5.3 revenue, costs and profits
- Created by: hanfa
- Created on: 15-09-20 20:32
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- 5.3 revenue, costs and profits:
- revenue: money received from sales
- pays for costs, measure of success determines profits, influences decision making
- revenue=total quantity sold x price at which product is sold.
- costs
- total costs: the addition of total fixed and total variable costs
- variable costs: costs that change as a result of output changing, EG. wage and material costs will increase if more products are made or sold.
- fixed costs: costs that stay the same regardless of a change in output EG. rent for offices, shops, factories or land and the uniform business tax which is a tax based on location of the business
- cost can be minimised by: employing tech instead of workers, finding cheaper suppliers, pay cuts.
- reasons to minimise costs: increase costs, reduce prices, save money for expansion.
- profits: when total revenue is higher than costs
- cost of sales: the cost to the business of producing the goods to sell EG buying stock to sell or buying materials and employing workers to make a product.
- expenses: the costs of operating the business, including wages and salaries, rent or mortgage payments, insurance, heating and lighting and advertising.
- gross profit; revenue-cost of sales
- gross profit margin= (gross profit x100)/ total revenue
- loss; when the costs of a business are greater than the revenue it makes.
- net profit= gross profit-expenses of operating the business.
- net profit= (net profit x100)/ total revenue
- average rate of return: a method of measuring and comparing the profitability of an investment over the life time of the investment
- total revenue from the investment-cost of the investment= profit over the life of the investment
- total profit/ life of investment (years)= average annual profit
- (annual average profit/ cost of investment) x100= annual rate of return
- total profit/ life of investment (years)= average annual profit
- total revenue from the investment-cost of the investment= profit over the life of the investment
- revenue: money received from sales
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