Calculating profit or loss for a given output

To calculate profit or loss for a given level of output, find the total revenue for that output and the total costs for that output, then subtract total costs from total revenue. A positive answer is a profit, a negative answer is a loss, and a result of zero means the enterprise has made neither a profit nor a loss on that output.

Work through it in stages

A student enterprise making scented candles sells a batch of 150 at £6 each. Workshop hire for the batch is £250 and each candle uses £2.20 of wax and wick.

Where fixed and variable costs are given separately, add them to find total costs before you subtract. Leaving the fixed costs out would make the profit look bigger than it really is.

Keep per-unit and total figures apart

You can work out profit or loss for a single unit, for a batch or for a whole output, but the two figures you subtract must be the same kind. Subtracting total costs from the selling price of one candle, or subtracting cost per unit from total revenue, mixes the two types and gives a meaningless answer. If you are given only per-unit figures, find the profit or loss per unit first and then scale it up by multiplying by the number of units, as long as that per-unit figure is the same for every unit.

Check the time period

Every figure must cover the same period. If a market stall costs £240 a month but you want the profit for a year, the fixed costs for that year are 12 × £240 = £2,880, and you must use a full year of revenue and variable costs. Comparing a yearly figure with a monthly one gives a badly wrong answer. Label each stage of your working so the method is easy to follow.