Business Revenue, Costs and Break Even

Question 1

Revenue

Answer 1

The money a business makes from sales.

Question 2

Turnover

Answer 2

Revenue

Question 3

TR =

Answer 3

P x Q

Question 4

Fixed costs

Answer 4

Costs that do not vary with output.

Question 5

Variable costs

Answer 5

Costs that vary with output.

Question 6

TC =

Answer 6

FC + VC

Question 7

Difference between cost and price

Answer 7

Cost is what the firm spends to make the product
Price is what the consumer spends to buy the product

Question 8

Indirect costs

Answer 8

Fixed costs

Question 9

Direct costs

Answer 9

Variable costs

Question 10

Examples of fixed costs

Answer 10

Rent
Mortgage

Question 11

Examples of variable costs

Answer 11

Raw materials
Petrol

Question 12

Semi-variable costs

Answer 12

A combination of fixed costs and variable costs such as mobile phone contracts.

Question 13

Profit

Answer 13

The difference between total revenue and total costs.

Question 14

Profit =

Answer 14

TR - TC

Question 15

CPU

Answer 15

Contribution per unit

Question 16

VCpu

Answer 16

Variable cost per unit

Question 17

CPU =

Answer 17

P - VCpu

Question 18

BEP

Answer 18

Break even point

Question 19

BEP =

Answer 19

FC / CPU

Question 20

C

Answer 20

Total contribution

Question 21

TVC

Answer 21

Total variable costs

Question 22

C =

Answer 22

CPU x Q
TR - TVC

Question 23

Predicted profit using BEP

Answer 23

(Predicted sales - BEP) x CPU

Question 24

Margin of safety

Answer 24

The difference between actual output level and BEP, when output is above break-even.

Question 25

Advantages of break-even analysis

Answer 25

Allows use of ‘what-if analysis’
Useful as part of a business plan
Supports applications for loans from banks

Question 26

Disadvantages of break-even analysis

Answer 26

Disregards potential economies of scale
Assumes only one product is produced and sold
Potential wastage from damaged stock or poor quality stock