Revenue, Costs, Profits Flashcards
What factors do a business consider when setting a price?
- competitors prices.
- production cost.
- production time.
- psychological pricing.
- shipping costs.
- taxes eg VAT.
What is the equation for total revenue?
Total revenue = price x quantity
Define fixed costs
costs that do not vary directly with output in the short run. eg rent, rates.
Define variable costs
costs that vary directly with output in the short run. eg raw materials, stock.
Define total costs
the sum of fixed costs and variable costs.
Why classify costs?
- to asses the impact of changes in output on the costs of production.
- to calculate the costs of making a particular product in a multi-product company.
How can the link between costs and output be used?
to calculate the financial implications of changing the level of output.
Define gross profit
the profit remaining after subtracting the cost of goods sold from total revenue.
Define operating profit
the profit a company makes from its core business operations, excluding taxes and interests.
Define net profit
the final profit after all expenses, inclusion taxes and interest, have been deducted from total revenue.
Define retained profit
the portion of the net profit that is kept in the company after dividends have been paid out to shareholders.
Why are profits important?
Profit is…
• a reward
• a motivator
• a measure of success
• a guide for future investment
• a source of finance
• attractive to stakeholders
