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Cost, Revenue and Profits
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DescriptionCost, Revenue and Profits
Case Study: Wilkins
Cost, Revenue & Profits
Q1. Wilkins conservatories are made from PVC (Polyvinyl chloride), some variable costs would be:
? Double Glazing Glass – For each unit of conservatory built, the variable cost will be increase due to more glass is being used.
?PVC Plastic – For each unit of conservatory built, more plastic will be used, therefore increasing variable costs.
“Variable Cost” Definition - These are costs that vary with a business' production level.
“Total Cost” Definition – The overall cost of producing a given output. (Ref: Marcouse p.103)
“Fixed Cost” Definition - Costs that do not change in the short term as a function of changes in production volumes
(Ref: Marcouse p.105)
Green – Fixed Costs
Blue – Variable Costs
Red – Fixed Costs
On figure 1 above, it can be seen that breakeven is at (10 Units) of trade, at this breakeven point the product trade is making neither profit nor loss, just covering total costs expenditure for the product. This can be checked by the formula:
“Breakeven” Definition - The point at which cost or expenses and revenue are equal: there is no net loss or gain.
Wilkins will break even if they sell 10 units, so in this case 10 conservatories. At this point of time:
? Total Revenue = £60,000
?Output = 10 Units
? Total Costs = £60,000
Q4.”Profit” definition - Total income or cash flow minus expenditures (Ref: en.wiktionary.org/wiki/profit)
Wilkins Profit Calculation: Formulas
Q5. If fixed costs are increased to £35,000 from £20,000, then profits would be decreased by £15,000.
The profit will be decreased by £15,000 due to there was a £15,000 increase in costs.
Profit has only two main determents, in this case Total Revenue and Total Costs. Total revenue did not change and stayed as a constant. In the case of Total Cost, it is affected by two items (Fixed Costs and Variable Cost). The variable cost stayed the same but the fixed cost increased and therefore increased total costs by £15,000.
So total costs increased making a decrease in profit as total costs needs to be minus from total revenue.
(Explained in the calculation)
Martin Mann – Task 1
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