Business UNIT 1- Mrs Rees

  • Created by: Rumnique
  • Created on: 25-04-15 17:09

Importance of Profit

  • Profit is the return for taking a risk.
  • Profit measures the success of an investment
  • Profit is an important source of finance (retained profit)

Profit= Total sales(revenue) - Total costs

  • Total SALES GREATER than total costs= PROFIT
  • Total COSTS GREATER than total sales= LOSS
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Calculating Revenue

  • Value of sales acheieved in a given period is the quantity of product.
  • Sold multiplied by the price that the customers paid.

Total Revenue= Selling Price X Quantity Sold

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Increasing Sales

  • Increase quantity sold (cut the prices, elastic)
  • Higher selling price price (inelastic)
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Elasticity of Demand

  • ELASTIC products ARE sensitive to price change, meaning that the demand changes too. 
  • Examples of elastic products would be, Chocolate, Luxury items, technology etc.
  • INELASTIC products are NOT sensitive to price change, therefor the demand stays the same.
  • Examples of INelastic products would be things like, Petrol, bread, necessities.
  • Petrol is INELASTIC because people still need petrol even when the price fluctuates up or down.
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Factors That Will Affect The Price That Can Be Cha

  • Availability 
  • Loyal Customers
  • Demand
  • Recession
  • Quality
  • Competitors
  • Alternatives
  • Brand
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  • Entrepreneurs need to know what it costs to produce a good or service.
  • Costs of marketing
  • How high are the overheads (bills)
  • Opportunity costs
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Importance of Costs

Costs are important because they...

  • Drain away profit
  • cause of cash flow problems
  • difference between making a profit margin
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Variable and Fixed Costs

Variable Costs

  • Costs that vary with output in the short run.

No sales = No Variable costs 

Semi- Variable Costs

  • Fixed up to a point then cost you more. (phone bills)

Calculating costs - Total costs

Fixed Costs

  • Keep fixed costs low.
  • Fixed cost increase the risk for a start-up.
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