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.
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 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…