business definitions 2.1

what is contribution

the amount of revenue remaining after taking away variable costs

what is the formula for contribution

sales revenue - variable costs

what are fixed costs

costs that don’t change with level of output

what is a budget

a forward financial plan for costs, profit, revenue

what is adverse variance

the difference between the plan and what actually happens, where actual performance is worse than expected

what is the formula for adverse variance

actual - budgeted

what is zero budgeting

resetting your budget to 0 every year

what are cost of sales

direct costs of producing or buying the goods that the business sells

what is the formula for cost of sales

beginning inventory + purchases - ending inventory

what is gross profit

the profit a business makes after taking away the cost of sales

what is the formula for gross profit

revenue - cost of sales

what is operating profit

the revenue a business makes after taking away cost of sales and fixed costs

what is the formula for operating profit

gross profit - other operating expenses

what is the margin of safety

the difference between the current or planned level of output and the break even level of output

what is the formula for margin of safety

actual sales - break even sales

what is the break even point

the number of units a business must sell to cover all their costs

what is the formula for the breakeven point

fixed costs / selling price- variable cost