2.2.2 Sales, revenue & costs Flashcards
What is sales volume?
The number of units sold by a business.
What is sales revenue?
The value of the units sold by a business.
What is the formula for sales revenue?
selling price x number of units sold
What are fixed costs?
Costs that do not change as the level of output changes.
- Examples are building rent, insurance, management salaries.
What are variable costs?
Costs that vary directly with the output (variable costs increase as output increases).
- Examples are raw material costs, wages of workers directly involved in the production.
What are total costs?
The sum of the fixed and variable costs.
What is the formula for total costs?
total fixed costs + total variable costs
What is the formula for total variable cost?
variable cost x quantity
What is the formula for average total cost?
total cost ÷ quantity
What is the formula for variable cost per unit?
total variable costs x quantity
What are economies of scale?
It occurs when an increase in the scale of output results in a lower cost per unit.
What are diseconomies of scale?
It occurs when an increase in the scale of output results in a higher cost per unit.
How is contribution calculated?
selling price per unit - variable cost per unit
Why is contribution called ‘contribution’?
It 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.
