The profit would be $54,000 minus $26,800, or $27,200.īased on this analysis, the students are confident the summer business venture can make money. The fixed cost would be $16,000, making the total cost $26,800. The variable cost would be $0.30 per ice cream bar times 36,000 ice cream bars, or $10,800. The revenue would be $1.50 per ice cream bar times 36,000 ice cream bars, or $54,000. He indicated his other main costs-leasing the building, license, local business association fee, and insurance-came to about $16,000.īased on this limited information, the students could determine a rough estimate of the revenue, costs, and profit they would have if they were to repeat the outcomes for the prior operator. He said the cost of the ice cream bars-wholesale purchase, delivery, storage, and so on-comes to about $0.30 per bar. He told them last summer he charged $1.50 per ice cream bar and sold 36,000 ice cream bars.

They met the person who operated an ice cream bar business in this building the previous summer.

The students in our simple venture realize they need to determine whether they can make a profit from a summer ice cream bar business.

When costs exceed revenue, there is a negative profit, or loss The difference between revenue and cost when the cost incurred in operating the business exceeds revenue. The difference between the revenue and cost (found by subtracting the cost from the revenue) is called the profit The difference between revenue and cost when revenue exceeds the cost incurred in operating the business. The cost of a machine for cutting cloth to make an item of clothing would be a fixed cost.īusinesses are viable on a sustained basis only when the revenue generated by the business generally exceeds the cost incurred in operating the business. These costs are called fixed costs Expenses that remain the same regardless of the volume of sales or that remain the same within a certain range of sales volumes. Other costs are largely invariant to the volume of sales, at least within a certain range of sales volumes. The cost of raw materials used to make an item of clothing would be an example of a variable cost. These costs are called variable costs Expenses that change as the the volume of sales changes. Some cost elements are related to the volume of sales that is, as sales go up, the expenses go up. The collective expenses incurred to generate revenue over a period of time, expressed in terms of monetary value, are the cost The collective expenses incurred to generate revenue over a period of time, expressed in terms of monetary value. The total monetary value of the goods or services sold is called revenue The total monetary value of the goods or services that a business sells.įew businesses are able to sell something without incurring expenses to make the sale possible. In a modern economy, that sale is made in return for money or at least is evaluated in monetary terms. Most businesses sell something-either a physical commodity like an ice cream bar or a service like a car repair.

Revenue expenses profit