3.3.1

Profit

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Profit, Average Unit Cost and Interest

Profit is the amount of money that the business makes when taking into account costs. It is in effect, a surplus.

Profit

Profit

  • Profit = total revenue – total costs.
    • This is a simple and yet very important formula.
    • If revenue is greater than costs, a business will make a profit.
    • If costs are greater than revenue, a business will make a loss.
Average unit cost

Average unit cost

  • Average unit cost = total cost ÷ output (total number of units produced).
    • This gives a business an idea of what price they need to charge.
    • In order to make a profit on each item, they need to charge a price that is more than the average unit cost.
Interest

Interest

  • When you borrow money, you usually pay back more than you borrowed. This extra amount is known as the interest on the loan and it is the percentage of the loan that is charged as extra.
  • Interest = interest rate x the size of the loan.
    • So, if a business borrows £200 at an interest rate of 5%. Then the interest they pay on the loan each year is 200 x 0.05 = £10.
Jump to other topics
1

Business Organisation & Environment

1.1

Introduction to Business Management

1.1.1Why Businesses Exist & Sectors
1.2

Types of Organisation

1.2.1Sole Traders1.2.2Limited Liability1.2.3Non-Profit1.2.4Franchising1.2.5End of Topic Test - Franchising
1.3

Organisational Objectives

1.3.1External Environments1.3.2Business Mission & Corporate Objective1.3.3Mission, Corporate Objectives & Strategy1.3.4SWOT Analysis1.3.5End of Topic Test - SWOT Analysis
1.4

Stakeholders

1.4.1Stakeholders
1.5

External Environment

1.5.1Social & Technological Environment1.5.2Lifestyle & Technological Environment1.5.3Corporate Social Responsibility1.5.4Economic Environment1.5.5Political & Legal Change
1.6

Growth & Evolution

1.6.1Growth & Retrenchment1.6.2Challenges of Growth1.6.3Growth Models1.6.4End of Topic Test - Diseconomies of Scale1.6.5Internationalisation1.6.6Sourcing Resources & Entering Markets1.6.7End of Topic Test - Internationalisation1.6.8Managing Internationalisation1.6.9Impact of Internationalisation
1.7

HL Only: Organisational Planning Tools

1.7.1Organisational Planning Tools
2

Human Resource Management

2.1

Functions & Evolution of Human Resource Management

2.1.1Setting Human Resource Objectives2.1.2Human Resource Management2.1.3Labour Turnover & Retention2.1.4Labour Productivity
2.2

Organisational Structure

2.2.1Organisational Structures
2.3

Leadership & Management

2.3.1Managers2.3.2Management Theories2.3.3End of Topic Test - Management
2.4

Motivation

2.4.1Motivating & Engaging Employees2.4.2Taylor's Theory2.4.3Maslow's Theory2.4.4Herzberg's Theory2.4.5Different Incentives2.4.6Evaluating Incentives
2.5

Organisational (Corporate) Culture

2.5.1Managing Organisational Culture2.5.2Organisational Structures
2.6

HL Only: Industrial/Employee Relations

2.6.1Improving Employer-Employee Relations2.6.2Case Study - The Winter of Discontent
3

Finance & Accounts

3.1

Sources of Finance

3.1.1Internal Sources of Finance3.1.2External Sources of Finance3.1.3Factors for Financing3.1.4End of Topic Test - Debt
3.2

Costs & Revenues

3.2.1Costs & Revenues
3.3

Break-Even Analysis

3.3.1Profit3.3.2Break-Even Analysis
3.4

Profitability & Liquidity Ratio Analysis

3.4.1Profitability Analysis
3.5

Cash Flow

3.5.1Cash Flow3.5.2Solutions to Cash Flow Problems3.5.3Improving Cash Flow & Profits
3.6

HL Only: Investment Appraisal

3.6.1Investment Appraisal
3.7

HL Only: Budgets

3.7.1Cash-Flow & Budgets
4

Marketing

4.1

The Role of Marketing

4.1.1Setting Marketing Objectives4.1.2Market Calculations
4.2

Marketing Planning

4.2.1Marketing Mix4.2.2Segmentation4.2.3Niche & Mass Markets
4.3

Market Research

4.3.1Market Research4.3.2Market Mapping4.3.3Methods of Market Research
4.4

The 4 Ps

4.4.1Product Decisions4.4.2Pricing Decisions & Price Skimming4.4.3Pricing Decisions & Price Penetration4.4.4End of Topic Test - Pricing & Competition4.4.5Promotional Decisions4.4.6Promotional Decisions 24.4.7Promotional Decisions 34.4.8Digital Marketing4.4.9Evaluating Digital Marketing4.4.10Case Study - The Marketing Mix & Promotion4.4.11Place & Distribution
4.5

HL Only: The Extended Marketing Mix

4.5.1The Extended Marketing Mix
4.6

HL Only: International Marketing

4.6.1International Marketing
4.7

E-Commerce

4.7.1E-Commerce
5

Operations Management

5.1

The Role of Operations Management

5.1.1Setting Operational Objectives
5.2

Production Methods

5.2.1Production Processes Overview5.2.2Production Processes5.2.3Production Efficiency5.2.4Technology & Production
5.3

HL Only: Lean Prodution & Quality Management

5.3.1Importance of Quality5.3.2Measuring & Identifying Quality5.3.3Total Quality Management5.3.4Evaluating Total Quality Management5.3.5Case Study - Toyota Production System
5.4

HL Only: Production Planning

5.4.1Capacity5.4.2Productivity & Efficiency5.4.3Technology & Efficiency5.4.4Improving the Supply Chain5.4.5Inventory5.4.6Outsourcing
5.5

HL Only: Research & Development

5.5.1Organisational Planning Tools

Practice questions on Profit

Can you answer these? Test yourself with free interactive practice on Seneca — used by over 10 million students.

  1. 1
    What is the equation for profit?Multiple choice
  2. 2
    If a hot dog van has a total cost of £1500 and produces an output of 750 hotdogs, what is the average unit cost of 1 hot dog?Multiple choice
  3. 3
    If a business borrows a loan of £9,000 at an interest rate of 2%, how much interest will they pay on the loan each year?Multiple choice
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Costs & Revenues

Break-Even Analysis