2.2.2 Sales, Revenue & Costs Flashcards
Define sales volume.
- The number of units sold by a business
e.g. The number of Harry Styles album downloaded purchases
Define sales revenue.
- The value of the units sold by a business
- Its a key business performance measure & must be calculated to identify profit
e.g. the revenue earned by apple music from sales of music downloads
How do you calculate sales revenue?
SR= Selling Price X Number of Units Sold
Sales revenue usually increases as sales volume increases
What are the 3 types of costs?
Fixed Costs
- Costs that do not change as the level of output changes
These have to be paid whether the output is zero or 5000 e.g. building rent, management salaries, insurance, bank loan repayments etc.
Variable Costs
- Costs that vary directly with the output
- These increase as output increases & vice versa
- E.g. raw material costs,
Total Costs
- The sum of the fixed + total variable costs
How do you calculate total costs?
TC= Total fixed costs + Total variable costs
How do you work out total variable costs?
TVC= Variable cost X Quantity
How do you work out average total cost (ATC)
ATC= Total cost/ Quantity
How do you work out variable cost per unit? (AVC)
- Total variable costs / Quantity
Define ‘contribution’.
- Refers to a product’s selling price minus the variable costs directly involved in producing that unit
How do you calculate contribution?
C= Selling price per unit- variable cost per unit
It is called contribution as this amount contributes towards paying off the fixed costs of the business
Once the fixed costs have been paid off, then the contribution starts to contribute to the profits of the business