Business revenue & costs

Question 1

What are sales ?

Answer 1

When a customer buys a product sold by a business & ensure survivalQ

Question 2

What is revenue ?

Answer 2

The value of sales over a period of time

Question 3

What is the equation for revenue ?

Answer 3

Selling price x sales volume

Question 4

What is sales volume ?

Answer 4

The quantity of product sold in a particular period of time

Question 5

What is the equation for sales volume ?

Answer 5

Sales revenue / selling price

Question 6

What is sales volume important ?

Answer 6

Can compare trends over time & gauge how well product is performing against forecasts or budgets

Question 7

What are costs ?

Answer 7

The money a business pays out in order to create & sell its products

Question 8

What 4 ways can costs be split ?

Answer 8

1. Fixed costs
2. Direct costs
3. Indirect costs
4. Variable costs
5. Semi-variable costs

Question 9

What are fixed costs ?

Answer 9

Do not vary regardless of changes in production or sales levels

Question 10

What are direct costs ?

Answer 10

Can be linked to a product or service

Question 11

What are indirect costs ?

Answer 11

Cant be directly linked to a product or service

Question 12

What are variable costs ?

Answer 12

Costs that change in proportion to the amount of output produced or products sold

Question 13

What are semi-variable costs ?

Answer 13

Composed of both fixed & variable costs

Question 14

What is the equation for semi-variable costs ?

Answer 14

Extra fixed costs + extra variable costs

Question 15

What are total costs ?

Answer 15

Total expenses involved in reaching a particular level of production

Question 16

What is the equation for total costs ?

Answer 16

Fixed costs + variable costs

Question 17

What 2 reasons is it important to identify what type of cost a business is paying ?

Answer 17

1. Used correctly in profit & loss account
2. Analyse breakeven point

Question 18

What is the equation for profit ?

Answer 18

Total revenue - total costs

Question 19

What is gross profit ?

Answer 19

Revenue after the cost of sales have been paid off

Question 20

What is the equation for gross profit ?

Answer 20

Revenue - cost of sales

Question 21

What is operating profit ?

Answer 21

How much profit has been made in total from trading activities after deducting other operating expenses

Question 22

What is the equation for operating profit ?

Answer 22

Gross profit - other operating expenses

Question 23

What is net profit ?

Answer 23

Revenue after all expenses have been paid off

Question 24

What is the equation for net profit ?

Answer 24

Operating profit - interest

Question 25

What is breakeven ?

Answer 25

Point when a business doesn't make a profit or loss

Question 26

What is breakeven analysis ?

Answer 26

Studying revenue & costs of a business at all possible levels of output to establish the dividing point between loss & profit

Question 27

What is contribution ?

Answer 27

Surplus made on each product sold by business & how many product need to be sold to cover fixed operating costs

Question 28

What is the equation for contribution ?

Answer 28

Selling price - variable costs per unit

Question 29

What is the equation for total contribution ?

Answer 29

Contribution per unit x number of units sold

Question 30

What is the equation for profit in terms of contribution ?

Answer 30

Total contribution - fixed costs

Question 31

What is the breakeven point ?

Answer 31

Where total costs are equal to total revenue

Question 32

What is the equation for breakeven point ?

Answer 32

Total revenue - total costs

Question 33

What is the equation for breakeven output ?

Answer 33

Total fixed costs / contribution per unit

Question 34

What is a breakeven chart ?

Answer 34

Graphical representation of total costs & total revenue at all possible levels of output

Question 35

What is the steps to construct a breakeven chart ?

Answer 35

1. Draw axis 2. Label vertical & horizontal axis 3. Plot fixed costs = straight line 4. Plot variable & total costs 5. Plot sales revenue 6. Find breakeven output where revenue & costs cross

Question 36

What is margin of safety ?

Answer 36

Difference between actual level of output & breakeven output

Question 37

What is the equation for margin of safety ?

Answer 37

Current output - breakeven point

Question 38

What are 4 interpretations of a breakeven chart ?

Answer 38

1. Profit can be estimated = vertical difference of revenue & total costs 2. Breakeven point = revenue & total costs lines cross 3. Margin of safety shown 4. Sales of products vary constantly

Question 39

What 4 ways can a breakeven chart be affected ?

Answer 39

1. Price rise 2. Rise or fall in demand 3. Rise in variable costs 4. Fall in fixed costs

Question 40

What are 3 advantages of using breakeven ?

Answer 40

1. Business & investors can do 'what if' analysis of objectives 2. Business, senior managers & investors compare predicted & actual performance & investigate deviations from expectations 3. Effect on breakeven point can be considered & target areas of perceived weakness

Question 41

What are 4 disadvantages of using breakeven ?

Answer 41

1. May be based on unrealistic assumptions 2. Assumes sales are same as output 3. Assumes variables costs are same at every level of output 4. Simplification of reality = fine as prompt but not precise predictor