Costs and Revenue- Profit- Break even Point Flashcards
What is the formula for REVENUE?
Quantity of goods sold x Average selling price
EG. 100 goods sold at £2 per unit. Revenue = £200
What are Fixed Costs?
The amount paid each month does not change, no matter what the output is and how much is produced.
EG- A salary, Rent
What are Variable Costs?
Never planned to be the same- As units produced increases, so does the variable costs.
Variable costs are directly proportionate to units produced.
EG- A wage, Materials
What is the formula for working out total costs?
Fixed Costs + Variable Costs = Total Costs
What does it mean for a business to Break Even?
When a firm is no longer losing money through production
What is the Break Even Point?
The level at which total revenue equals total costs. At this level of output the business is neither making or losing money.
What is the formula for working out a company’s Break Even Point?
Fixed Costs (divided by) Contribution
Contribution = (Selling price per unit - Variable cost per unit) (TR-VC)
What is Gross Profit?
What is the formula?
GP is the revenue earned by a firm minus the costs incurred.
Sales Revenue - Cost of Sales = Gross Profit
Cost of sales/Direct costs- relates to production i.e. materials
What is the formula for Operating Profit?
Gross Profit - Overheads = Operating Profit
Overheads/Indirect costs- not associated to production i.e. rent
What is Pre-Tax Profit?
What is the formula for working out PTP?
Pre-Tax Profit is the profit a company can show before any tax is taken from the government.
Operating Profits - One off payments = Pre- Tax Profits
One off payments- i.e. buying a van, staff recruitment
