline links two points, here the larger sales revenue and the larger profit.

11. (a) Gross profit = 32% × £75,000 [1] = £24,000 [1] (b) Gross profit needed = 40% × £75,000 = £30,000 [1]. Cost of sales = £75,000 − £30,000 [1] = £45,000 [1] (c) The deli could find a cheaper supplier for its stock [1]. This lowers the cost of each item it sells [1], so cost of sales falls from £51,000 towards the £45,000 target and gross profit rises [1]. [8] Examiner insight: Rearrange the formula, working backwards from the target margin.

12. Total profit from the fleet = £36,000, so average annual profit = £36,000 ÷ 4 = £9,000 [1]. Average rate of return = £9,000 ÷ £48,000 × 100 = 18.75% [1]. The savings earn only 4% a year, so the fleet offers a much higher return for the same money [1]. The business now earns a net profit of £12,600 (6.0% of £210,000), so an extra £9,000 a year on average would be a large boost [1]. Against this, the profits are forecasts and depend on weather and visitors [1], and the average hides that the first year is expected to be lowest at £6,000 [1]. Spending all the savings leaves less cash to deal with a poor season [1]. Judgement: the owner should buy, because the return is well above 4% and the profit gain is large compared with present profit [1]. The owner should do so cautiously, perhaps by checking how bookings held up in wet summers, because the forecast may not be met [1]. [9] Examiner insight: An Evaluate answer needs a supported conclusion. Quote the 18.75% against the 4% alternative, give at least one limitation, then say which factor outweighs the other.

Where marks are usually lost

• Dividing by gross profit, not by sales revenue, when finding a net profit margin.
• Forgetting interest in a net profit calculation.
• Dividing total profit, not average annual profit, by the cost of the investment.
• Using the wrong number of years in the average.
• Writing a margin as a decimal or leaving off the percentage sign.
• Describing a fall from 40% to 37% as a “3% fall” instead of 3 percentage points.
• Answering Analyse, Justify or Evaluate with only a calculation and no comment on what it means for the business.
• Recommending an option without comparing it with the alternative.

Next steps

• Re-read the revision notes and the study guide.
• Go to the Edexcel GCSE Business hub and tick off the printable checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class if you would like help from a teacher.

Frequently asked questions

Which part of Edexcel GCSE Business (1BS0) do these questions cover? Content item 2.4.1 Business calculations in Theme 2: gross and net profit, profit margins and average rate of return. The formulae are not provided in the examinations, so learn them.

What do both profit margins divide by? Both the gross profit margin and the net profit margin divide by sales revenue. Dividing net profit by gross profit is a common mistake.

What is the common mistake in average rate of return calculations? Dividing total profit, rather than average annual profit, by the cost of the investment, or using the wrong number of years in the average.

What is the difference between a percentage change and a change in percentage points? A fall in a margin from 40% to 37% is a fall of 3 percentage points, not a “3% fall”. A percentage change compares the change with the starting figure.

What does an Analyse, Justify or Evaluate question need after the calculation? A comment on what the figures mean for the business, and for Justify, a comparison with the alternative option before recommending one.

Official syllabus

Pearson Edexcel Level 1/Level 2 GCSE (9-1) in Business (1BS0), Specification, Issue 2, July 2022, published by Pearson Education Limited. Theme 2: Building a business, Topic 2.4 Making financial decisions, content item 2.4.1 Business calculations.