Costs, Revenue and Profit: notes

Costs

• Fixed costs: do not change with output, such as rent. A stall rent of $50 a month stays the same.
• Variable costs: change with output, such as flour for a bakery.
• Total cost: fixed costs plus variable costs.

Revenue and Profit

• Revenue: selling price times quantity sold. 100 loaves at $2 give $200.
• Gross profit: revenue minus cost of goods sold.
• Net profit: gross profit minus other expenses such as rent and wages.
• Mark-up: profit as a percentage of cost. Margin: profit as a percentage of selling price.

Break-even

• Break-even point: the sales where revenue equals total cost, so there is no profit and no loss. With fixed costs of $100 and $2 profit on each item, you break even at 50 items.

Statements

• Income statement: shows revenue, costs and profit for a period.
• Cash flow forecast: expected cash in and cash out each month.
• Asset: something the business owns. Liability: something it owes. Capital: the owner's investment.
• Statement of financial position: lists assets, liabilities and capital on one date.