7. Sales, Revenue And Costs Flashcards
What is sales revenue?
Value of output sold by a business (total revenue)
How do you calculate sales revenue?
Sales revenue = selling price x quantity sold
What is the importance of business costs? (Cost data)
Business needs accurate and reliable cost information to make decisions
Includes wages, raw materials, insurance and rent
Important to understand how the costs of the business change in the short run to the long run
What is the short run?
The period of time when at least one factor of production is fixed
What are the factors of production?
Land (premises)
Capital (machinery)
Labour
Enterprise (social + private)
3 factors can be fixed and one changing (labour)
What happens in the long run?
All factors can vary.
If all factors are changing they are long run, the firm can buy another and add to the number of machinery
This will increase capacity (max amount that can be produced)
What are fixed costs?
Stay the same at all levels of output in the short run
Examples of fixed costs will remain the same whether a business produces nothing or is working at full capacity
What are examples of fixed costs?
Rent
Insurance
Depreciation (decrease of value of an asset eg. Used car)
Capitals costs (eg. Factories and machinery)
What are variable costs?
Cost of production which increase directly as output (production/volume) rises
What are examples of variable costs?
Raw materials
Fuel
Packaging
Wages
Depend on output produced
How do you calculate total cost?
Total cost (TC) = fixed costs (FC) + Total Variable Costs (TVC)
How is average cost/unit cost calculated?
Average costs = total cost/output
How is profit and loss calculated?
Profit = total revenue - total costs
How is sales volume improved?
• advertising : promotion & improved targeting
• extending distribution network
• improving sales revenue
• adding complementary services / products
Advertising impact on sales volume
Businesses tend to sell more output if they increase expenditure/ advertising
Must monitor impact of increased expenditure on profit as it may have negative impact on profit when though sales revenue rises
What are examples of promotion ?
Coupons
Merchandising
Free gifts
Sponsorship
How do you improve targeting?
Social media
Extend product range eg. Add new flavors
Extended distribution network impact on sales volume
Improves relationship with customers
Improving sales revenue Impact on sales volume
Changing price
Depends on:
Inelastic (necessities)
Elastic (luxuries)
Adding complementary services / products impact on sales volume
Business can generate more sales revenue if it can persuade customers to buy additional services produced
