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Revenue, costs and profit
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Business calculations are a big part of the exam. They all start with three ideas: revenue, costs and profit.
Revenue
Revenue = price × quantity sold
It is the money coming in from sales.
It is the money coming in from sales.
Costs
Fixed costs do not change with output: rent, salaries, insurance.
Variable costs change with output: raw materials, packaging.
Total variable costs = variable cost per unit × quantity
Total costs = fixed costs + total variable costs
Variable costs change with output: raw materials, packaging.
Total variable costs = variable cost per unit × quantity
Total costs = fixed costs + total variable costs
Profit
Profit = total revenue − total costs
If costs are bigger than revenue, the business makes a loss (a negative profit).
Always show your working and use the £ sign.
If costs are bigger than revenue, the business makes a loss (a negative profit).
Always show your working and use the £ sign.
A business sells 500 cakes at £4 each. Fixed costs are £800 and each cake costs £1.50 to make. Find the profit.
- Revenue = 4 × 500 = £2000
- Variable costs = 1.50 × 500 = £750
- Total costs = 800 + 750 = £1550
- Profit = 2000 − 1550 = £450
Answer: £450
Revenue = price × quantity. Total costs = fixed + variable. Profit = revenue − total costs. A negative answer is a loss.
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