Topic 3 - Costs and Revenues Flashcards
What is a business model?
A description of the operations of a business, including its plans to increase revenues and control costs
What is revenue?
The receipt from selling a good or service
What does the cost-volume-profit analysis examine?
The relationship between the volume sold, the cost of producing that quantity and the profits from selling
What is the break-even point?
Where total costs and total revenues equal each other.
At this point, no loss or profit is being made
What are variable costs?
Costs that vary directly with the number of items produced or sold.
What are fixed costs?
Also known as overheads, they are the costs to run the business, regardless of how many products are sold.
What is the contribution?
The sum that a particular unit of sales contributes to paying off the fixed costs of a business.
How do you calculate contribution?
It is calculated by deducting the variable cost from the sales revenue.
How to calculate break even sales?
Fixed costs / Contribution
How to calculate marginal costs?
Change in total costs
What are increasing returns?
When the marginal cost is decreasing
What are diminishing returns?
When the marginal costs are increasing
What shape is the ATC curve?
It is U-shapes
Why is the ATC curve u-shaped?
It first decreases as the total fixed costs spread out
It then rises again as average variable costs rise substantially
What is the relationship between MC and ATC
When MC is less that ATC, ATC is falling
When MC is greater than ATC, ATC is rising
