Revenue, costs, profit and loss

Overview

Revenue, fixed, variable and total costs, profit and loss, gross and net profit and their margins, the average rate of return, and worked calculations for small businesses.

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, and how is it calculated?

   Model answer

   Revenue is the money a business receives from selling its goods or services. Revenue equals selling price multiplied by quantity sold.

2. 2

   A café sells 3,000 coffees a month at £2.80 each. Calculate its monthly revenue.

   Model answer

   The café's monthly revenue is £8,400. 3,000 × £2.80 = £8,400.

3. 3

   What is the difference between fixed costs and variable costs?

   Model answer

   Fixed costs stay the same whatever the level of output, such as rent and salaries. Variable costs change directly with output, such as raw materials.

4. 4

   What are total costs, and how are they calculated?

   Model answer

   Total costs are all the costs of producing a given output. Total costs equal fixed costs plus variable cost per unit multiplied by output.

5. 5

   A T-shirt printer has fixed costs of £2,000 a month and variable costs of £4 per shirt. What are its total costs for 1,500 shirts?

   Model answer

   The printer's total costs are £8,000. Variable costs are 1,500 × £4 = £6,000, plus £2,000 of fixed costs.

6. 6

   How is profit or loss calculated?

   Model answer

   Profit equals total revenue minus total costs. A loss is made when total costs are greater than total revenue.

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