Business calculations: revenue, costs and profit
Total revenue is the total money a business receives from sales, calculated as selling price per unit multiplied by quantity sold, and profit is what remains once total costs, fixed costs plus variable costs, are subtracted from it.
Method
- Learn the formula for total revenue: total revenue = selling price per unit x quantity sold.
- Learn the difference between fixed costs, which do not change with the level of output, for example rent or insurance, and variable costs, which change directly with the level of output, for example raw materials or packaging.
- Learn the formula for total costs: total costs = fixed costs + variable costs.
- Learn the formula for profit: profit = total revenue - total costs, and that a negative result means the business has made a loss.
- For calculation questions, write out the correct formula first, substitute the figures given in the case, then show the arithmetic step by step before stating the final answer with its correct unit, pounds.
- Learn that increasing revenue and/or reducing costs are the only two ways to increase profit, and be ready to identify which lever a described business action is using.
Worked example
A market stall sells scarves for 12 pounds each. Last month it sold 340 scarves. Its fixed costs for the month were 800 pounds, and each scarf cost 4 pounds to buy in as variable cost. Calculate the stall's total revenue, total costs and profit for the month.
- Calculate total revenue: selling price x quantity sold = 12 x 340 = 4,080 pounds.
- Calculate total variable costs: variable cost per unit x quantity sold = 4 x 340 = 1,360 pounds.
- Calculate total costs: fixed costs + total variable costs = 800 + 1,360 = 2,160 pounds.
- Calculate profit: total revenue - total costs = 4,080 - 2,160 = 1,920 pounds.
- State the final answer clearly: total revenue is 4,080 pounds, total costs are 2,160 pounds, and profit is 1,920 pounds.
Practice questions
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Q1State the formula for total revenue.Show answer
Answer: Total revenue = selling price per unit x quantity sold.
Q2Identify whether rent is a fixed cost or a variable cost.Show answer
Answer: A fixed cost.
Q3Identify whether the cost of raw materials is a fixed cost or a variable cost.Show answer
Answer: A variable cost.
Q4State the formula for profit.Show answer
Answer: Profit = total revenue - total costs.
Q5A shop sells 150 candles at 8 pounds each. Calculate its total revenue.Show answer
Answer: 150 x 8 = 1,200 pounds.
Q6A business has fixed costs of 3,000 pounds and variable costs of 4,500 pounds. Calculate its total costs.Show answer
Answer: 3,000 + 4,500 = 7,500 pounds.
Q7Explain the two ways a business can increase its profit.Show answer
Answer: By increasing total revenue, for example raising price or selling more units, and/or by reducing total costs, fixed or variable, since profit is the difference between the two.
Exam-style questions
Written in the style of a GCSE Business exam paper, with a full mark scheme.
A food truck sells burgers for 6 pounds each. In one week it sold 420 burgers. Its fixed costs for the week were 950 pounds and the variable cost of ingredients was 2 pounds per burger. (a) Calculate the food truck's total revenue for the week. (2 marks) (b) Calculate its total costs for the week. (2 marks) (c) Calculate its profit for the week. (2 marks)
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A cafe owner is deciding between two changes to increase her weekly profit. Option A is raising her coffee price from 2.50 pounds to 2.80 pounds, which she expects will reduce weekly sales from 500 to 450 cups. Option B is reducing her variable cost per cup from 0.80 pounds to 0.65 pounds by switching supplier, with sales staying at 500 cups per week. Her weekly fixed costs are 400 pounds either way. Evaluate which option would increase her weekly profit more.
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See real GCSE Business past-paper questions, with official mark schemes →
Free printable worksheet
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