4.1 & 2 Flashcards
What is meant by the different costs, running costs, start up costs and opportunity costs ?
Running costs is costs you have to pay regularly over time, costs to run a business.
Start up costs is a cost you only have to pay once set up, paid to start up a business.
Opportunity costs is a benefits or some advantages that must be given up to gain something else.
what is meant by variable, fixed costs and total costs?
Variable costs that does changes depending on how much is produced (output).
E.g raw materials, production supplies, packaging costs
TOTAL VC = VC per unit x OUTPUT
Fixed costs that does not change depending on how much is produced (output).
E.g rent, insurance, salaries
Total costs are total expenses a business has to pay,
FC + VC = TC
What is meant by revenue ?
Money earn from sales
Also referred to as turnover
E.g cash sales, credit sales, interest, royalties
Amount depending on quantity sold and selling price.
REVENUE = SELLING PRICE x QUANITITY SOLD
What is meant by profit ?
Amount you have left after costs are taken away from revenue.
Profit = revenue - TC
Main object be for a business
What is meant by cash flow ?
Movement of money in and out of the business
Cash inflow, includes all receipts of money
Cash received from selling
Cash outflow. Includes all payments made by business
Wages
Net cash flow, difference between inflow and cash outflow
How are Net cash flow and profit ?
Linked but very different to one another
Profit indicates amount of money left over after all expenses have been paid whereas cash flow indicates the net flow of cash in and out of business.
