13. Costs, revenue, profit and contribution

What is revenue and what is its equation?

The amount of money which receives from selling its product and can be referred to as total revenue

Selling price x quantity sold = total revenue

What are costs and what can they be classified as?

Businesses expenses these might include wages, raw materials insurance or rent. Cost can be classified as fixed costs, variable costs, semi variable costs, direct costs, or indirect costs (overheads.)

What is profit and loss and what is the equation for it?

One of the main reasons why firms calculate their costs under revenue is to enable to work out the profit or loss. Profit is the difference between revenue and costs.

Profit = total revenue-total costs

What are fixed costs and some examples?

Costs that do not vary output no matter how much is made or how this is sold they still have to be paid e.g. rent council tax business rates salaries wages

What are variable costs and example examples?

Costs that vary indirect proportion to output as output increases variable cost increase as output falls variable costs fall e.g. raw materials shipping packaging wages if zero our contracts

What are semi variable costs and examples?

Cost that are made up of two cut to cost components subtracted by a fixed component and a variable component such costs vary without port or increased business activity but not indirect proportion to it e.g. a phone bill or utility bill

What are direct costs and example examples?

Costs which can be identified with a particular product or process e.g. can be directly related to producing specific goods or performing a specific service these are usually variable costs e.g. raw materials shipping costs and more

What are indirect costs and examples?

They are incurred by the whole business and it is not possible to associate these costs directly with particular products or processes e.g. costs that cannot be specifically allocated to a specific unit or area of production. These are generally fix costs, e.g. rent salaries or wages.

What is the equation for variable cost?

Variable costs per unit x Number of units = total variable costs

What is the equation for total costs?

Fixed costs + variable costs = total costs

What is contribution and what is it equation?

It shows how much each unit contributes towards paying fixed costs and once this is covered the profit it is calculated by selling price - variable costs per unit

How to calculate unit contribution

Unit contribution = selling price- variable cost

What is the equation for total contribution?

Total revenue- total variable costs = total contribution