Sales revenue and costs(2.2.2) Flashcards
What is sales volume?
refers to the number of units of a product or service that a business sells in a certain amount of time such as a week month or year
Sales volume-sales revenue and costs
can be measured in different ways according to the nature of the business e.g units litres hours
reflects the quantity of goods or services sold by a business
this allows businesses to track their performance and make informed decisions about their operations such as inventory management pricing strategies and resource allocation
What is sales revenue?
the total amount of money a business makes from selling its goods or services over a certain period of time
Sales revenue equation
sales revenue = price x quantity sold
What are business costs (expenses)?
refer to the money a business has to pay in order to operate and make money from sales
e.g salaries wages rent utilities equipment materials marketing costs
Business costs-sales revenue and costs
one of the key aims any business will set when undertaking financial planning activities is to make enough money to cover all of its expenses to ensure the business initially survives then makes a profit in the long term
to ensure a business can effectively plan financially and make decisions its crucial that a business has accurate and reliable cost information
Variable costs-sales revenue and costs
important consideration for businesses as they directly impact the profitability of each unit produced or sold
e.g. raw material costs, wages of workers directly involved in the production
Variable cost example
raw materials + transaction fees + hourly employee pay
What are fixed costs?
expenses that do not vary with the level of output
e.g. building rent, management salaries, insurance, bank loan repayments etc
Fixed costs-sales revenue and costs
costs that a business incurs regardless of how much it produces or sells
typically incurred over a certain period and are not directly related to the number of products or services a business produces
important aspect of a business financial planning because they provide a baseline for the minimum expenses that must be covered regardless of the level of production or sales
e.g rent/mortgage wages/salary
What are total costs?
refer to the sum of all expenses incurred by a business to produce and sell its products or service
Total costs equation
total costs = fixed costs + variable costs
Revenue equation
revenue = selling price x quantity sold
Average cost equation
average cost = total costs / output
