2.2.2 Sales, revenues and costs

Revenue

Money made from the sale of products

Total revenue = Price x quantity

What are two ways to increase revenue?

Increase quantity sold, achieve a higher selling price by adding value or increasing price

What are costs and why are they important?

The amounts that a business incurs in order to make goods and /or provide services

- They are important because they are the difference between making a good or poor profit margin

- They are the main cause of cash flow problems

- Change as the output or activity of a business changes

What are fixed costs?

Costs which do not change when output varies

Fixed costs increase the risk of a start-up

examples- Rent, salaries, advertising

What are variable costs?

Costs which change as output varies

- Lower risk for a start-up

Examples- Raw materials, wages based on hours worked, bought-in-stocks

What are semi-fixed costs?

When some costs are fixed in the short-term but then change once a certain level of output is reached

Examples

- Admin salaries. Rent

What is the equation for total cost?

Total cost = Variable cost + fixed costs