Total Costs (TC) = Fixed Costs (FC)+ Variable Costs (VC) Average Costs = TC/Output (Q) AC (unit costs) show the amount it costs to produce one unit of output on average Marginal Costs (MC) – the cost of producing one extra or one fewer units of production MC = TCn – TCn-1

1. Nermin Sefic

4.  Fixed (Indirect/Overheads) – are not influenced by the
amount produced but can change in the long run e.g., insurance
costs, administration, rent, some types of labour costs
(salaries), some types of energy costs, equipment and
machinery, buildings, advertising and promotion costs
 Variable (Direct) – vary directly with the amount produced,
e.g., raw material costs, some direct labour costs, some direct
energy costs
 Semi-fixed – where costs not directly attributable to either of
the above, for example, some types of energy and labour costs

5.  Total Costs (TC) = Fixed Costs (FC)+ Variable
Costs (VC)
 Average Costs = TC/Output (Q)
◦ AC (unit costs) show the amount it costs to produce
one unit of output on average
 Marginal Costs (MC) – the cost of producing
one extra or one fewer units of production
◦ MC = TCn – TCn-1

6.  Total Revenue – also known as turnover, sales
revenue or ‘sales’ = Price x Quantity Sold
 TR = P x Q
 Price – may be a variety of different prices for
different products in the portfolio
 Quantity – could be global sales

7.  Profit (Π) = TR – TC
 Normal Profit – the minimum amount required
to keep a business in a particular line of
production
 Abnormal/Supernormal Profit – the amount
over and above the amount needed to keep a
business in its current line of production

9.  Occurs where Total Costs = Total Revenue
◦ Start-up costs – fixed costs
◦ Running costs – variable costs
◦ Revenue stream depends on price charged
◦ ‘Low’ price – need to sell more to break-even
◦ ‘High’ price – lower level of sales required before breaking
even
Fixed Costs
 Break-Even Point = ---------------
Contribution

11.  Provide information for stakeholders –
customers, shareholders, suppliers, etc.
 Provides the opportunity for the business to
monitor its own activities
 Provides transparency to enable the firm to
attract investment
 Reduces the chance for fraud – not 100%
successful!!

13.  Shows the flow of sales and costs over a period
 Shows the level of profit or loss made
 Shows what has been done with the profit or loss

14. Consolidated Profit & Loss Account for the year ended 2003 2002 2001
Weeks 52 52 52
Currency £ million £ million £ million
Turnover 7688.0 8340.0 9278.0
Cost of sales -7263.0 -8291.0 -8757.0
Gross Profit 425.0 49.0 521.0
Operating Expenses -130.0 -137.0 -77.0
Operating Profit 295.0 -88.0 444.0
Other costs/income 95.0 166.0 -68.0
Profit before interest and taxation 390.0 78.0 376.0
Net interest receivable (payable) -255.0 -278.0 -226.0
Profit on ordinary activities before taxation 135.0 -200.0 150.0
Tax on profit on ordinary activities -50.0 -71.0 -69.0
Profit on ordinary activities after taxation 85.0 -129.0 81.0
Equity minority interests -13.0 -13.0 -14.0
Profit for the financial period 72.0 -142.0 67.0
Dividends 0.0 -193.0
Retained profit 72.0 -142.0 -126.0
Profit and Loss
Account for
British Airways
plc
Source: http://www.bized.ac.uk/cgi-
bin/ratios/ratiodata.pl
Turnover –
the revenue
earned over
the year
Gross Profit
= turnover –
cost of sales
Operating
Expenses –
the fixed costs
Operating or
Net Profit =
Gross profit –
operating costs
Cost of Sales
– the variable
costs, how
much it cost
the firm to
produce what
it has sold –
not to be
confused with
sales revenue!
Subtract other
costs and
expenses
incurred to get
profit before
tax
Subtract
interest
payments/recei
pts to get
profit on
ordinary
activities
before tax
Subtract tax
due to get
profit on
ordinary
activities
after tax
Final section called
‘appropriation
account’ – shows
where the
profit/loss is going
Dividend –
the share of
the profit
returned to
shareholders
Retained
Profit – the
amount kept
back for future
investment,
etc.

16.  A snapshot of the firm’s position at a point in
time
 Shows what a company owns (assets) and what
it owes (liabilities)
 Balance Sheet shows what assets a company
has (use of funds) and where the money came
from to acquire those assets (source of funds)

17. Consolidated Balance Sheet for the year ended 2003 2002 2001
Weeks 52 52 52
Currency £ million £ million £ million
Fixed assets
Intangible Assets 164.0 105.0 60.0
Tangible Assets 9487.0 10509.0 10662.0
Investments 524.0 489.0 426.0
Total Fixed Assets 10175.0 11103.0 11148.0
Current assets
Stock 87.0 109.0 170.0
Debtors due within one year 986.0 1231.0 1444.0
Short-term investments 1430.0 1155.0 865.0
Cash at bank and in hand 222.0 64.0 71.0
Total Current Assets 2725.0 2559.0 2550.0
Fixed Assets –
assets not used
up in production
or lasting longer
than one year –
equipment,
buildings,
machinery, etc.
Fixed assets can
be tangible –
i.e. physical
items or
intangible – i.e.
brand name,
goodwill.
Current Assets:
assets that are used
up during
production and
which are likely to
yield cash in the
coming year – for
example, stock will
be sold and debtors
owing the business
money will pay up!

18. Creditors: Amounts falling due within one year -2904.0 -3201.0 -3308.0
Net Current Assets (liabilities) -179.0 -642.0 -758.0
Total assets less current liabilities 9996.0 10461.0 10390.0
Creditors: Amounts falling due after more than one year -6553.0 -7097.0 -6901.0
Provisions for liabilities and charges -1169.0 -1157.0 -1164.0
Net assets 2274.0 2207.0 2325.0
Capital and reserves
Called-up share capital 271.0 271.0 271.0
Share premium 788.0 788.0 788.0
Other reserves 270.0 270.0 290.0
Profit and loss account 729.0 687.0 772.0
Equit shareholders' funds 2058.0 2016.0 2121.0
Minority interests 216.0 191.0 204.0
Total capital employed 2274.0 2207.0 2325.0
Subtracted
from the
assets are the
money the
company
owes to
creditors –
suppliers for
example
And to those
who are longer
term creditors
– loans,
mortgage on
property etc
This leaves us
with ‘Net
Assets’
The funds to
acquire these
assets must have
come from
somewhere – the
next section tells
us where it came
from.
It can come
from share
capital and
from retained
profit (profit
and loss
account)
The total
capital
employed must
be the same as
the sum of the
net assets –
hence the term
‘balance’ sheet!

19.  A guide to the structure of the assets of a company
 A guide to the level of gearing – the ratio of loan to
share capital
 Gives a guide as to the degree of working capital
– the amount the company has to be able to pay its
everyday debts (current assets – current liabilities)
 Shows the total value of a firm at that moment in
time