1.3.2 revenues, costs + profit

• How to calculate revenue?

  Revenue = Price x Quantity
• What are fixed costs?

  Costs that do not vary with the output produced by a business
• What are variable costs?

  Costs that vary with the level of production or sales
• How to calculate Total costs?

  Total costs = fixed costs + variable costs
• How to calculate Profit?

  Profit = sales revenue - cost
• What does profit allow a business?

  Survival

  Reinvest profits for expansion

  Provide security and safety

  Reward employees

  Generate wealth for the employee

  Can also be an incentive to start a business
• How to calculate Interest on loans?

  Total repayment - borrowed amount divided by borrowed amount X100
• What is break even?

  The point the business makes neither a sale nor a loss - it’s the cross over of total revenue and total costs on a break even graph
• How to calculate break even?

  Fixed costs

  divided by sales price - variable costs
• What are the different lines on a break even graph?

  Fixed costs, total costs, total revenue

  Breakeven - the point total costs and total revenue cross over
• What’s the margin of safety?

  The amount of sales that can fall before the break even point is reached and the business makes no profit
• How to calculate margin of safety?

  Actual sales - break even sales
• How can increasing costs impact a business?

  Increasing costs can negatively impact a business by increasing the break even point, which means the business would have to sell more products in order to make a profit. As a result, they may have to increase prices which may upset customers - making them more susceptible to make a loss