Business Revenue and Costs Flashcards
what is sales revenue/turnover?
- the money a business makes from sales
whats the equation for revenue?
quantity sold * selling price
what is the equation for profit?
revenue - costs
what is contribution?
- the difference between income generated from the sales and the variable costs of producing the goods to generate those sales
whats the equation for contribution per unit?
selling price per unit - vc per unit
what are direct costs?
- arise specifically from the production of a product or provision of a service
what are overheads?
- indirect costs
- not directly related to production
what are fixed costs?
- dont vary with output
- only change in the long run
what are variable costs?
- vary in direct proportion to changes in output
what are semi-variable costs?
- contain fixed and variable elements
what is break-even?
- the point where total revenue equals total costs, resulting in neither a profit nor loss
whats the equation for break-even?
fc / selling price per unit-vc per unit
what is the margin of safety?
- how much a producer can reduce output before the business starts to make a loss
whats the equation for margin of safety?
selected level of business activity - break even point
what are 3 advantages of break even analysis?
+ identify the margin of safety
+ can help with gaining finance as part of a business plan
+ cheap and easy to construct
what are 3 weaknesses of break even analysis?
- too simplistic
- assumes all conditions remain unchanged (wages, prices)
- assumes total revenue and cost curves are always linear
