6.3 Financial Terms and Calculations

Question 1

Sales

Answer 1

Refers to the number of products sold by a business.

Question 2

Costs

Answer 2

The spending that is necessary to set up and run a business.

Question 3

Fixed costs

Answer 3

Costs that do not change when a business changes its output.

Question 4

Variable costs

Answer 4

Costs that vary directly with the business’s level of output.

Question 5

Total costs

Answer 5

Fixed costs plus variable costs.

Question 6

Profit

Answer 6

Measures the difference between the values of a business’s revenue(sales)and its total costs.

Question 7

Loss

Answer 7

The amount by which a business’s costs are larger than its revenue from all sales.

Question 8

Investment

Answer 8

A business buys an asset such as an factory, in the hope of making a profit from its use.

Question 9

The average rate of return (ARR)

Answer 9

Compares the averagely yearly profit from an investment with the cost of the investment and is started as a percentage.

Question 10

Break-even

Answer 10

The level of production at which a business’s total costs and revenue from sales are equal.

Question 11

Break-even chart

Answer 11

Shows a business’s costs and revenues and the level of production needed to break-even.

Question 12

Margin of safety.

Answer 12

Measures the amount by which a business’s current level of production exceeds its break-even level of output.