Revenue, costs, profit and break-even

Question 1

What is the main aim of a business?

Answer 1

To make a profit

Question 2

What is revenue?

Answer 2

The income that a company receives from the sales of goods or services (also known as turnover)

Question 3

How do you calculate revenue?

Answer 3

Revenue = selling price x quantity (also known as sales volume or number sold)

Question 4

What factors does the price charged for a product or service depend on? (5)

Answer 4

The quality of the product
The USP 
Brand image
The level of competition
The costs of making the product

Question 5

How could an owner of a convenience store increase the revenue? (3)

Answer 5

Increase the selling price
Decrease the selling price to increase quantity sold
Have a wider range of products to appeal to a wider range of people

Question 6

What are costs?

Answer 6

The money spent by the business

Question 7

What are fixed costs?

Answer 7

The costs that do not vary with the level of output (these still have to be paid even if there is no revenue)

Question 8

What are variable costs?

Answer 8

The costs that vary with the level of output

Question 9

What are some examples of fixed costs? (6)

Answer 9

Rent
Interest on loans
Loan repayments
Insurance 
Utility bills
Salaries
Business rates

Question 10

What are some examples of variable costs? (3)

Answer 10

Raw materials
Packaging
Staff wages

Question 11

What is profit? (2)

Answer 11

The money leftover after paying your costs

The difference between revenue and costs

Question 12

When is a loss made?

Answer 12

When the costs are greater than the revenue

Question 13

Why is it difficult for a small business to make a profit in the first few years? (2)

Answer 13

Initial start up costs are high and sales are low

They also have to spend money on promotion to attract new customers

Question 14

How do you calculate profit?

Answer 14

Profit (loss) = revenue - total costs

Question 15

Why is profit important?

Answer 15

It is an important source of finance and a return on the investment by the owner of the business
Without it, you would be making a loss (losing money)

Question 16

What is breaking even? (2)

Answer 16

Selling enough products to cover the costs of making the product
You are neither making a profit or a loss

Question 17

What is the break even point on a breakeven graph?

Answer 17

The point where total revenue = total costs

Question 18

[breakeven graph] How do you describe the finances of the business when the total costs are higher than the total revenue?

Answer 18

The business is making a loss

Question 19

[breakeven graph] When is a business making a profit?

Answer 19

When the actual output is more than the breakeven output

Question 20

How do you calculate the breakeven point?

Answer 20

Breakeven point = total fixed costs / (selling price - variable costs per unit)

Question 21

Why does break even always round up?

Answer 21

If you round the answer to the break even calculation down, that amount will lead to the business making a loss because that number of units is less than breakeven.