Revenue, costs and profit · GCSE Business

Revenue

Revenue (turnover) = selling price × quantity sold. Selling 2,000 units at £4 each gives revenue of £8,000.

Fixed costs don't change with output, such as rent, salaries and insurance. Variable costs change with output, such as raw materials and packaging.
Total costs = fixed costs + total variable costs. With fixed costs of £3,000 and variable costs of £1.50 per unit, making 2,000 units costs 3,000 + 1.50 × 2,000 = £6,000.

Profit = total revenue − total costs. A negative answer is a loss. In the example, 8,000 − 6,000 = £2,000 profit.
Gross profit = revenue − cost of sales. Net profit = gross profit − other operating expenses (and interest).

Interest is the cost of borrowing. Interest (%) = (total repayment − amount borrowed) ÷ amount borrowed × 100. Borrowing £5,000 and repaying £5,750 means £750 of interest, which is 15%.
Average rate of return (ARR) compares the profit from an investment with its cost: ARR = average annual profit ÷ cost of investment × 100.
If a £20,000 investment returns £30,000 over 5 years, the total profit is £10,000, the average annual profit is £2,000, and the ARR is 10%.

Revenue: The money a business receives from sales: price × quantity sold.
Fixed costs: Costs that don't change with output, such as rent.
Variable costs: Costs that change with output, such as raw materials.
Total costs: Fixed costs plus total variable costs.
Profit: Total revenue minus total costs.
Loss: When total costs are greater than total revenue.
Gross profit: Revenue minus cost of sales.
Net profit: Gross profit minus operating expenses and interest.
Average rate of return: Average annual profit as a percentage of the cost of an investment.