Costs, Revenue & Profit
Business: Edexcel IGCSE, topic 3.3.1
Revenue
Revenue is the income earned by a business from the sale of its goods and services.
Revenue
- Revenue = number of sales x sales price.
- E.g. if a stationary store sells 500 pens for £2 each, then the revenue is £1000 (500 x £2).
Costs
Costs are all of the expenses that a business incurs (pays). This involves everything from wages paid to employees to the electricity bills at the business’ premises. The total costs are calculated as the sum of the fixed costs and the variable costs.
Fixed costs
- Fixed costs don't vary as the company changes its output.
- So whether a company produces 10,000 units of a product or 2 units of a product, its fixed costs will be the same.
- Snapchat registering as a business would cost the same regardless of how many adverts they sold or how many users they had.
- Examples include office rent, insurance and fixed employee salaries.
- Note that fixed costs can increase as the company grows.
Variable costs
- Variable costs are the costs that change directly with output (they change as a company changes output).
- Examples include the wages paid for factory labour, raw materials and transport costs.
Test yourself on Costs, Revenue & Profit
Which of the following is the correct calculation for revenue?
If a sweet shop sells 700 sweets for 15p each, what is the shop's revenue?
If a hotel has 20 guests staying, and each room costs £150, what is the revenue made in one evening?
Which of the following is not an example of a fixed cost?
Which of the following is true about costs?