Calculating revenue, costs and profit
- Created by: nicolepavlou
- Created on: 03-04-14 18:56
Revenue: the value of total sales made by a business within a period, usually one year.
Costs: Expenses incurred by a firm in producing and selling its products; likely to include expenditure upon wages and raw materials.
Profit: The difference which arises when a firm's sales revenue exceeds its total costs.
Revenues:
When starting, businesses should expect low revenues due to:
- not well known product/service
- unlikely to produce large quantities of output
- difficult to charge high price for a product that's not established on the market
Formula for calculating revenue:
Sales revenue=volume of goods sold x average selling price
In order to keep high revenues from relatively few sales, a business has to be sure that consumers will be willing to pay a high price and that competition won't appear. A way to ensure this is to have a unique, special product/service.
Another way to increase revenue is to charge a low price in order to sell as many products as possible.
Costs of production:
- Managers need to know cost of production to assess whether it's profitable or not to supply the market at the current price.
- They need to know actual costs to allow comparisons with their forecasted(or budgeted) costs of production. This allows them to make judgements concerning cost-effiency of various parts of the business.
Fixed costs:
Fixed costs are costs which don't vary directly with the level of output. They're linked to time rather than the level of business activity. They exist even if a business…
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