estimating revenues, costs and profits
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3.3_estimating_revenues_costs_and_profits__1_.pptx | |
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Key term: REVENUE (SALES REVENUE/TURNOVER/SALES TURNOVER) - the amount of income received from selling goods or services over a period of time
Key term: SALES VOLUME - the number of items or products or services sold by a business over a period of time
When starting a business, its important to estimate how much revenue it is going to generate. This means estimating the number of products you are going to sell at the price you are going to sell your products at.
Total revenue = Price x Quantity TR = P x Q
Aside from estimating revenues, its important to estimate your costs as well. Costs can be categorised as fixed costs or variable costs.
Key term: FIXED COSTS - These are costs which do not vary with the number of sales made. These include:
- Rent
- Insurance
- Electricity
- Administration
- Advertising
- Salaries
- Rent
- Insurance
- Electricity
- Administration
- Advertising
- Salaries
Key term: VARIABLE COSTS - These are costs which change directly with the number of products sold. These include:
- Raw Materials
- Overtime Wages
- Deliveries
- Raw Materials
- Overtime Wages
- Deliveries
Key term: TOTAL COSTS - all the costs of a business; it is equal to fixed costs plus variable costs
Fixed costs plus variable costs add up to total costs.
Total costs = Fixed costs + variable costs TC = FC + VC
3.3_estimating_revenues_costs_and_profits_starter_activityx.docx | |
File Size: | 36 kb |
File Type: | docx |
3.3_estimating_revenues_costs_and_profits_activity__1_.docx | |
File Size: | 37 kb |
File Type: | docx |
The money made in your revenues must be used to pay your costs. This means that over a period of time, there will either be more money left over once costs have been paid, or there is not enough money left (deficit) to pay costs. Where revenues and costs are the same, this is known as breaking even.
Key term: PROFIT - occurs when the revenues of a business are greater than its costs over a period of time.
Key term: LOSS - occurs when the revenues of a business are less than its costs over a period of time.
Key term: LOSS - occurs when the revenues of a business are less than its costs over a period of time.
Profit/Loss = Total Revenue - Total Cost P/L = TR - TC
It is important to understand the impact of profits and losses. As all the above figures will be a 'guesstimate' before the business is set up, each of them are subject to change. For example:
- variable costs could go up
- fixed costs could be more expensive
- insurance could be higher
- you don't get as many sales as expected
- it takes longer to build a customer base
- competition is fierce and you have to lower prices
- interest rates on loans go up
- economy takes a downturn and people spend less on products
Losses are a sign that a business needs to make changes or close. Profit is a sign that a business can survive and potentially grow. Large profits can also provide money to pay for new investment and provide the incentive to make the business successful.
- variable costs could go up
- fixed costs could be more expensive
- insurance could be higher
- you don't get as many sales as expected
- it takes longer to build a customer base
- competition is fierce and you have to lower prices
- interest rates on loans go up
- economy takes a downturn and people spend less on products
Losses are a sign that a business needs to make changes or close. Profit is a sign that a business can survive and potentially grow. Large profits can also provide money to pay for new investment and provide the incentive to make the business successful.
3.3_estimating_revenues_costs_and_profits_activity__2_.docx | |
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3.3_estimating_revenues_costs_and_profits_starter_activity.docx | |
File Size: | 39 kb |
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3.3_estimating_revenues_costs_and_profits_activity.docx | |
File Size: | 36 kb |
File Type: | docx |