Estimating Revenues, Costs and Profits – GCSE Business Studies Revision

The Overview:

  • Businesses can’t exist without money
  • Money received by a business is called revenue
  • Money spent by a business is called a cost
  • Businesses receive money by selling their products/services
  • Revenue is also called “Total Revenue” or “Product Revenue” and (as seen on TV!), “Turnover”

How To Calculate Revenue:

  • Revenue is calculated using the incredibly simple and entirely obvious formula below
  • The “Number of Units Sold” is also called the “Quantity” or “Sales Value”
  • Selling price per unit is how much each product is sold to the customers for
  • ‘*’ means times/multiplied by
  • Here’s the formula:
Total Revenue = Selling Price Per Unit * Number of Units Sold

Forecasting Revenue

  • A business can’t say for sure how much money it will receive
  • It can, however, predict its sales revenues by:
  • Estimating how many units it will sell, based on its market research, and:
  • Deciding what price to sell products for, to get a good profit

Start-up and Running costs

  • Costs can be divided into two sorts: start-up and running
  • Start-up costs are the sort of cost that are paid only once, at the beginning of the business
  • Start-up costs include market research and machinery
  • Running costs are paid all through the lifetime of the business, and can be divided further into three sorts:

Sorts of Running Costs

  • Fixed Costs are the same all the time – they are paid if nothing is produced and they are the same if millions of products are produced
  • Fixed costs are things like lighting the building and paying for security
  • Variable Costs are directly related to the amount of products produced, for example, the more pancakes a company makes, the more money they have to spend buying milk
  • Semi-fixed costs are costs that change when more products are produced, but are not directly linked to it
  • For example, repairing damage from theft is a semi-fixed cost: More theft happens if more products are produced, but it isn’t directly linked to the amount of products produced

Calculating Costs

  • Costs are calculated using another incredibly obvious formula:
  • (Counting semi-fixed costs as variable costs, to make it simple as well as obvious)
Total Costs = Total Fixed Costs + Total Variable Costs

Calculating Profit and Loss

  • If the sales revenue is greater than the costs, the business has made a profit!
  • However, if the costs are greater than the sales revenue, the business has FAILED made a loss
  • Here’s the formula to work out profits (or loss); unfortunately, it’s also rather obvious:
Profit = Sales Revenue – Total Cost
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