Sales, Revenue & Costs (Edexcel A Level Business)

• Sales volume is the number of units sold by a business
  • E.g. the number of Harry Styles album download purchases
    
    
• Sales Revenue is the value of the units sold by a business
  • E.g the revenue earned by Apple Music from sales of music downloads 
  • Sales revenue is a key business performance measure and must be calculated to identify profit
  • Sales revenue is calculated using the formula

• • Sales revenue usually increases as the sales volume increases
    
    
• When a firm sells one product it is easy to calculate the sales revenue
  • The more products a firm sells, the harder it is to calculate the sales revenue
  • Computer systems make it easier to track sales revenue when multiple products are sold by the business

• In preparing goods/services for sale, businesses incur a range of costs. These costs can be broken into different categories
  

1. Fixed costs (FC) are 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.
       
       
2. Variable costs (VC) are costs that vary directly with the output
   • These increase as output increases & vice versa
     • E.g. raw material costs, wages of workers directly involved in the production
       
       
3. Total costs (TC) are the sum of the fixed + total variable costs 

•  Based on the above definitions, we can calculate several different types of costs

• The average total cost is the cost per unit

   
Cost Calculations Using the Above Formulas Where VC is $60

Output (Q)	FC	TVC =	TC =	AVC =	AC =
0	200	-	200	-	-
1	200	60	260	60	260
2	200	120	320	60	160
3	200	180	380	60	126.67
4	200	240	440	60	110
5	200	300	500	60	100
6	200	360	560	60	93.33
7	200	420	620	60	88.57
8	200	480	680	60	85

Variable costs per unit

• Variable costs per unit are calculated by adding together the cost of each component or raw material used to produce the unit

Sketches Which Represent the Different Costs of a Firm

• Contribution refers to a product’s selling price minus the variable costs directly involved in producing that unit
   
• Contribution can be calculated using the following formula

• 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
     
    
• The contribution calculation is used to calculate the Break Even Point