Business studies revision
Revenue, Cost and Profit
Revenue is the income earned by a business over a period of time, eg one month. The amount of revenue earned depends on two things - the number of items sold and their selling price. In short, revenue = price x quantity.
For example, the total revenue raised by selling 2,000 items priced £30 each is 2,000 x £30= £60,000.
Revenue is sometimes called sales, sales revenue, total revenue or turnover.
Costs are the expenses involved in making a product.
Some costs, called variable costs, change with the amount produced. For example, the cost of raw materials rises as more output is made.
Other costs, called fixed costs, stay the same even if more is produced. Rent is an example of a fixed cost which remains the same each month even if output rises.
Put simply, profit is the surplus left from revenue after paying all costs.
Profit is found by deducting total costs from revenue.
In short: profit = total revenue - total costs.
For example, if a firm has a total revenue of £100,000 and a total cost of £80,000, then they are left with £20,000 profit.
Profit is the reward for risk-taking. A business can use profit to either:
- Reward owners.
- Invest in growth.
- Save for the future, in case there is a downturn in revenue.