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Profit 1. Fill in the missing words: Profit is the value of sales (revenue) minus the costs incurred in generating those sales (total costs). Revenue is the value of _____________________ made within a time period (such as a financial year). It is calculated by the formula: REVENUE = Sales volume x __________________ . Total costs comprise the fixed overheads plus the total variable costs. These must be deducted from ___________________ to give _________________. 2. Calculations 1. 2.1 If a firm sells 200 Widgets at £3.20 and 40 Squidgets at £4, what is its total revenue? 2.2 In the above example, each Widget costs £1.20 to make, while each Squidget costs £1.50. What are the total variable costs? 2.3 If fixed costs are £300, what profit is the business making? 3. Explain exactly how the following changes might affect profit 3.1 A firm in a highly competitive industry increases its prices by 8%. ___________________________________ ______________________________________________________________________________________ ______________________________________________________________________________________ 3.2 Demand for a firm’s products falls by 25% due to changing fashions. _________________________________ ______________________________________________________________________________________ ______________________________________________________________________________________ 3.3 New production methods increase a firm’s factory reject rate. _____________________________________ ______________________________________________________________________________________ ______________________________________________________________________________________ 4. Calculations 2. 4.1 BYQ Co has sales of 4,000 units a month, a price of £4, fixed costs of £9,000 and variable costs of £1. Calculate its profit. ______________________________________________________________________________________ 4.2 At full capacity output of 24,000 units, a firm’s costs are as follows: managers’ salaries £48,000 materials £12,000 rent & rates £24,000 piece-rate labour £36,000 a) What are the firm’s total costs at 20,000 units? _________________________________________________ b) What profit will be made at 20,000 units if the selling price is £6? ____________________________________