Financial Planning 2.2 Flashcards
What is the equation for total revenue?
Quantity sold x selling price
How can a business increase sales revenue?
- Increase price of product
- Put items on sale
- Marketing campaigns
What is the equation for total costs?
Fixed cost + variable cost
What is the equation for the total variable cost?
Variable cost per unit x quantity
What are fixed costs?
Costs that don’t change when a business alters its level of output
- Rent/ insurance
What are variable costs?
Costs that alter directly with the business’s level of output
-Materials/ hourly wages
How can a business cut fixed costs?
- Negotiate with landlord
- Move to cheaper rented area
- Employ less people but maintain services
How can a business cut variable costs?
- Buy cheaper materials
- Bulk purchase products
- Reduce waste
What are semi variable costs?
e.g. transport, electricity, gas
- Cost composed of a mixture of both fixed and variable components
What is contribution?
Difference between sales and variable costs of production
What is the equation for contribution?
Total sales - total variable cost
What is the equation for contribution per unit?
Selling price per unit - variable cost per unit
What is the equation for total contribution?
Contribution per unit x number of units sold
What is the equation for profit?
Total revenue - fixed cost
What is the equation for profit (contribution way)?
Contribution - fixed cost
