Finance Flashcards
How do you calculate revenue?
Multiplying the quantity sold by the selling price
What are direct costs?
Expenses that can be attributed to making a particular product e.g factory labour and raw materials
What are indirect costs?
The general expenses of running the business e.g management salaries, telephone bills and office rent
What are fixed costs?
Do not vary with output. They are mostly indirect costs and have to be paid even if the firm produces nothing
What are variable costs?
Costs that will increase as the firm expands output. They are most indirect costs
What is average cost?
How much each product costs to make
How do you work out average cost?
Divide the total cost by output (number of products made). To make a profit the firm must charge a higher price than this
How do you work out profit?
Revenue - costs
What does a break even chart show?
How much you need to sell
What do you need to draw a break even chart?
Fixed costs
Variable costs per unit
Selling price
What is drawn on the horizontal and vertical axis?
Horizontal - output
Vertical - cost and revenue
What is the order for a break even chart?
Output Fixed costs Variable costs Total costs Total revenue Profit
How do you find the margin of safety?
The gap between the break even output and the actual output
How can you calculate the break even point?
Find the contribution per unit (selling price minus variable cost per unit) then divide the total fixed costs by the contribution per unit
What are the 5 reasons firms need finance?
- Start up capital to but assets needed to run business
- To finance their poor initial cash flow
- Need enough cash to meet the day to day running of the business
- Sometimes customers delay payment
- May need to finance to fund expansion
