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# calculating costs revenue and profit

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## Jonathon shuttleworth

on 30 September 2014

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#### Transcript of calculating costs revenue and profit

Calculating Costs, Revenue and Profit
CALCULATING REVENUE
REVENUE CAN BE CALLED 3 different things so watch out; these are

Revenue
Turnover
Sales

But remember these all mean the same thing
REVENUE the amount income from business activity.

This is calculated by the following formula:

Selling Price x Sales (number of units sold)

Sales are the amount of products or services sold
Exercise
Calculate the total revenue for Love Wood
CALCULATING REVENUE
Selling price X Number of units sold
£83 X 4000 = £332,000
Total Revenue = £332,000
Calculating Costs
Costs are amounts that the business incurs in order to make goods and/or provide a service
Fixed Costs
These are costs that
DO NOT
change with output

Fixed costs include:
Rent and Rates
Salaries (not wages!)
Loan Repayments

These costs stay constant regardless of how much a company produces. This means that the more units are made, the less its costs to make each product/service
Costs
Entrepreneurs need to know
What it costs to produce the product or service
What the cost of marketing the product is
what the potential costs of a business are?
Are the things that drains away the profits made by the business
Are the difference between making a good and poor profit margin
Are the main cause of cash flow problems in a small business
change as the output or activity of a business change - the entrepreneur needs to know how these are likely to change
Cost are important because they..
Within a Business there are 2 types of Costs

Fixed
Variable
Variable costs
Costs which change as output varies
Lower risk for a start-up: no sales = no variable cost
Fixed costs
Costs which do not change when output varies
Fixed costs increase the risk of a start-up
Examples of Variable costs
Raw materials
Bought-in stock
Wages based on hours worked or amounts produced
marketing costs based on sales (e.g. commission)
Examples of fixed cost
Rent & Rates
Salaries
Insurance, banking & legal fees
Software
Design and development
Calculating Total Costs
The Total costs of a business can be calculated using this formula:

Total costs (TC) =
Fixed Costs (FC) + total Variable Costs (TVC)
Exercise
Questions
Calculating Profit
Profit is the surplus revenue that is left after costs have been taken off
Formula -

Total Sales Revenue - Total cost = PROFIT
Problems estimating Costs