Economics Yr 10 Unit 3

Economics Yr 10 Unit 3

1. Costs and Revenue

   • FIXED COSTS: Costs incurred by the business that do not vary with the level of output
   • VARIABLE COSTS: Costs incurred by the business that vary with the level of output
   • TOTAL COSTS: Fixed costs + Variable costs
   • REVENUE/ SALES TURNOVER: The total value of sales. Calculated by:
     • Unit Price x Quantity Sold
   • PROFIT: Is the surplus between sales revenue and total costs. Calculated by:
     • Revenue - Total costs
     • The easiest way to increase profit is to reduce costs

2. Cashflow

   • BREAK-EVEN: Where the business is neither a profit or loss
     • Total revenue=Total costs
   • CASH:The money needed within the business to pay for day to day running costs
     • Is a liquid asset
   • CASH-FLOW: The amount of money coming into the business and the amount leaving for materials and wages
   • MONTHLY CASH-INFLOW: Total money coming into the business, in that month
   • MONTHLY CASH-OUTFLOW: Total money leaving the business in that month
   • NET MONTHLY CASH-FLOW: The month's cash inflow- the month's cash outflow
   • CUMULATIVE CASH-FLOW/ CLOSING BALANCE: The net monthly cash-flow + cash at the start of the month/ opening balance

3. Finance

   • Sources of EXTRERNAL finance
     • LOAN:Borrowing, usually from a bank
     • OVERDRAFT: Permission granted from the bank to spend more than is in the account
     • SHARE CAPITAL: Money raised from selling shares- this source is only available for private limited and public limited companies
     • VENTURE CAPITAL: A mix of share and loan capital from an investor looking for a high return because of the high level of risk
   • Sources of INTERNAL finance
     • RETAINED PROFIT: Profit that is generated by the business that is put straight back in
     • SALES OF UNWANTED ASSETS: Getting rid of anything the business owns that it no longer needs
     • ADJUSTING STOCK LEVELS: Buying in less stock at any one time will mean less cash outflow
     • RE-NEGOTIATING CREDIT TERMS: This is called TRADE CREDIT.
       • The firm could negotiate 30 days, or even 90 days to pay its suppliers
       • The firm could try to get its customers to pay more promptly

4. Start up objectives

   • FINANCIAL start up objectives
     • To breakeven
     • To earn the income level needed to support the family
     • To gain security and support for the family
   • NON-FINANCIAL start up objectives
     • Personal satisfaction, to create something to be proud of
     • Social, to help others
     • For a challenge
     • To make a difference