3.6.3 Financial terms and calculations Flashcards
average cost
total
what is fixed costs
- DO NOT CHANGE WITH OUTPUT.
- not immediately affected by a change in the number of products that are made.
- do not change
examples of fixed costs
rattie
sat
in
applejuice
Rent Salaries Insurance Advertising
what are variable costs
- VARY DIRECTLY WITH OUTPUT
- are immediately affected by a change in the number of products that are made.
- The more products you make the higher the variable cost do change
examples of variable costs
cat
make
pankakes
- Costs
- Raw materials
- Packaging wages
calculate total costs
Total fixed costs + variable costs
define revenue
the income gained by a business by selling its goods or services. It is a type of cash inflow.
revenue calculation
Selling price per unit X quantity sold
define profit
Money a business makes from selling its products or services after it has paid all the costs in making and selling them
profit calculation
Total sales revenue -total costs
Define breakeven
When a business has sold just enough goods to cover its costs so it hasn’t made a profit or a loss
Define margin of safety
Difference between break even point and actual sales. How far sales can fall befor the break even point is reached
Advantages of breakeven analysis
- Easy to work out
- Quick
- helps predict how changes in sales affect everything else
- Banks may be more likely to give you a loan
Disadvantages of breakeven analysis
- It can be complicated if more than one product is involved
- if the data is wrong results will be wrong
- it’s only a prediction of how much it needs to sell not how much shit will actually sell
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Three three main types of business investment
- New machinery
- new buildings
- new vehicles
