Revenue Costs and Break Even Flashcards
How is contribution calculated?
Selling price - variable cost per unit
Define capacity.
The amount of products a factory can produce.
How can a business increase sales revenue?
Change the price (increase or decrease). Increase the amount sold.
True or false - all firms want to grow.
False - some firms like to operate in a small, local market
As firms get bigger they can employ specialist managers. This is called Managerial economies - true or false?
TRUE
Define break-even level of output.
The level of output at which a business neither makes a profit nor a loss.
Define economies of scale.
As production increases, the average costs of production decrease.
Define variable costs.
Costs that change in direct relation to the quantity produced.
Give three examples of variable costs.
Packaging, raw materials, delivery costs.
Define fixed costs.
Costs that do not change as the number produced changes.
What is the formula for sales revenue?
Quantity sold x selling price
How is profit calculated?
Sales revenue - total costs.
Define margin of safety.
The amount by which a business’ actual output is greater than its break-even output level.
Other than changing the price, how can a business increase the number of products sold?
Increase advertising. Sell in a greater number of outlets. Increase product range.
True or false - sales turnover is another name for sales revenue.
TRUE
What is the formula for average cost?
Total cost/number produced.
True or false - purchasing economies are achieved when buying in large quantities.
TRUE
Give three ways average costs can be reduced.
Reduce materials/stock costs. Increase efficiency. Achieve economies of scale.
Define diseconomies of scale.
This is when the average cost of production rises as the scale of production increases.
How can reducing the price of a product increase sales revenue?
For price elastic goods, significantly more will be sold at the lower price, resulting in more revenue.
Give three reasons why break-even forecasts should be treated with caution.
Forecast costs could be different. Figures are usually for one product. Assumes all output sold.
Give three examples of fixed costs.
Rent, business rates, insurance.
What is excess capacity?
This is when the level of output is below the maximum capacity level.
How are total costs calculated?
By adding all fixed costs and all variable costs at a particular level of output.
Describe what contribution is used for.
Initially it covers fixed costs. Once fixed costs are paid, it becomes profit.
True or false - saving on production through use of better methods and equipment is an example of Technical economies.
TRUE
What is the break-even formula?
Fixed costs / (selling price-variable cost per unit)
Will reducing the price of a price inelastic good increase sales revenue?
No - it is inelastic so demand won’t increase.
True or false - diseconomies of scale occur when a firm becomes too big to be managed efficiently.
TRUE
