1.6 Flashcards
Sales Revenue Formula
Price X Quantity Sold or Price X Sales Revenue
Average Cost
Total Cost / Quantity Sold
What are fixed costs?
All the costs that have to be covered before anything is actually produced. They include capital spending, insurance and premises. Stays the same regardless on how much the business produces.
What are variable costs?
Include the cost of raw materials and other bough in inputs, labour used to create the product, energy / other input directly related to the amount produced.
Total cost
Fixed costs + Variable costs
Profit
Total revenue - Total costs
What is contribution?
The difference between the price of a product and its variable cost. P-VC
Contribution can help pay off the fixed costs of a business. Once break even point is reached, the contribution from the next sale begins to create profit.
Eg a table sells for £150, VC per table is £60, so the business pays a contribution of £90 per table toward paying its fixed costs.
Breakeven Point
Total Fixed cost
————————
Contribution selling price - Variable cost per unit
What is Break- even point
Not a profit or a loss is being made so TR = TC
