2.2.2 Financial Planning Flashcards
What are costs
The expenses incurred by a firm in producing and se;;ing its products
Why do managers need to know their costs
Need to know if they are making profit by charging the current price
It allows them to compare actual costs with forecast costs
What are fixed costs
Costs which do not vary directly with level of output
E.g. rent, salaries, advertising
What are variable costs
Costs which vary directly with level of output
E.g. packaging, piece - rate payments, fuel
Total costs =
total fixed costs + total variable costss
Total variable costs:
Variable cost per unit x quantity produced
What is revenue
The amount of money received by a firm for selling a level of output
Total revenue =
Price x quantity sold
Profit =
Total revenue - total cost
Why is profit important
It is a measure of the success of a firm
It is a good source of finance
Investors are more likely to offer funding to a profitable firm
