Unit 5.3 Revenue, costs, profit and loss Flashcards
How do you work at revenue?
quantity sold x selling price
What are the two types of costs?
Fixed costs and variable costs
What are fixed costs?
Costs that stay the same as the output changes
What are examples of fixed costs?
1) Rent
2) Rates
3) Wages/salaries
4) Insurance
5) Interest on a bank loan
What are variable costs?
Costs that change as the output changes
What are examples of variable costs?
1) stock/ direct materials
2) direct labour
What is the formula for variable costs?
total variable costs = variable cost per unit x output
What are total costs?
all the fixed costs + all variable costs
What are costs?
Payments that a business makes in order to make goods and provide services
What is revenue?
The money from sales
What factors can affect revenue due to price changes?
1) The number of competitors
2) The action of competitors
3) The starting price of the product
How can a business increase revenue?
1) Increasing sales by expanding (e.g. opening more shops) or advertising
2) Increasing product range
What are the two types of profit?
Net profit and gross profit
What is gross profit?
Revenue - cost of sales
What is gross profit margin?
(gross profit/revenue) x 100
What is net profit?
Gross profit - costs of running the business
What is the net profit margin?
(net profit/ revenue) x 100
Why is it important for a business to make a profit?
1) To reward investors
2) To use for future improvement and expansion of the business
How do you calculate the average rate of return?
Step 1: work out profit
profit = revenue - costs
Step 2: calculate the annual average profit
average profit = total profit / number of years
Step 3:
(Annual average profit / cost of investment ) x 100
