Unit 4.2 - revenue and costs Flashcards
What’s the revenue formula?
Selling price x number of goods sold
Define fixed costs.
Costs that do not change with output
Define variable costs.
Costs that change with output
What’s the variable cost formula?
Variable cost x number of goods produced
What’s the total cost formula?
Fixed costs + variable costs
Define total cost.
The full amount spent by a business on producing the goods and services
Define profit.
The amount earned from business activity
What’s the profit formula?
Total revenue - total costs
Define loss.
A loss is when a business spends more than they earn. Total costs is bigger than total revenue
Define break even.
The level of production at which a business’s total costs and total revenue from sales are equal
The point when profit = 0
Define break even chart.
Shows a business’s costs and revenues and the level of production needed to break even
What’s the contribution calculation?
Selling price - variable costs
What’s the break even formula?
Fixed costs/contribution
What’s the formula for contribution per unit?
Selling price - variable costs/number of units produced
How can the break even point decrease? (3)
Increase in price
Fall in fixed costs
Fall in variable costs
Name the advantages (2) and disadvantages (2) of break even.
Helps businesses to decide whether it is worthwhile to provide a good or service
It guides businesses when making decisions, such as whether to increase price or on issues to do with costs
It can be difficult to estimate the contribution certain costs make to the cost of producing an individual good - particularly when the business produces a variety of products
It assumes that price is constant but, in a competitive market, prices may change
Define margin of safety.
The difference between actual output and break even point
Define average rate of return (ARR).
Compares the average yearly profit from an investment with the cost of the investment and is stated as a percentage
What’s the ARR formula?
