Business Revision Notes

costs, fixed cost, variable cost, total cost, break-even point, safety margin

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  • Created by: Leanne
  • Created on: 05-06-11 19:28

COST

Cost:

 The payments a business makes in order to produce their goods and services

Fixed Cost:

Costs that do not change when the busines changes the amount it produces. E.g. raw materials. Do not change with level of output. E.g. Rent, Rates, Salary & Insurance

TOTAL COST = FIXED COST + VARIABLE COST

Variable Cost:

Cost that do not change when the business changes the amount it produces such a s eaw material. Very with output. E.g. Wages & Raw Materials

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BREAK EVEN POINT & SAFETY MARGIN

Break Even Point

The break even point is when total cost = total revenue. The point where your not making a profit or loss.

Break Even Point  = Fixed Costs
                            Variable Costs 

Margin Of Safety

Margin of safety is the difference between the actual level of sales and break even sales. It is the amount by which sales revenue may drop before losses begin.

Margin of Safety = Sales - Break Even Point
                                                 Sales

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