Unit 2 Flashcards
(59 cards)
What is Meant by Start-Up Cost
Costs you have when setting up a business e.g. painting, decorating, equipment, fixtures and fittings
What are Operating Costs
Costs you have on a day to day basis with the business-Stock,Wages,Salaries,Rent,Utilities,Broadband
What are Fixed Costs
These cost do not change with output
For example these costs will remain the same if you sell 0 items or 1000 items.
A business has to pay rent on their building each month, regardless of if any customers actually use the business
What are Variable Costs
hese are costs that do change with output
For example if you sell more items, then your cost will increase as a result
If it costs 2p to buy each can of cola from your supplier, then if you sell more cans of cola your costs will start to increase
What are Direct costs
Costs directly related to the production process
What are Indirect Costs
Costs that can not be directly related to the production process
What is the Equation for Total Costs
TOTAL COSTS = FIXED COSTS + VARIABLE COSTS
What is Revenue
A business will generate revenue from the selling of products or services(Selling Price x NO items sold)
What is the Equation for Revenue
Selling Price x NO items sold
What are the 3 types of Revenue
Sales revenue
Interest revenue
Loan revenue
What is Expenditure
anything that the business has to pay out
What are Overhead Costs
the everyday running costs of an organisation
How do you calculate Profit
To calculate profit we need to know the revenue and expenditure of an organization
Profit=Revenue - costs
What is Break Even
The point where a revenue and costs are equal
A new business may view break even as an achievement as it could be difficult to attract new customers at first. It may need to reduce prices to achieve sales
An existing business may view break even as failure, if it has made a profit in previous years. They may have shareholders expecting payment
What does The Breakeven Chart help with
How many items it needs to sell to break even
Predict future profits
Impact change in costs/revenue has
Decisions that may need to be made
Equation For Breakeven
Break even = Fixed costs/(Selling Price - Variable Cost)
What is the impact of on the break even point if
The selling price were to increase
If the selling price were to increase the business should break even quicker as it wont need to sell as many units
What is the impact of on the break even point if
What if variable costs were to increase?
The business would take longer to break even as it would need to sell more units
What is budgeting?
A plan of inflows and outflows in an organization
Expenditure Budget
This is the budget that looks at all the costs
Revenue budget
Money that inflows into the enterprise
Favourable
if you do better than budget
Adverse
worse than budget
Why do you budget?
Purpose
Budgeting allows the enterprise to
Assess how it is performing
Make divisions about performance
Identify areas of weakness
Plan use of finances
