Business revenues, costs and profits

Overview

Revenue, fixed and variable costs, profit and loss, the break even point, break even revenue and the margin of safety, worked calculations, and reading a break even diagram.

What you need to know

Answer each one before you reveal it.

Questions from this subtopic

Each one with the model answer underneath.

1. 1

   What is revenue?

   Model answer

   Revenue is the money a business receives from selling its goods or services. Revenue is also called sales revenue or turnover.

2. 2

   State the formula for revenue and use it to find the weekly revenue of a bakery selling 400 cupcakes at £2.50 each.

   Model answer

   Revenue = price × quantity. The bakery's weekly revenue is £1,000. 400 × £2.50 = £1,000.

3. 3

   What are fixed costs?

   Model answer

   Fixed costs are costs that stay the same whatever the level of output. Rent, insurance and managers' salaries are fixed costs.

4. 4

   What are variable costs?

   Model answer

   Variable costs are costs that rise and fall directly with the level of output. Raw materials and packaging are variable costs.

5. 5

   State the formula for total costs, then find the weekly total costs of a bakery with fixed costs of £300 and variable costs of £0.90 per cupcake when it makes 400 cupcakes.

   Model answer

   Total costs = total fixed costs + total variable costs. The bakery's total costs are £660 a week. £300 + (400 × £0.90) = £660.

6. 6

   How is profit or loss calculated?

   Model answer

   Profit = total revenue − total costs. A business makes a loss when total costs are greater than total revenue.

Other ways to work this

The same content, four other ways.

What is inside Levo

Six ways to work the same material.