Revenue, Costs and Profit Calculations
Money in, money out: does the business come out ahead? Learn to calculate revenue, sort fixed costs from variable, add them into total costs, and work out the profit or loss, all without a formula sheet.
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Free interactive practice at using the material, which is what the marks are for.
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Does it make a profit?
A business survives by making a profit: earning more than it spends. To work that out you need its revenue (the money coming in) and its costs (the money going out). This module shows how to calculate revenue, costs and profit. Remember, you must memorise every formula, because the exam does not give them.
The money words
Four ideas run through the calculations:
Calculate the revenue
A bakery sells 300 cakes at 5 pounds each. Work out its revenue, in pounds, using revenue = price x quantity.
Spot the fixed cost
Which of these is a FIXED cost for a bakery?
- The monthly rent for the shop
- The flour used to bake the cakes
- The icing put on each cake
- The paper bags used for each sale
Fixed or variable?
Costs split into two kinds, and telling them apart is essential for these calculations.
Calculate the profit
A bakery has revenue of 1500 pounds and total costs of 1000 pounds. Work out its profit, in pounds, using profit = revenue - total costs.
Which are fixed costs?
Select the TWO costs that are FIXED costs.
- The rent for the business premises
- A manager's fixed annual salary
- The raw materials used in each product
- The packaging for each item sold
No formula sheet, so memorise
In the exam you are given no formulae, so learn them: revenue = price x quantity; total costs = fixed costs + total variable costs; profit = revenue - total costs. If total costs are greater than revenue, the business makes a loss. Borrowing money adds interest, an extra charge on top of the amount borrowed, which increases the costs the business must cover.
Revenue minus costs
- Revenue
- Total costs
- Profit
- Variable cost
- Selling price multiplied by the quantity sold
- Fixed costs added to total variable costs
- Revenue with total costs taken away
- A cost that rises as more is produced
Price times quantity, minus costs
The money a business earns from sales is its _____, found by multiplying price by quantity. Costs that stay the same whatever the output are _____ costs, while costs that change are _____ costs. When you subtract total costs from revenue you get the _____; if it is negative, the business makes a _____.
Profit at the bakery
A bakery sells 300 cakes at 5 pounds each. Its fixed costs are 400 pounds and each cake costs 2 pounds to make. Work out whether it makes a profit.
- What is the bakery's revenue?
- What are its total costs? Its variable cost is 2 pounds per cake for 300 cakes.
- What is its profit?
Revenue, costs and profit
Tap the TWO statements that are correct about revenue, costs and profit.
- Revenue is the selling price multiplied by the quantity sold.
- Fixed costs change every time the output changes.
- Profit is revenue minus total costs.
- A business makes a profit when its costs are greater than its revenue.
- Raw materials are an example of a fixed cost.
Working out the profit
Explain how a business works out whether it has made a profit, referring to revenue, fixed costs and variable costs.
- Explain how to calculate revenue
- Explain the difference between fixed and variable costs
- Explain how to find the total costs
- Explain how to work out profit, and what a negative result means