2.2.2 Sales, Revenue & Costs Flashcards

1
Q

Define sales volume.

A
  • The number of units sold by a business

e.g. The number of Harry Styles album downloaded purchases

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2
Q

Define sales revenue.

A
  • 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

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3
Q

How do you calculate sales revenue?

A

SR= Selling Price X Number of Units Sold

Sales revenue usually increases as sales volume increases

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4
Q

What are the 3 types of costs?

A

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

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5
Q

How do you calculate total costs?

A

TC= Total fixed costs + Total variable costs

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6
Q

How do you work out total variable costs?

A

TVC= Variable cost X Quantity

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7
Q

How do you work out average total cost (ATC)

A

ATC= Total cost/ Quantity

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8
Q

How do you work out variable cost per unit? (AVC)

A
  • Total variable costs / Quantity
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9
Q

Define ‘contribution’.

A
  • Refers to a product’s selling price minus the variable costs directly involved in producing that unit
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10
Q

How do you calculate contribution?

A

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

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