2.2.2 Sales Revenue And Costs

Question 1

Sales volume formula

Answer 1

SV = SR / SP
SV = sales volume
SR = sales revenue
SP = selling price

Question 2

Sales revenue formula

Answer 2

SR = SP x SV

Question 3

Definition: Fixed costs

Answer 3

• Fixed costs are costs that do NOT vary with the level of output e.g. rent

Question 4

Examples of fixed costs

Answer 4

• Rent payments
• Mortgage payments
• Loan payments
• Insurances
• Lease of machinery or van (monthly fixed payments)
• Salaries of managers (not wages - which may vary with output) managers will be there no matter what the level of output

Question 5

Definition: Variable costs

Answer 5

• Variable costs are costs that do vary with level of output.

Question 6

Examples of variable costs

Answer 6

• Cost of stock sold
• Raw materials
• Fuel
• Packaging
• Wages (not salaries) of staff

Question 7

Total variable cost formula?

Answer 7

TVC = AVC x Q

• TVC is Total Variable Costs
• AVC is the Average Variable Costs
• Q is the Quantity Sold (also known as SV or sales volume)

Question 8

Total costs formula

Answer 8

TC = VC + FC

• TC = Total Costs
• VC = Variable Costs
• FC = Fixed Costs