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Revenues, costs and profit

Revenues, costs and profit. Eva Kemrová eva.kemrova@vscht.cz. Goals of an entreprise. increasing of the market share maximazing of the profit satisfaction of the costumers etc. Goals:. a company traces a profit any way. But usually…. Definitions.

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Revenues, costs and profit

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  1. Revenues, costs and profit Eva Kemrová eva.kemrova@vscht.cz

  2. Goals of an entreprise • increasing of the market share • maximazing of the profit • satisfaction of the costumers • etc. Goals: a company traces a profit any way. But usually…

  3. Definitions • profit „P“ – making of gain in the business activity • revenues „R“ – income from the business activity (sale of goods or services to customers) • costs „C“ – monetary value of expenditures for supplies,services, labor etc. Definition: P= R- C

  4. Costs ( expenses ) • fixed – not depend on the production „Cf“ (equipment, labor) • variable – depend on the production „ Cv“ (material) • total – „Ct“ Costs: Ct = Cf + Cv

  5. Costs • for whole production quantity „Cf, Cv, Ct“ • per unit „cf, cv, ct“ Costs: c= C / Q Ct = Cf + Cv ct = cf + cv C= c * Q

  6. Dependence of costs Ct C c Cv ct Cf cv cf Q Q ct = Cf / Q+ cv Ct = Cf + cv*Q

  7. Example 1 We are managers of the company producing soda. Here are some data from the business evidence. When the production was 150t, total costs for whole production quantity were 630.000CZK. When the production was reduced to 135t, costs for whole production were 591.000CZK. Find out fixed and variable part of total costs. Q1 = 150 t Cf = ? Ct1 = 630 000 CZK cv = ? Q2 = 135 t Ct2 = 591 000 CZK

  8. Ct1 = Cf + cv * Q1 Ct2 = Cf + cv * Q2 Cf = Ct1 – cv * Q1 Cf = Ct2 – cv * Q2 cv = ( Ct1 – Ct2 )/( Q1 - Q2 ) Solution 1 cv = 2 600 CZK/t Cf = 240 000 CZK

  9. Break even point R C Ct = Cf + cv * Q P = R – C profit Ct BEP BEP: P = 0 R = C Q*p = Cf + cv * Q QBEP = Cf / (p - cv) loss Q

  10. Example 2 We keep at disposition data for a production line. We know following: Production quantity is 150 000kg, total costs for whole quantity are 210 000CZK, fixed costs for whole quantity are 90 000CZK, capacity of production is 225 000kg and revenues are 300 000CZK. Find out break-even point and with which maximal profit we can calculate. Q = 150 000 kg QBEP = ? Ct = 210 000 CZK Pmax = ? Cf = 90 000 CZK Qmax = 225 000 kg R = 300 000 CZK

  11. QBEP = Cf / (p - cv) p = R / Q = 2 CZK/kg cv = ( Ct – Cf )/Q = 0,8 CZK/kg Solution 2 QBEP = 75 000 kg Pmax = Rmax – Cmax = = Qmax *p – (Cf + cv * Qmax) Pmax = 180 000 CZK

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