Costs/revenue/profit

• What topic is covered in this lesson?

  Business revenues, costs, and profits
• What will students learn in this lesson?

  Concepts of revenue, costs, and profits
• What is revenue?

  Money received from sales of goods/services
• What does revenue include?

  Discounts and deductions for returns
• What is the formula for calculating revenue?

  Revenue = Price × Quantity
• If 1,000 items are sold at £20 each, what is the total revenue?

  £20,000
• What is a fixed cost?

  Expense that does not change with production
• What are variable costs?

  Costs that change with production output
• How do variable costs behave with production volume?

  They increase with higher production volume
• How is total cost calculated?

  Total cost = Fixed costs + Variable costs
• What is a profit and loss account?

  Report showing revenue and expenses over time
• What is total cost?

  Sum of fixed, variable, and overhead expenses
• What does a profit and loss account indicate?

  Whether a business made a profit or loss
• What is net income?

  Income after deducting costs and taxes
• What is gross profit?

  Total revenue minus cost of goods sold
• What is operating profit?

  Profit after operating expenses are deducted
• How is net profit different from net income?

  Net profit is after all expenses deducted
• How is net profit calculated?

  Net income - costs of sales - overheads
• What is interest?

  Fee paid for borrowing money
• What is break-even level of output?

  Production level achieving zero economic profit
• How is break-even output determined?

  Total revenue matches total costs incurred
• What does a break-even chart illustrate?

  Fixed costs, variable costs, total costs, revenue
• How do you calculate the break-even point?

  Graph fixed costs, variable costs, total revenue
• What is margin of safety?

  Sales above the break-even point
• How is margin of safety expressed as a percentage?

  Margin of safety = (Current sales - BE) / Current sales × 100
• What are the key components of a profit and loss account?

  • Total income
  • Total expenses
  • Profit or loss determination
  • Used for tax calculations
• What are the differences between fixed costs and variable costs?

  Fixed Costs:

  • Do not change with production volume
  • Examples: Rent, salaries, insurance

  
  

  Variable Costs:

  • Change with production output
  • Examples: Raw materials, commissions, shipping
• What is the significance of break-even analysis in business?

  • Determines the minimum sales needed to avoid loss
  • Helps in setting sales targets
  • Assists in financial planning and risk assessment
• What are the steps to create a break-even chart?

  1. Identify fixed costs
  2. Determine variable costs per unit
  3. Calculate total costs
  4. Plot total revenue
  5. Identify break-even point
• What is the impact of changes in revenue and costs on profit?

  • Increased revenue leads to higher profit
  • Increased costs reduce profit
  • Understanding this helps in decision-making