2.3.1 Profit Flashcards
gross profit formula
sales revenue - cost of sales
define cost of sales
costs that very with output or level of sales
operating profit formula
gross profit - expenses
net profit formula
operating profit - interest
gross profit margin formula
gp divided by sales revenue x 100
operating profit margin formula
op divided by sales revenue x 100
net profit margin formula
np divided by sales revenue x 100
define profit
difference between total revenue and total costs over a period
factors of sales to increase profits
increase quantity sold
increasing selling price
factors of less vc increase profits
reduced vc per unit
factors of less fc to increase profits
increase output
reduced fc
define outsource
paying for products made by another business
why should quantity sold be increased
higher sales
better use of production capacity
higher market share
will it work if quantity sold is increased
- depends on PeD
- sales value may fall if price has to be reduced
- if capacity is there
why might it not work if quantity sold is increased
- competitors are likely to respond
- marketing efforts fail
- FC may rise
why should selling price be increased
- higher sales
- maximises value extracted
- product perceived as high quality
- no extra capacity needed
will it work if selling price is increased
- depends on PeD
- sales value may fall if price rise is matched by bigger fall in QS
- if customers remain loyal
why might it not work if selling price is increased
- competition are likely to respond
- customers may switch to competitors
why should VC be reduced per unit
- increase value added per unit
- higher profit margin
- customers don’t notice change in price
will it work if VC is reduced per unit
- yes, if suppliers are persuaded to offer better prices
- yes, if quality can be improved
- yes, of operations are organised efficiently
why wont it work if VC is reduced per unit
- lower quality inputs
- customers notice decrease in quality
why should product output be increased
- greater quantity of product to be sold
- maximises share of market demand
- spreads FC
will it work if product output is increased
- yes, if extra output can be sold
- yes, if theres spare capacity
why might it not work if product output is increased
- demand may not be ther
- FC may rise
- product quality compromised
