1.3.2 Business Revenue, Costs and Profit Flashcards
Revenue Formula
Selling Price * Output
Revenue Definition
Value of the units sold by a business
Total Cost Formula
Fixed Costs + Variable Costs
Total Cost Definition
The sum of the variable and fixed costs
Fixed Costs Definition
Costs that do not change with varied levels of output
Variable Costs Definition
Costs that change directly with the output
Advantage of reducing cost
Improve profit
Disadvantage of reducing costs
Less skilled staff as paying lower wages
Profit Formula
Total Revenue - Total Costs
Profit Definition
Money left over once all costs have been paid
Loss definition
If the amount of money available after all costs are paid is less than the breakeven amount
Profit Margin Definition
Amount revenue exceeds costs
Gross Profit Margin Definition
How much percentage of revenue is turned into profit
Gross Profit Margin Formula
Profit / Revenue * 100
Breakeven Point Definition
How many units a business needs to sell before making profit
Breakeven Point formula
Fixed Costsl / Contribution per unit
Contribution Per unit formula
Selling Price - Variable Costs
Contribution per unit definition
How much money from the selling price is contributed to fixed costs
Margin of Safety Definition
How many sales can be lost before the business starts to make a loss
Margin of safety formula
Total Sales - Breakeven Sales
Advantage to breakeven forecast
Shows how risky a product is to sell
Disadvantage to breakeven forecast
Only a prediction so is not the most reliable
