Revenue, costs, profit and break-even Flashcards
define revenue
the monetary value of sales made by a business within a period
what is revenue also known as?
income
turnover
sales reciepts
takings
what is the calculation used to calculate the firm’s total revenue?
total revenue = selling price per unit x quantity sold
what are three ways a business can increase revenue and expand on the first two ones?
increase selling price -
firms may choose to increase selling price to achieve higher revenue from each sale which is favoured by companies and luxury goods or goods that are price inelastic
however this can mean some consumers will choose not to purchase the product at the higher price so can harm overall revenue and a firm is unlikely to be successful if the firm sells a product where there are many direct competitors
decrease selling price -
should lead to an increase in quantity sold
approach taken by firms like supermarkets
firms take this approach when they have many direct competitors and consumers are not especially brand loyal
increase number of goods they sell
define costs
the expenses incurred by a firm in producing and selling its products and is likely to include expenditures such as wages as well as the cost of raw materials needed to produce the products
what categories can a firm’s cost be classified?
fixed costs
variable costs
semi-variable costs
define fixed costs and give examples
costs which do not vary directly with the level of output eg rents, salaries, insurance costs, business rates
this means that fixed costs such as rent will not increase if the firm produces and sells more units
how is fixed costs shown on a graph?
by a flat line on the graph
what is meant by variable costs?
costs that increase in proportion to the amount of output produced
as output increases more raw materials will be required so variable costs will increase and vice versa
what is the formula of calculating total variable costs?
variable costs per unit x quantity sold
how is total variable costs shown on a graph?
as an increasing line which always start at zero
how to workout total costs?
fixed costs + total variable costs
how is total costs shown on a graph?
always start from the fixed costs line
what is meant by semi-variable costs?
some costs are made up as a fixed and a variable aspect
the cost changes with output eg a staff may usually work 38 hrs a week but when it is busy they may work 5 hrs overtime due to high demand
what is meant by direct and indirect costs?
direct costs -
they are costs which can be identified directly with the production of a good/service
costs which arise specifically from the production of a product
eg materials/components, direct labour, expenses such as copyright payments on a published book
indirect costs -
when the production of any product results in paying costs not directly related to each specific product/service provision