1.3.2 - Business Revenues, Costs & Profits Flashcards
Putting a Business Idea into Practise
What is revenue and what is its formula?
It is the income gained from the selling of goods and services
Quantity × Price
What is variable costs and what are some examples?
Costs that vary with output of products
Eg. raw materials and wages
What is fixed costs and what are some examples?
Costs that don’t change with output of products
Eg. interest on bank loans and salaries
What is the formula for total cost?
Fixed costs + variable costs
What is the formula for profit/loss?
Total revenue - total cost
What is interest and what is its formula?
The cost of borrowing money or the reward for saving money
(Total repayment - borrowed output) ÷ borrowed amount
What is APR?
Annual percentage rate - the amount of interest payable on a loan, each year of the loan. It is used to compare different loans
What is break even output and what is its formula?
The output needed for revenue to equal costs
(Fixed costs) ÷ (Selling price per unit - variable cost per unit)
What is margin of safety?
The difference between actual output and break even output
What is contribution and what is its formula?
The money left over for fixed costs and profit after variable costs are paid for
Selling price per unit - variable cost per unit
What do costs look like on a break even diagram?
FC - straight line horizontal to the x-axis
VC - diagonal line starting from (0,0)
TC diagonal line starting from the beginning of the FC line and parallel to the VC line
What does revenue look like on a break even diagram?
A diagonal line starting from (0,0)
What does profit and loss look like on a break even diagram?
Profit - the area between TR and TC after they cross over
Loss - the area between TR and TC before they cross over
What does BEO and MoS look like on a break even diagram?
BEO - where TR and TC cross over
MoS - area between actual output and BEO on the x-axis
What is another word for fixed cost
Overhead
