Calculating costs, revenue and profits

Summary of chapter 11 in AQA business studies book with the  formula and examples for this section :)

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Chapter 11
Calculating costs, revenue and profits
Price ­ the amount paid by a consumer to purchase one unit of a product
Total revenue ­ the income received from an organisation's activities.
Total revenue = price per unit x quantity of units sold
Profit- the differences between the income of a business and its total costs
Profit = total revenue ­ total costs
Price
Should be set high enough price to cover costs of making a product and have enough for profit
- But higher the price the smaller number of customers likely to buy the product
- Business must find ideal selling price ­ the one that helps he business make profit
Total revenue ­ income ­ revenue ­ sales revenue ­ sales turnover ­ turnover
Total revenue = selling price x quantity
E.g. If selling price is £8 and 5 items sold
Total revenue = £8 x 5 = £40
If TR is £48 and selling price is £4
Quantity sold = $48 ÷ £4 = 12 units sold
If TR IS £60 and quantity sold is 10 units
Selling price = £60 ÷ 10 = £6
Profit
- Profit is prime objectives of most firms
2 ways of improving profit
- increase sales revenue
- decrease costs

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Cost
Classifying costs
2 principle reasons for classifying costs
- To assess the impact of changes in output on the cost of production
- To calculate the costs of making a particular product in a multi- product company
Cost and output
Fixed costs ­ costs that do not vary directly with output in the short run (e.g. rent)
Variable costs ­ costs that vary directly with output in the short run (e.g.…read more

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