How the key calculations connect
How the key calculations connect
These calculations connect like this:
Revenue=selling price per unit×quantity sold \text{Revenue} = \text{selling price per unit} \times \text{quantity sold} Revenue=selling price per unit×quantity sold Total variable costs=variable cost per unit×output \text{Total variable costs} = \text{variable cost per unit} \times \text{output} Total variable costs=variable cost per unit×output Total costs=fixed costs+total variable costs \text{Total costs} = \text{fixed costs} + \text{total variable costs} Total costs=fixed costs+total variable costs Profit or loss=revenue−total costs \text{Profit or loss} = \text{revenue} - \text{total costs} Profit or loss=revenue−total costsBusinesses use a small set of linked calculations to judge whether sales cover costs and whether an investment looks worthwhile. Output means the number of units produced or sold in a period.