Revenue, Costs & Profit (Edexcel IGCSE Business)

• Revenue is the value of the units sold by a business over a period of time
  • E.g the revenue earned by Apple Music from sales of music downloads 
    
    
• Revenue is calculated using the formula

• Revenue usually increases as the sales volume increases
  
  
• Revenue should not be defined as 'money earned' as businesses can receive earnings from investments such as savings

• In preparing goods/services for sale, businesses incur a range of costs
  • Some examples of these these costs include purchasing raw materials, paying staff salaries and wages, and paying utility bills such as electricity  
     
• These costs can be broken into different categories
  • Fixed costs (FC) are costs that do not change as the level of output changes
    • These have to be paid whether the output is zero or 5000 
    • E.g. building rent, management salaries, insurance, bank loan repayments etc.
      
      
  • Variable costs (VC) are costs that vary directly with the output
    • These increase as output increases & vice versa
    • E.g. raw material costs, wages of workers directly involved in the production
      
      
  • Total costs (TC) are the sum of the fixed + variable costs 
    
    

Sketches Which Represent the Different Types of Cost

• Profit is a surplus that remains after business costs have been subtracted
  • If costs exceed revenue the business makes a loss
    
    
• Most businesses have the main objective of making a profit
  • Profits help new businesses to survive and break-even
  • It is a reward for risks taken by entrepreneurs and investors
  • Established businesses can use profit to fund long-term growth 
    
    
• The most simple formula for calculating profit is:

Diagram to show how Profit is made

• Profit can be increased using the following strategies
  • Increasing revenue 
  • Reducing costs
  • A combination of increasing revenue and reducing costs