Sales, Revenue and Costs

The sales, revenue and costs section of A-Level Business. Topics covered include: sales volume and sales revenue, fixed and variable costs and total costs. 

Sales Volume and Sales Revenue

Understanding the relationship between sales volume, sales revenue, and selling price is crucial for business decision-making and financial planning.

Sales Volume

Sales Volume refers to the quantity of goods or services a business sells over a given period (usually measured monthly, quarterly, or annually).

Formula:

$$\text{Sales Volume} = \text{Total Units Sold}$$ 

Example: If a business sells 2,000 units of a product in one month, the sales volume is 2,000 units.

Sales Revenue

Sales Revenue (also known as turnover or total revenue) is the total amount of money generated from selling goods or services.

Formula:

$$\text{Sales Revenue} = \text{Sales Volume} \times \text{Selling Price per Unit}$$ 

Example: If 2,000 units are sold at £15 each:

$$\text{Sales Revenue} = 2,000 \times £15 = £30,000$$ 

Key Point:
Sales revenue does not account for costs, it’s purely income from sales before any expenses are deducted.

Fixed and Variable Costs

Understanding costs is essential for calculating profits and setting prices effectively.

Fixed Costs

Fixed Costs are expenses that do not change with the level of output or sales. They must be paid regardless of how much a business produces or sells.

Examples:

• Rent
• Salaries (not based on hours worked)
• Insurance
• Loan repayments

Variable Costs

Variable Costs change directly with the level of output. The more a business produces or sells, the higher the variable costs.

Examples:

• Raw materials
• Packaging
• Hourly wages
• Energy used in production

Formula for Total Variable Costs:

$$\text{Total Variable Costs} = \text{Variable Cost per Unit} \times \text{Output}$$ 

Total Costs

Total Costs Formula:

$$\text{Total Costs} = \text{Fixed Costs} + \text{Total Variable Costs}$$ 

Example:

• Fixed Costs = £10,000
• Variable Cost per Unit = £4
• Output = 2,000 units

$$\text{Total Variable Costs} = 2,000 \times £4 = £8,000$$

$$\text{Total Costs} = £10,000 + £8,000 = £18,000$$ 

Summary Table