Session 38 - sales, revenue and costs Flashcards
What factors make up finance
Revenue, cost
What is revenue
the value of total sales made by a business within a period
What is costs
the expenses incurred by a firm in producing and selling its products, such as wages and other raw materials
What is the formula for sales revenue
Selling price x sales volume
What is the formula for profit
Total revenue - total costs
What is the formula for average variable costs
Total variable costs/output
What is the formula for sales volume
Sales revenue/selling price
What is the formula for cost per unit
Total costs/output
What is the formula for fixed costs
Costs that DO NOT vary with output (output = quantity of goods made)
What is the formula for total variable costs
Average variable costs x output
What is the formula for variable costs
Costs that DO vary with output
How can companies increase sales revenue
Reduce/increase selling price, sell more
Why are costs important to a business
Businesses need to understand their cost of production (how much it costs them to make stuff!) in order to ascertain if it is worth producing goods and services at that price level
Businesses need to compare actual costs with forecasted budgets to ensure their business plan is on track
Businesses must ensure they manage cash flow and day to day costs of running are covered or business will come to a halt
If costs increase the businesses may not make the forecasted profit (this could dishearten investors)
If costs are too high they might not be able to reduce prices and stay competitive
How is cost per unit calculated
Total costs/No. of units
Define fixed costs
These are costs that DO NOT vary with the level of output or sales. e.g. SALARIES or RENT
