Final answer:
To calculate profits, subtract the sum of total variable costs and total fixed costs from total revenue. Using the example of a barbershop, if revenue is $500, and total costs are $320, the profit is $180. With another example, if the revenue is $20,000, but costs are $25,000, there is a $5,000 loss.
Step-by-step explanation:
Understanding Profit Calculation in Business
To calculate profits, one must understand that profits are determined by subtracting both total variable costs and total fixed costs from total revenue. In the context of a barbershop scenario, where the fixed costs of operating, including space and equipment, are $160 per day, and variable costs are $80 per barber each day, the calculation is straightforward. For example, with two barbers hired, the total variable cost would be 2 × $80 = $160. If we add the fixed costs, the total cost for the day sums up to $160 (fixed) + $160 (variable) = $320. Therefore, if the total revenue for the day is, say, $500, the profit is calculated as $500 (revenue) - $320 (total costs) = $180 profit.
If we apply this formula to a situation where a center earns revenues of $20,000, with variable costs at $15,000 and fixed costs at $10,000, the profit calculation would be:
Profit = Total Revenue - (Fixed Costs + Variable Costs) = $20,000 - ($10,000 + $15,000) = -$5,000. This indicates a loss since expenses exceed revenues.