Business costs and revenue Flashcards
Fixed costs
Costs that do not vary with the number of items being sold
Variable costs
Costs that vary with the number of items being sold
Total cost
Fixed+variable costs
Break-even point
The number of sales needed for total revenue to reach the total cost
Revenue of a business
The income in makes over a period of time from saels
Total revenue
Quantity sold * Price of 1 unit
X axis of break-even charts show:
Units
Contribution of a product
Selling price - Variable costs
Break even level of production:
Total fixed costs / Contribution per unit
Direct costs
Costs that can be directly related with a particular product
Marginal costs
Costs of a business related to more than one product
Average cost per unit
Total costs/total number of sales
Economies of scale
Increase in efficiency (less costs of production) as volume of production increases
Types of economies of scale
- Technological (Better machines = more efficient)
- Marketing (Lower unit cost of advertising due to mass)
- Managerial (Companies can afford specialists that more effectively manage parts of a business)
- Purchasing (Decreased cost per unit due to buying in bulk)
- Risk-bearing (spread risks among different parts of a company to provide fail safes)
Diseconomies of scale
- Low morale
- Poor communication
