Business Studies (Chapter 6)- Business Costs And Revenue

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1

Why must a business know the costs

-Calculate profit and loss
-Make decisions

2

Fixed Costs

Costs that have to be paid by the business whether the business has made sales or not

3

Variable costs

Costs that vary with the number of items sold

4

Total costs

Fixed+Variable costs

5

Break Even charts

-Show the costs and revenue of a business
-Show the level of sales a business must make to break even (cover all costs, but no profit)

6

Revenue (Give formula)

The income during a period of time for the sales of goods and services

Quantity Sold x Price

7

Break Even Point

Total costs= total revenue

8

What are the advantages of break even charts

-Cam find out expected profits or loss
-Impacts on profits and loss can from business decisions can be seen
-Shows the safety margin

9

What are the disadvantages of break even charts

-Only makes the assumption that all goods are sold
-Fixed costs only remain constant if scale of production does not change
-Only concentrate on the break even level
-Makes the assumption that the factors can be drawn on a straight line

10

Contribution

Selling price less than variable costs

11

State the formula for break even

Total fixed costs/contribution per unit

12

Direct costs

Costs that are directly related to a product

13

Marginal costs

Extra costs a business will have by producing one more unit of output

14

Indirect costs

Costs that are directly related to the product

15

Economics of scale

Factors that lead to a reduction in average costs as a business increases in costs

16

State the five economies of scale

-Purchasing
-Managerial
-Technical
-Marketing
-Finance

17

State the two diseconomies of scale

-Low morale
-Poor communication

18

Forecasts

Predictions of the future

19

Budgets

Plans for the future containing numerical or financial targets

20

What are the advantages of budgets?

-Provide specific targets
-Control business performance
-Allow greater participation in budget planning
-Help control the business