6.6 Terminology and Glossary of Symbols

Terminology

• Total Revenue (TR): This is the income earned by a company from its primary business activities, typically through the sale of goods and services to customers.
• Net Income (NI): This represents the profit a company makes after subtracting all its expenses from its total revenue over a specific period. Net income is calculated as Total Revenue minus Total Expenses.
• Total Costs (TC): These are the aggregate expenses a business incurs, comprising both variable and fixed costs, during its operation.
• Total Variable Costs (TVC): Variable costs are expenses that fluctuate with the level of output or sales volume. They include costs directly associated with production and sales, such as materials, labor, and sales commissions.
• Fixed Costs (FC): These costs remain constant regardless of the company’s output or sales volume within a certain period. Examples include rent, salaries for management, and property taxes.
• Contribution Margin (CM) per Unit: This metric indicates the amount by which the selling price of a product exceeds its variable costs per unit. It is a crucial figure for determining how much revenue contributes towards covering fixed costs and generating profit.
• Break-Even Point (BP): The break-even point is achieved when a company’s total revenues exactly match its total costs. At this point, the company neither makes a profit nor incurs a loss.
• Capacity: This term refers to the maximum output—either products or services—a business can produce in a given period without compromising quality or efficiency.

Glossary of Symbols

Per unit

• SP: Selling Price
• VC: Variable costs per unit
• CM: Contribution margin per unit
• X: Volume (the number of units sold)

Totals

• TR: Total Revenue
• TC: Total Costs
• TVC: Total Variable Costs
• FC: Fixed Costs
• TCM: Total Contribution Margin
• NI: Net Income

Others

• BP: Breakeven Point
• CVP Analysis: Cost-Volume-Profit Analysis