2.2.2 Sales, Revenue & Costs

• What is sales volume?

  The number of units sold by a business
• What is sales revenue?


  The value of the units sold by a business
• Why is sales revenue important for a business?

  It is a key business performance measure and must be calculated to identify profit
• How is sales revenue calculated?

  Sales revenue is calculated using the formula: Sales Revenue = Price per Unit × Sales Volume
• How does sales revenue typically change with sales volume?

  Sales revenue usually increases as the sales volume increases
• What is the challenge in calculating sales revenue when a firm sells multiple products?

  The more products a firm sells, the harder it is to calculate the sales revenue
• How do computer systems assist in tracking sales revenue?

  Computer systems make it easier to track sales revenue when multiple products are sold by the business
• How would you calculate the sales revenue for Fotherhill Organics Limited from mail-order customers in 2022?

  By multiplying the number of packs sold (39,264) by the price per pack (£8.75)
• What is the sales revenue from gardening businesses for Fotherhill Organics Limited in 2022?

  £530,506, calculated by multiplying 4,280 tonnes by £123.95 per tonne
• What is the total sales revenue for Fotherhill Organics Limited in 2022?

  £874,066, calculated by adding the sales revenue from mail-order customers and gardening businesses
• What are the different categories of costs incurred by businesses?


  • Fixed Costs (FC): Costs that do not change with output (e.g., rent, salaries)
  • Variable Costs (VC): Costs that vary directly with output (e.g., raw materials)
  • Total Costs (TC): The sum of fixed and variable costs

  
• What are fixed costs (FC)?

  Costs that do not change as the level of output changes
• Give examples of fixed costs.

  Building rent, management salaries, insurance, bank loan repayments
• What are variable costs (VC)?


  Costs that vary directly with the output
• Give examples of variable costs.


  Raw material costs, wages of workers directly involved in production
• What are total costs (TC)?

  The sum of fixed costs and total variable costs
• How do you calculate average total cost (AC)?

  • Average Total Cost (AC) = Total Costs (TC) / Output (Q)

  
• If variable costs are $60 and output is 0, what are the fixed costs (FC) and total variable costs (TVC)?

  Fixed costs (FC) = 200, Total Variable Costs (TVC) = 0
• What is the variable cost per candle for Rosebud Aromas?

  £2.65, calculated by summing the variable costs of wax, perfume oil, glass jar, and outer packaging
• Why should a telephone bill not be included in the variable cost calculation for candles?

  Because a telephone bill is classified as a fixed cost
• What are the types of costs represented in a diagrammatic representation of costs?

  • Fixed Cost (FC): Remains constant regardless of output
  • Variable Cost (VC): Initially rises proportionally with output
  • Total Cost (TC): Sum of fixed and variable costs
  • Average Total Cost (AC): Decreases with economies of scale until diseconomies of scale occur

  
• What does contribution refer to in business terms?

  Contribution refers to a product’s selling price minus the variable costs directly involved in producing that unit
• How is contribution calculated?

  Contribution = Selling Price - Total Variable Costs
• What is the contribution for each candle sold by Rosebud Aromas?

  £12.35, calculated by deducting total variable costs (£2.65) from the selling price (£15.00)
• What is the significance of contribution in business?

  • Contributes towards paying off fixed costs
  • Once fixed costs are covered, it contributes to profits
  • Used to calculate the Break Even Point