1.3 Business Reveunes, Costs And Profits Flashcards
What does revenue mean?
Revenue is the income that a business receives from sales.
What is it important that a business has a steady revenue?
A business needs a steady revenue stream to ensure that it can survive and succeed. It is important for an entrepreneur to be able to predict their business’s revenue so that they know that it can cover its costs and make a profit.
What is the equation to calculate revenue?
Revenue = price x quantity
What is the meaning of income stream?
The source of regular income that a business receives. This could be through the money it receives from customers or other areas such as investment income.
What does costs mean?
Costs are what a business has to pay in order to continue operating.
Costs could include the rent on a shop or office, the cost of hosting and operating an e-commerce website and the costs of the raw materials needed to manufacture products.
Why are costs an important factor?
It will determine whether a start-up business will be viable.
What are the two different types of costs?
Fixed costs
Variable costs
What does fixed costs mean?
Fixed costs does not change, no matter how many products or services a business sells. They can be identified from the beginning.
Given some example of fixed costs.
Insurance, rent, tax and salaries
What does variable costs mean?
These are costs that change depending on how many products or services a business sells.
Give example of variable costs.
They include costs such as electricity bills and raw materials.
Give the equation for total costs.
TC (total costs) = TFC (total fixed costs) + TVC (total variable costs)
What is the definition of profit?
Profit is the amount of revenue left over once costs have been deducted.
What is the definition of income statement?
A financial statement showing the amount of money earned and spent in a particular period and the resulting profit and loss.
How may key stakeholders use income statements?
They can be used to measure the success of a business and identify whether the business is netting its financial targets.
How are losses shown in income statements?
Losses are shown in brackets. For example (10,000) means a loss of £10,000.
What does gross profit mean?
Gross profit is the amount of profit that a business makes on a prod out or service before the costs of producing and selling that product or service are deducted.
Equation of gross profit.
Gross profit = sales revenue - costs of sales.
What does net profit mean?
Net profit is the amount of profit that a business makes on a product or service after the costs of producing and selling that product or services deducted.
Equation of net profit.
Net profit = gross profit - other operating expenses and interest.
What does interest mean?
A percentage of the amount of money borrowed that must be repaid in addition to the original amount borrowed.
What is the equation to find interest?
Interest in % = Total repayment - borrowed amount/ borrowed amount x100
What other form can interest be in?
Interest can also be a form of revenue when it is pain on money that a business has saved or invested in a bank.
What does break-even point mean?
The point at which a business’s revenue exactly matches its total costs.
What does the break-even level of output mean?
The amount of products or services that it must sell to reach this point is known as the break-even level of output.
What does break-even point in units tell the business?
It tells how many units it needs to sell in order to meet the break even point.
Formula for break even point in units.
Break-even point in units= fixed costs/ (sales price- variable)
What does break-even point in currency tell the business?
Tells the business how much money needs to be taken to meet the break even point?
Formula for break even point in currency.
Break even point in currency= break even point in unites x sales price.
What does Margin of safety mean?
The margin of safety is how much sales can fall before the business’s break-even point is reached again
Formula for margain of safety.
Margain of safety = actual or budgeted sales - break even sales.
What are the three main changes that can have an impact on the business?
- Revenue increase.
- Revenue decrease.
- Costs increase
- Costs decrease
How can an increase in revenue impact a business?
Likely to have a positive impact as long as the costs remain the same.
Increased revenues can lead to an increased profit. However, if the costs rise at the same time as revenue rises this could reduce any profit made from increased revenues
What impact does revenue decrease have?
Likely to have a negative impact, unless costs also decrease at the same time.
When a business sees that its revenue is decreasing, the business must do everything they can do decrease their costs.
How can cost increase impact the business?
Affect them negatively unless revenue increases.
Why may costs increase?
If a business rents a shop from a landlord, the cost of rent may rise becoming an increased cost to the business.
Fuel prices may rise which means that it be ones more expensive to manufacture and transport products.
A business may pass on the costs by increasing price of its goods.
How can cost decrease impact a business?
Immediate benefit as they can make more money per unit sold.
May not benefit if the customer expect price of goods to also decrease.
Explain one action that a business can take when revenue decreases.
They can do try reduce the costs as much as possible by turning of the light in unused areas of the shop. This reduces costs of electricity preventing the revenue from being lower than costs indicates loss in profit.
