What is the difference between fixed and variable costs?
Fixed costs do not change with output level (e.g. rent, salaries); variable costs change in proportion to output (e.g. raw materials, hourly wages). Learn it step by step →
Finance is a core part of GCSE Business Studies. Revise the key concepts and common mistakes below, then lock them in with the free games.
Key concepts
RevenueMoney earned from sales (price x quantity)
Fixed costCost that doesn't change with output (e.g. rent)
Variable costCost that rises with output (e.g. materials)
Total costFixed costs + total variable costs
Gross profitRevenue minus cost of sales
Net profitGross profit minus all other expenses
Gross profit marginGross profit / revenue x 100
Net profit marginNet profit / revenue x 100
ARRAverage annual profit / investment x 100
InvestmentMoney spent now to gain returns later
Operating profitProfit from trading before interest and tax
ProfitabilityHow well a firm turns sales into profit
OverdraftBank lets you spend more than your balance
Trade creditBuy now from supplier, pay later
What your exam board covers
Where Finance sits in each exam board's specification. Tap a board to see what it lists.
Questions where students often pick the tempting wrong answer — make sure you know the right one:
What is the difference between fixed and variable costs?✗ Fixed costs are paid every month and variable costs are paid weekly.✓ Fixed costs do not change with output level (e.g. rent, salaries); variable costs change in proportion to output (e.g. raw materials, hourly wages).
What is the difference between gross profit and net profit?✗ Gross profit and net profit are the same thing.✓ Gross profit = revenue minus cost of sales; net profit = gross profit minus all other operating expenses (overheads) and interest. Net profit is the bottom line.
What is the difference between profit and revenue?✗ Profit and revenue are different words for the same thing.✓ Revenue is total income from sales (price x quantity sold); profit is revenue minus total costs — what is left after paying for everything.
Why can a profitable business still fail?✗ If a business is profitable it cannot run out of money.✓ Because cash flow and profit are different — a business may be profitable on paper but run out of cash to pay bills, especially if customers owe money or stock ties up funds.
Gross profit margin uses which formula?✗ (Net profit / costs) x 100✓ (Gross profit / revenue) x 100
Practise Finance — free games
Test yourself with these quick revision games for this topic:
