Costs, profits and revenues Flashcards
COSTS
Expenditure of a firm.
FIXED COSTS (examples)
Do not alter with output e.g. rent, salaries.
VARIABLE COSTS (examples)
Costs that alter with output e.g. fuel, raw materials, wages
SEMI-VARIABLE COSTS (examples)
Have a fixed and variable element to them e.g. vehicle - cost of vehicle and fuel for vehicle.
FORMULA FOR TOTAL COSTS
FC + VC
AVERAGE COSTS *
Total costs divided by the level of production (output) to give the cost of producing a single unit.
What are revenues also known as? (3)
Sales revenue, sales income, sales turnover
FORMULA FOR CALCULATING REVENUE
Quantity sold x Average selling price
What would a reduction in price normally lead to? Why?
An increase in revenue as it would increase quantity sold.
What would an increase in price normally lead to? Why?
Decrease in revenue as less quantity would be sold.
PROFITS
Will make a profit when revenues exceed costs (when revenue is greater awn expenditure.
FORMULA FOR CALCUALTING PROFIT
Total revenue - Total costs
Name and describe the 2 things profit will depend upon
1) Profit Margins: Mark up on its products or the percentage of the price that is profit - supermarkets & petrol stations have very small profit margins.
2) Quantity sold: Usually the greater the quantity sold the greater the profits made.
Name some reasons why profits and knowing a businesses profits is important
- Profits are a measure of success
- Profitable businesses will be seen to sell desirable products and may be more attractive to customers
- Profitable businesses will attract investment more easily
- More likely to get a loan, shareholders, venture capitalist etc.
- More likely to have confidence of suppliers (suppliers will be more willing to trade with the business), suppliers may offer trade credit
- Profitable businesses may easily find a buyer
