Business Management Consulting Key Equations Exam 2024
Revenue - ANS-= Quantity * Price
Revenue is the amount of money a company brings in from selling its products. This can be calculated by
taking the number of units sold and multiplying it by the price per unit.
Example: Your company sells ...
Revenue is the amount of money a company brings in from selling its products. This can be calculated by
taking the number of units sold and multiplying it by the price per unit.
Example: Your company sells shirts for $20 each. Last year, your company sold 1,000 shirts. So, your
total revenue last year was 1,000 * $20 = $20,000.
Total Variable Costs - ANS-✔✔= Variables Costs * Quantity
Costs are payments that a company needs to make in order to run and operate its business. There are
two different types of costs, variable costs and fixed costs.
Variable costs are costs that directly increase for each additional unit of product made. It represents the
cost of raw materials needed to make the product.
Total variable costs are calculated by taking the number of units produced or sold and multiplying it by
the raw material cost per product.
Example: It costs your company $5 to purchase the raw materials needed to make a shirt. If your
company sold 1,000 shirts last year, the total variable costs are 1,000 * $5 = $5,000.
Costs - ANS-✔✔= Total Variable Costs + Fixed Costs
Total costs for the company can be calculated by adding total variable costs and fixed costs.
Fixed costs are costs that do not directly increase for each additional unit of product made. They may
include costs such as rent for the building or equipment needed to make the product.
, Example: Your company pays annual rent of $10,000. It also leases the equipment it needs to make its
shirts for $2,000 a year. Therefore, fixed costs are $10,000 + $2,000 = $12,000. Total variable costs were
calculated to be $5,000 from the previous example. So, total costs are $12,000 + $5,000 = $17,000.
Profit - ANS-✔✔= Revenue - Costs
Profit is the amount of money the company keeps after paying for all of its costs. Profit is calculated by
subtracting total costs from total revenue.
Example: Last year, your shirt company generated revenues of $20,000 and had costs of $17,000. The
profit last year was $20,000 - $17,000 = $3,000.
Contribution margin represents how much money each product sold brings into the company after
accounting for the cost of raw materials needed to make the product.
Example: If your company's shirts sell for $20 and raw materials cost $5, then the contribution margin is
$20 - $5 = $15 per shirt.
Profit Margin - ANS-✔✔= Profit / Revenue
Profit margin represents the percentage of revenue that a company keeps as profit after taking into
account all of its costs.
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