LO2: Finance Flashcards
What is a cost?
The things the business needs to pay for, there are fixed and variable costs.
What are fixed costs and some examples?
Costs that don’t change with output, e.g.
* loan repayments
* insurance
* advertising
* salaries
* utility bills
What are variable costs and some examples?
Costs that do change with output, e.g.
* raw materials
* stock
* packaging
How do you work out total costs?
fixed costs + variable costs
What is revenue?
The amount of money a business makes without deducting the costs.
How do you calculate revenue?
selling price x quantitiy sold
What is profit?
The amount of money a business makes after deducting the total costs
How do you calculate profit?
total revenue - total costs
What is break-even?
The point at which a business has covered its costs; its not making a profit or loss
Describe a break even graph
- Output on x axis
- money on y axis
- sales revenue = starts at 0
- fixed costs = staright, horizontal line
- total costs = starts where the fixed costs does
Describe a break even graph
- Output on x axis
- money on y axis
- sales revenue = starts at 0
- fixed costs = staright, horizontal line
- total costs = starts where the fixed costs does
How is break-even used?
Businesses can set a sales target - so that they can reach break-even
Make changes if their break-even point is too high (e.g. cut costs)
