OCR GCSE Business: Finance (J204) – 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 section 5, Finance (5.1 to 5.5), of the OCR GCSE (9-1) Business (J204) specification, Version 2.0 (January 2026). Learn the content first from the Finance study guide and revision notes. Wider Business 2 practice is in the Business 2 practice set. See the course hub, the checklist and the free diagnostics. All businesses and figures are invented.

Questions

1. State two purposes of the finance function in a business. [2]

2. Identify three reasons why a business may need finance. [3]

3. Briarwood Gifts opened last month. The owner has £4,000 of savings but needs £9,000 for stock and a shop fit-out.

(a) State two sources of finance, other than retained profit, that Briarwood Gifts could use. [2] (b) Explain why retained profit is a more likely source of finance for an established business than for Briarwood Gifts. [2]

4. Nethergate Invitations sold 2,400 sets of wedding invitations in a year at £18.50 each. Variable cost is £6.25 per set and fixed costs for the year are £14,000.

(a) Calculate its revenue. [1] (b) Calculate its total costs. [2] (c) Calculate its profit. [1] (d) Define the term fixed cost and give one example. [2]

5. Briarwood Tea Rooms recorded these results.

	Year 1	Year 2
Revenue	£240,000	£264,000
Cost of sales	£150,000	£171,600
Other expenses	£57,600	£62,040

(a) Calculate gross profit and the gross profit margin for each year. [3] (b) Calculate net profit and the net profit margin for each year. [3] (c) Analyse the change in the business’s performance between the two years. [3]

6. Briarwood Tea Rooms plans to buy an oven for £44,000. Forecast profit from it over four years is £4,000, £6,000, £7,000 and £5,000.

(a) Calculate the average rate of return. [3] (b) A second project has an average rate of return of 14%. Explain which project looks better on this measure alone, and one limit of relying on it. [2]

7. Wintergate Pottery Studio charges £45 for a class. The variable cost is £18 per class and fixed costs are £8,370 a month.

(a) Calculate the break-even quantity. [3] (b) The studio considers raising the price to £50. Calculate the new break-even quantity. [2] (c) Explain one way break-even helps the studio make decisions. [2]

8. Coldwell Valeting starts April with £1,500. Cash in and cash out are forecast as follows: April £6,200 in and £7,000 out; May £5,400 in and £6,300 out; June £8,800 in and £6,100 out.

(a) Complete a cash flow forecast for the three months, showing net cash flow and the opening and closing balance each month. [4] (b) Recommend one action the owner could take about the month with the problem. [2]

9. In June, Coldwell Valeting finishes a £12,000 contract and pays £7,500 of costs for it that month. The customer has 60 days to pay. Explain why the business has made a profit but may have a cash problem. [4]

10. Rushbrook Farm Shop has traded for eleven years and made a net profit of £31,000 last year. It needs £24,000 for a new cold store and has £9,000 of retained profit. Option 1 is to use the retained profit and borrow £15,000 at 8% interest a year. Option 2 is to bring in a new partner who will put in £24,000 for a share of future profits. Evaluate the two options and justify which you would recommend. [8]

Answers

1. Any two of: to provide financial information; to support business planning; to support decision making. One mark for each [1] [1]. [2] Examiner insight: Give two separate purposes. Splitting one idea into two wordings does not usually earn a second point.

2. Any three of: establishing a new business; funding expansion; to run the business; recruitment; marketing. One mark for each [1] [1] [1]. [3] Examiner insight: Three clearly different reasons are needed. Naming something like “buying a shop” is a use of the money, so tie it to a reason.

3. (a) Any two of: owners’ capital, a loan, crowdfunding, a new partner, an overdraft, trade credit. One mark for each [1] [1]. In general a share issue is a route for companies, not a new sole trader. [2] (b) Retained profit is profit kept in the business [1]. An established business has traded long enough to have built it up, while a new business has little or none yet [1]. [2] Examiner insight: A source named in (a) should fit the case. A bare list can gain credit, but a link to the new business is stronger.

4. (a) 2,400 × £18.50 = £44,400 [1]. [1] (b) Variable costs = 2,400 × £6.25 = £15,000 [1]; total costs = £14,000 + £15,000 = £29,000 [1]. [2] (c) Profit = £44,400 − £29,000 = £15,400 [1]. [1] (d) A fixed cost is a cost that does not change as output changes in the short term [1]; for example rent, or insurance [1]. [2] Examiner insight: Show each step and state the formula. Showing the method in each part makes your reasoning clear to the reader.

5. (a) Year 1: £240,000 − £150,000 = £90,000, margin 90,000 ÷ 240,000 × 100 = 37.5% [1]. Year 2: £264,000 − £171,600 = £92,400, margin = 35% [1]. Both gross profits and margins correct [1]. [3] (b) Year 1: £90,000 − £57,600 = £32,400, margin = 13.5% [1]. Year 2: £92,400 − £62,040 = £30,360, margin = 11.5% [1]. Both correct [1]. [3] (c) Revenue rose by 10% [1], but gross margin fell from 37.5% to 35%, so cost of sales rose faster than revenue [1]. Net profit fell by £2,040 and net margin by 2 percentage points, so the business keeps less from each pound of sales despite higher revenue [1]. [3] Examiner insight: Analysis answers do best when they quote figures and link cause to effect. Saying only “profit went down” gives little.

6. (a) Total profit = £4,000 + £6,000 + £7,000 + £5,000 = £22,000 [1]; average = £22,000 ÷ 4 = £5,500 [1]; ARR = 5,500 ÷ 44,000 × 100 = 12.5% [1]. [3] (b) The second project looks better, because 14% is higher than 12.5% [1]. ARR ignores risk, and the profit forecasts may be wrong [1]. [2] Examiner insight: State the formula you use, since the specification does not print one. A comparison needs a reason, not just a pick.

7. (a) Contribution = £45 − £18 = £27 [1]; break-even = 8,370 ÷ 27 [1] = 310 classes [1]. [3] (b) Contribution = £50 − £18 = £32 [1]; 8,370 ÷ 32 = 261.56, so 262 classes (rounded up) [1]. [2] (c) Break-even shows how many classes must be sold to cover costs [1], so the studio can judge whether a price or sales target is realistic before committing [1]. [2] Examiner insight: Rounding a break-even quantity down understates what is needed. Linking (c) to a decision, not just a definition, is what separates the answers.

8. (a) April: opening £1,500, net −£800, closing £700 [1]. May: opening £700, net −£900, closing −£200 [1]. June: opening −£200, net +£2,700, closing £2,500 [1]. Opening balances carried forward correctly [1]. [4] (b) May ends £200 overdrawn [1]. Any suitable action with a reason, such as arranging an overdraft to cover the gap, or asking suppliers for longer trade credit [1]. [2] Examiner insight: A closing balance that is not copied to the next opening balance is a common slip. Name the month, and make the remedy fit a short gap.

9. Profit is revenue minus costs: £12,000 − £7,500 = £4,500 [1]. The sale is counted in the revenue for June [1]. Cash flow is money actually received and paid, and the customer has 60 days to pay, so £7,500 leaves in June but nothing comes in [1]. Without enough cash for wages and suppliers, the business may be unable to pay short-term debts, despite the profit [1]. [4] Examiner insight: Use the figures in the case. A general definition of cash and profit gains less than applying both to this contract.

10. Option 1 keeps ownership with the current owner [1] and interest of £1,200 in the first year is small against net profit of £31,000 [1]. It also uses profit the shop has already built [1]. Repayments must still be met even if sales fall, which is a risk [1]. Option 2 needs no repayments and could bring skills [1], but a share of future profit is given up permanently and decisions are shared [1]. Judgement: Option 1 is better, because the shop is established and profitable [1], so it can afford the loan and keeps control; a partner suits better if the owner wanted a shared business or could not afford repayments [1]. [8] Examiner insight: A recommendation that weighs both sides and uses the figures is stronger than a list. A judgement with no reason attached usually gains little.

Where marks are usually lost

• Listing sources of finance without linking them to the business in the question.
• Giving a margin without the percentage sign, or the wrong denominator.
• Using net profit when the question asks for gross profit.
• Averaging profit over the wrong number of years in ARR.
• Rounding break-even down instead of up.
• Forgetting to carry the closing balance into the next opening balance.
• Answering a cash question with a profit explanation.
• Giving one side of an evaluation, or no judgement at the end.
• Leaving out working, so one slip costs the whole answer.

Frequently asked questions

What finance topics are tested in OCR GCSE Business J204? Section 5 of OCR GCSE (9-1) Business (J204) covers the finance function, sources of finance, revenue, costs, profit and loss including margins and average rate of return, break-even, and cash and cash flow.

Should you round break-even output up or down? Round break-even output up to the next whole unit, because selling a fraction of a unit is not possible and rounding down would leave the business just short of covering its costs.

How do you pick the right source of finance in an exam answer? Match the source to how much is needed, for how long, and whether the business is new or established with a profit history. A source with no link to the business in the question earns little credit.

Next steps

• Re-read the Finance revision notes and the Finance study guide.
• Go to the OCR GCSE Business hub or tick off the checklist.
• Find gaps with the free diagnostics.
• Book a free trial class.

Official syllabus

OCR, GCSE (9-1) in Business (J204) Specification, Version 2.0 (January 2026), section 2c, topic 5 Finance, and Appendix 5c, quantitative skills requirement.