Costs can be classified into fixed (don’t change with output) and variable (change with output)

Direct costs are costs directly related to the costs of producing an item, indirect costs are not directly related

Revenue = average selling price x quantity

Profit = Total costs – Total revenue

Profit is the number one objective of most firms in the private sector

Contribution = Selling price – variable cost.  It looks at how much each unit is contributing to fixed costs

Break Even Analysis - where a business makes neither a profit or a loss

Break even equation = Fixed costs / contribution per unit