Business 6.3 Key Terms

Question 1

Revenue

Answer 1

Revenue is the income that a firm receives from selling its goods or services. It is also referred to as ‘turnover’. It is measured by the number of units sold multiplied by the price.

Question 2

Sales

Answer 2

Sales refers to the number of products sold by a business.

Question 3

Costs

Answer 3

Costs are the spending that is necessary to set up and run a business

Question 4

Fixed costs

Answer 4

Fixed costs are those costs that do not change when a business changes its output

Question 5

Variable costs

Answer 5

Variable costs are those costs that vary directly with the business level of output.

Question 6

Total costs

Answer 6

Total costs are fixed costs plus variable costs

Question 7

Profit

Answer 7

Profit measures the difference between the values of a businesses revenue (sales) and its total costs.

Question 8

Loss

Answer 8

Loss is the amount by which a businesses costs are larger than its revenue from all sales.

Question 9

Investment

Answer 9

Investment takes place when a business buys an asset, such as a factory, in the hope of making a profit from its use.

Question 10

The average rate of return (ARR)

Answer 10

The average rate of return (ARR) compares the average yearly profit from an investment with the cost of the investment and is stated as a percentage.

Question 11

Break-even

Answer 11

Break-even is the level of production at which a businesses total costs and revenue from sales are equal

Question 12

A break-even chart

Answer 12

A break-even chart shows a businesses costs and revenues and the level of production needed to break-even.

Question 13

The margin of safety

Answer 13

The margin of safety measures the amount by which a businesses current level of production exceeds its break-even level of output.