1.3 Business Reveunes, Costs And Profits

Question 1

What does revenue mean?

Answer 1

Revenue is the income that a business receives from sales.

Question 2

What is it important that a business has a steady revenue?

Answer 2

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.

Question 3

What is the equation to calculate revenue?

Answer 3

Revenue = price x quantity

Question 4

What is the meaning of income stream?

Answer 4

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.

Question 5

What does costs mean?

Answer 5

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.

Question 6

Why are costs an important factor?

Answer 6

It will determine whether a start-up business will be viable.

Question 7

What are the two different types of costs?

Answer 7

Fixed costs

Variable costs

Question 8

What does fixed costs mean?

Answer 8

Fixed costs does not change, no matter how many products or services a business sells. They can be identified from the beginning.

Question 9

Given some example of fixed costs.

Answer 9

Insurance, rent, tax and salaries

Question 10

What does variable costs mean?

Answer 10

These are costs that change depending on how many products or services a business sells.

Question 11

Give example of variable costs.

Answer 11

They include costs such as electricity bills and raw materials.

Question 12

Give the equation for total costs.

Answer 12

TC (total costs) = TFC (total fixed costs) + TVC (total variable costs)

Question 13

What is the definition of profit?

Answer 13

Profit is the amount of revenue left over once costs have been deducted.

Question 14

What is the definition of income statement?

Answer 14

A financial statement showing the amount of money earned and spent in a particular period and the resulting profit and loss.

Question 15

How may key stakeholders use income statements?

Answer 15

They can be used to measure the success of a business and identify whether the business is netting its financial targets.

Question 16

How are losses shown in income statements?

Answer 16

Losses are shown in brackets. For example (10,000) means a loss of £10,000.

Question 17

What does gross profit mean?

Answer 17

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.

Question 18

Equation of gross profit.

Answer 18

Gross profit = sales revenue - costs of sales.

Question 19

What does net profit mean?

Answer 19

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.

Question 20

Equation of net profit.

Answer 20

Net profit = gross profit - other operating expenses and interest.

Question 21

What does interest mean?

Answer 21

A percentage of the amount of money borrowed that must be repaid in addition to the original amount borrowed.

Question 22

What is the equation to find interest?

Answer 22

Interest in % = Total repayment - borrowed amount/ borrowed amount x100

Question 23

What other form can interest be in?

Answer 23

Interest can also be a form of revenue when it is pain on money that a business has saved or invested in a bank.

Question 24

What does break-even point mean?

Answer 24

The point at which a business’s revenue exactly matches its total costs.

Question 25

What does the break-even level of output mean?

Answer 25

The amount of products or services that it must sell to reach this point is known as the break-even level of output.

Question 26

What does break-even point in units tell the business?

Answer 26

It tells how many units it needs to sell in order to meet the break even point.

Question 27

Formula for break even point in units.

Answer 27

Break-even point in units= fixed costs/ (sales price- variable)

Question 28

What does break-even point in currency tell the business?

Answer 28

Tells the business how much money needs to be taken to meet the break even point?

Question 29

Formula for break even point in currency.

Answer 29

Break even point in currency= break even point in unites x sales price.

Question 30

What does Margin of safety mean?

Answer 30

The margin of safety is how much sales can fall before the business’s break-even point is reached again

Question 31

Formula for margain of safety.

Answer 31

Margain of safety = actual or budgeted sales - break even sales.

Question 32

What are the three main changes that can have an impact on the business?

Answer 32

1. Revenue increase.
2. Revenue decrease.
3. Costs increase
4. Costs decrease

Question 33

How can an increase in revenue impact a business?

Answer 33

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

Question 34

What impact does revenue decrease have?

Answer 34

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.

Question 35

How can cost increase impact the business?

Answer 35

Affect them negatively unless revenue increases.

Question 36

Why may costs increase?

Answer 36

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.

Question 37

How can cost decrease impact a business?

Answer 37

Immediate benefit as they can make more money per unit sold.

May not benefit if the customer expect price of goods to also decrease.

Question 38

Explain one action that a business can take when revenue decreases.

Answer 38

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.