Cost, Revenue, Break-even Flashcards
What are costs?
Money that a business spends on producing its goods or services
What is revenue?
Money that a business receives from selling goods or services
How do you calculate profit?
Profit = Total Revenue - Total Costs
What are start up costs?
Costs that a business must meet before it starts producing and selling products
What are running costs?
Costs that a business must meet during the day to day process of producing and selling its products
Give some examples of start up costs
Van Furniture Market research Premises Installing power Staff training Installing telephone line Advertising
Give some examples of running costs
Staff wages Electricity Rent Insurance Maintenance Phone bill Transport costs Raw materials
What are fixed costs?
Costs which do not vary with output. They have to be paid even if no products are sold
What are variable costs?
Costs which vary with output. They increase every time a product is sold
Give some examples of fixed costs
Rent Salaries Insurance Interest on loans Business rates
Give some examples of variable costs
Raw materials Workers wages Power Packaging Transport Advertising Petrol for deliveries
How do you calculate total costs?
Total costs = Fixed costs + Variable costs
What are the 3 method to calculate the break-even point?
The calculation method
The table method
The graph method
How do you calculate the break even point?
Break-even point = Fixed costs : (Selling price per unit - Variable cost per unit)
How do you calculate profit?
Profit = Total revenue - Total costs
How do you calculate the margin of safety?
Margin of safety = current output level - Break-even output level
What are the advantages of using break-even charts?
1) It is easy to see graphically the point of which total revenue equate to total costs
2) It is easy to see how changes in the cost effect the break-even point
3) It is easy to see how changes in price effect the break-even point
What are the disadvantages of using break-even charts?
1) Figures in the break-even chart are only estimates/forcasts - circumstances may change
2) Fixed cost may not remain fixed over time (rent/interest may rise)
3) Costs rarely stay the same (variable costs may change as output increases)
What are the advantages of constructing a break-even chart on a spreadsheet?
1) Can preform accurate formulae/calculations
2) What if analysis can be made
3) Graphs are easy to read
What are the disadvantages of constructing a break-even chart on a spreadsheet?
1) Initial set up is time consuming
2) Viruses could result in the data being lost
3) Staff training is required
What is break-even
The point at which total revenue is equal to total costs
