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Finance- understanding cost, revenue and profit for a business

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Introduction

Finance- understanding cost, revenue and profit for a business. All transaction needs to be recorded, concerning: * Cost * Revenue * Profit Cost In accounting, costs are the monetary value of expenditures for supplies, services, labour, products, equipment and other items purchased for use by a business or other accounting entity. Here are some of the costs a business needs to know: * Fixed * Start-up cost * Variable * Total * Marginal * Semi-fixed costs * Direct costs * Indirect costs * Average * Operating costs Fixed costs These costs do not change however many units of a product are made. Factory rent, insurance premiums and administration salaries stay the same, whether the factory is working at full capacity or producing nothing. The owner of the business may have taken out a loan to buy equipment or refurbish a building. The loan will have to be repaid whether or not the business has customers. Variable costs Variable costs change as output changes. For example, the amount of raw materials needed varies as the levels of output go up or down. Piece-work wages also fluctuate, depending on the employees' efficiency and the demand for the company's products. ...read more.

Middle

Leasing a part of a building to another business can also provide a source of income. Some businesses specialise in leasing cars or equipment to other organisations. Interest this earned when a business has no money in an interest bearing accounts at the bank. Calculating total revenue To do this we need two items of information: * The selling price * The number sold We then need use the following formula: Profit Profit generally is the making of gain in business activity for the benefit of the owners of the business. Profit is the difference between the income of the business and all its costs/expenses. It is normally measured over a period of time. Profit is important in three ways: 1. It rewards the business people who have taken risks to run it 2. It provides the funds to develop the business further 3. It is a source of cash, which allows the business to meet its debts Gross profit This is the difference between sales income and the direct costs of making those products. Gross profit is used as a performance indicator to help the business make decisions over its pricing policies and use of materials. ...read more.

Conclusion

increasing number of automated or computerised operations Increase productivity sub-contract work to cheapest bidder Raw materials Use fewer materials in product Look for a cheaper supplier Gas, water and electricity Replace older item with efficient ones, e.g. Energy- saving bulbs, light which turn off automatically. Switch utility company if this would reduced costs Consumable items, e.g. stationary Send documents by e-mail rather than by post. Shop around for cheaper suppliers and investigate online source The importance of profit After tax is paid the business can spend the remaining money in several ways. If the business is a limited company with shareholders, some of the profits will be paid as dividends. These are the rewards paid to shareholders for investing their money- similar to the interest you if you save money in the bank. * For small business, most of the profit is used to pay the owner a wage. * Equipment could be upgrade or update to improve efficiency. * If the business has taken out then loan, some or all it could be rapid * Profit can be kept in the back as reserves to be used in future for any emergency. http://en.wikipedia.org/wiki/Cost http://www.bbc.co.uk/schools/gcsebitesize/business/production/productioncostsrev2.shtml http://en.wikipedia.org/wiki/Revenue http://www.selectdirect.us/EasyEditor/assets/money-bag.jpg http://www.tutor2u.net/business/gcse/finance_profit.htm http://en.wikipedia.org/wiki/Profit_maximization ?? ?? ?? ?? Mayank Sharma ...read more.

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