Theme 2 Flashcards
Demand
Amount of a product of which a customer is prepared to buy
Revenue
Amount (value) of a product that customers are prepared to buy from a firm
What is the formula for total revenue
Volume sold
x
Average selling price
What are the two ways to increase revenue?
- Increase the quantity sold
- Achieve high selling price
Costs
Something a business incurs when making goods and/ or providing services
Variable costs
Costs change as output varies
Fixed costs
Does not change as output varied
Contribution
Total sales - variable costs
Contribution per unit
Selling price per unit - VC per unit
Total contribution
Contribution per unit x units sold
Margin of safety
After break even has been met, the gap in-between this and max profit
Break even
Fixed cost/contribution
Budget
Financial plan for future concerning revenues and cost of a business
Variance analysis
Difference between budget and actual outcome
Favourable variance analysis
Better than expected
Adverse variance analysis
Worse than expected
Fixed costs
Doesn’t change when output varies
Semi fixed costs
Fixed in short term but change after certain output varies
Profit
Reward for making investments or taking risk
Profit in absolute terms
£ value such as £500000
Profit in relative terms
Percentage value e.g 10%
Gross profit
Revenues - cost of sales
Operating profit
Gross profit - expenditures and overheads
Profit for year (net profit)
After tax and shareholders taking dividends
Current ratio
Current assets / current liabilities
What does below 1 on current ratio mean
Low: cash problems
What would a ratio 1.5 -2 suggest?
Efficient management of capital
Acid test
(Current assets - stocks) / current liabilities
What does pestle stand for? (Economic influences)
P - political E - economy S - social T - technological L - legal E - ethical
What is GDP?
Measure of value output (activity) in the economy
What is inflation?
Sustained increase in average price level of an economy and is measured by annual percentage change in level of prices
Economic uncertainty and factors examples
Russia war Covid Brexit Inflation Interest rates going up Cost of living crisis
