4.2 Revenue and Costs

Question 1

What is business revenue?

Answer 1

The income that a business receives from selling its products.

Question 2

How is business revenue calculated?

Answer 2

By multiplying the quantity of products sold by the average selling price.

Question 3

If a car manufacturer produces 10,000 cars and sells them at an average price of 20,000, what is the revenue for the year?

Answer 3

200 million (10,000 x 20,000).

Question 4

Fill in the blank: Business revenue is calculated by multiplying the quantity of products sold by the _______.

Answer 4

[average selling price]

Question 5

What is price in a business context?

Answer 5

Price is the amount a business asks a customer to pay for a single product.

Price reflects the value assigned to a product by the seller.

Question 6

What factors influence the price set by a business?

Answer 6

• The prices set by other businesses for similar products
• The cost to produce the good or service that the business sells

These factors ensure that the pricing strategy remains competitive and sustainable.

Question 7

What does sales mean?

Answer 7

The number of products sold by a business over a period of time e.g. a week, month or year.

Sales can be quantified in various time frames depending on the business context.

Question 8

Provide an example of sales in a business context.

Answer 8

A private dentist treating 125 patients in a week, achieving sales of 125 for that week.

This example illustrates how sales can be measured in service industries, not just product sales.

Question 9

How are sales different from revenue?

Answer 9

Sales are not stated in terms of money; revenue is sales expressed in monetary terms.

Understanding the difference is crucial for financial analysis and reporting.

Question 10

What are costs in the context of a business?

Answer 10

Costs are the spending which is necessary to set up and run a business

Costs represent the financial resources invested in various business activities.

Question 11

What are the two types of costs a business normally has to pay?

Answer 11

• Fixed costs
• Variable costs

Fixed costs remain constant regardless of the level of production, while variable costs fluctuate with production volume.

Question 12

True or False: Costs can only go up.

Answer 12

False

It is important to remember costs can go both up and down.

Question 13

Fill in the blank: A business has to pay _______ costs and _______ costs.

Answer 13

• Fixed costs
• Variable costs

These categories help in understanding the financial structure of a business.

Question 14

What are fixed costs?

Answer 14

Costs that stay the same regardless of the amount of goods produced.

Question 15

List three examples of fixed costs.

Answer 15

• Rent
• Business rates
• Insurance

Question 16

True or False: Fixed costs vary based on the quantity of products produced.

Answer 16

False

Question 17

Fill in the blank: Fixed costs have to be paid regardless of whether a business is producing and selling _______.

Answer 17

[small or large quantities of its products]

Question 18

What are variable costs?

Answer 18

Costs that change with the amount the business produces.

Question 19

Give an example of a variable cost.

Answer 19

Cost of raw materials.

Question 20

How do variable costs change with production levels?

Answer 20

They rise as more output is made.

Question 21

How can you calculate a business’s total variable cost?

Answer 21

Multiply the variable cost of producing a single unit by the number of units output.

Question 22

If the variable cost of making a kettle is £15, what is the total variable cost for producing 30,000 kettles?

Answer 22

£450,000.

Question 23

Fill in the blank: The total variable cost can be calculated as _______ multiplied by the number of units output.

Answer 23

the variable cost of producing a single unit.

Question 24

What are total costs?

Answer 24

Total costs are a business’s expenditure over a period of time.

Total costs include both fixed and variable costs.

Question 25

How do you calculate total costs?

Answer 25

Total costs are calculated by adding together fixed and variable costs. ## Footnote This calculation gives the total costs a business has to pay over a certain period of time.

Question 26

If a business has variable costs of £350,000 and fixed costs of £405,000, what are its total costs?

Answer 26

The total costs would be £755,000 (£350,000 + £405,000). ## Footnote This is an example of calculating total costs using specific figures.

Question 27

What are fixed costs?

Answer 27

Fixed costs are expenses that do not change with the level of production or sales. ## Footnote Examples include rent, salaries, and insurance.

Question 28

What are variable costs?

Answer 28

Variable costs are expenses that vary directly with the level of production or sales. ## Footnote Examples include raw materials and direct labor.

Question 29

What is profit?

Answer 29

The surplus left from revenue after paying all costs. ## Footnote Profit is calculated as total revenue minus total costs.

Question 30

How is the total amount of profit calculated?

Answer 30

By deducting total costs from revenue. ## Footnote For example, if total revenue is £100,000 and total costs are £80,000, profit is £20,000.

Question 31

What happens if the revenue from sales is not enough to cover costs?

Answer 31

A loss is made. ## Footnote For example, if total revenue is £60,000 and total costs are £90,000, the loss is £30,000.

Question 32

Fill in the blank: A loss occurs when revenue from sales is not enough to cover all the _______.

Answer 32

costs

Question 33

True or False: Trading guarantees profit.

Answer 33

False