Calculating Costs,revenues And Profits Flashcards
A business must set a price that is:
High enough to cover the costs of making the product
Low enough to attract customers
The ideal seeking price is
The one that helps the firm to make the most profit or helps to achieve other aims of the business
Total revenue definition
A measure of the income received from an organisation’s activities
Total revenue =
Price per unit x quantity of units sold
Total revenue may also be described by the following terms
Income Revenue Sales revenue Sales turnover Turnover
Profit definition
The difference between the income of a business and its total costs
Profit =
Total revenue - total Costs
Two ways of improving profit
Increasing sales revenue
Decreasing costs
Total costs definition
The sum of fixed costs and variable costs
Fixed costs definition
Costs that do not vary directly with output in the short run eg rent
Variable costs definition
Costs that vary directly with output in the short run eg raw materials
Within costs if there’s is a 20% rise in output it is assumed that:
Fixed costs do not change
Variable costs change by the same percentage as the change in output (20% in this case)
Fixed costs may include
Machinery Rent and rates Salaries Administration Vehicles Marketing Lighting and heating
Variable costs may include
Raw materials
Wages of operatives/direct labour
Power
Profit margin definition
The difference between the selling price of an item and the cost of making or buying that item
