Financial terms and calculations
This topic covers the essential financial terminology and calculation methods you need for AQA GCSE Business. These concepts appear in almost every exam paper.
Revenue
Revenue (Turnover) = Selling price × Quantity sold
Example: 500 units × £12 = £6,000 revenue.
Revenue is the total amount received from sales before any costs are deducted.
Costs
Fixed costs (FC): costs that do not change with output — paid regardless of how much is produced. Examples: rent, insurance, salaries, interest on loans, depreciation.
Variable costs (VC): costs that change directly with output. Examples: raw materials, packaging, direct labour (if piecework), commission.
Total costs (TC) = Fixed costs + Variable costs
Or: TC = FC + (VC per unit × output)
Profit and loss
Gross profit = Revenue − Cost of goods sold (COGS) (COGS = direct costs of making the product: materials + direct labour)
Net profit = Gross profit − Overheads (Overheads = indirect costs: rent, admin, marketing, depreciation)
A business can make a gross profit but a net loss if its overheads are too high.
Profit vs loss
Profit: revenue exceeds total costs → business is making money. Loss: total costs exceed revenue → business is losing money.
At the break-even point, total revenue = total costs, and profit = £0.
✦Worked example— Worked examples
Example 1: A coffee shop sells 800 coffees at £3.50 each. Raw material costs = £0.60 per coffee. Fixed costs = £1,200/month.
- Revenue = 800 × £3.50 = £2,800
- Variable costs = 800 × £0.60 = £480
- Total costs = £480 + £1,200 = £1,680
- Gross profit = £2,800 − £480 = £2,320 (before overheads/fixed)
- Net profit = £2,800 − £1,680 = £1,120
Example 2: A business makes a loss. Revenue = £45,000; COGS = £25,000; Overheads = £22,000.
- Gross profit = £45,000 − £25,000 = £20,000
- Net profit = £20,000 − £22,000 = −£2,000 (a loss)
Common exam mistakes in 3.6.3
- Confusing gross and net profit — gross excludes overheads; net includes them → net is always ≤ gross
- Variable costs per unit × total output — always multiply VC per unit by the number of units produced
- Revenue ≠ profit — must subtract costs
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