Cost and profit

• Why is it important for a business to understand its revenue, costs, and profit?

  To manage finances effectively
• What is revenue in a business context?

  Money from selling goods and services
• What are costs in a business?

  Expenses incurred for operations
• How can costs be categorized?

  Into fixed and variable costs
• What is the term for the sum of fixed and variable costs?

  Total costs
• What is profit?

  Money made after costs are deducted
• When is a profit made by a firm?

  When revenue exceeds total costs
• What happens when a firm's total costs exceed its revenue?

  A loss is incurred
• What must a business pay when it borrows money?

  Interest on the borrowed amount
• What is the formula for total costs (TC)?

  TC = FC + VC
• How is revenue calculated?

  Revenue = Quantity x price of 1 Unit
• What is the formula for profit?

  Profit = TR - TC
• What does the interest on loans represent?

  Percentage paid on borrowed money
• What does the acronym TC stand for in business finance?

  Total costs
• What does the acronym TR stand for in business finance?

  Total revenue
• What does FC stand for in the total costs formula?

  Fixed costs
• What does VC stand for in the total costs formula?

  Variable costs
• How does a business calculate its total revenue?

  By multiplying quantity sold by unit price
• What is the relationship between revenue, costs, and profit?

  Profit is revenue minus total costs
• How do fixed costs differ from variable costs?

  Fixed costs remain constant, variable costs change
• What impact does borrowing money have on a business's profit?

  It increases costs due to interest payments