Sales, Revenue & Costs

• sales volume?


  number of units sold by a business
• sales revenue?


  value of units sold by a business
• equation for sales revenue?


  sales revenue = selling price x number of units sold
• sales revenue increases as sales volume increases
• more products sold, harder to calculate sales revenue
• fixed costs?


  costs that do not change as the level of output changes
• variable costs?


  costs that vary directly with the output
• equation for total costs?


  total fixed costs +total variable costs
• equation for total variable cost?


  total variable cost = variable cost x quantity
• equation for average total cost?

  total cost / quantity
• equation for variable cost per unit?


  total variable costs / quantity
• average total cots is cost per unit
• variable costs per unit is calculated by adding together the cost of each component
• purchasing economy of scale?


  occurs when large firms buy raw materials in greater volumes and receive a bulk purchase discount which lowers the average costs
• when variable cost is proportional to output, firm will benefit from purchasing a economy of scale and hire will no longer be proportional
• total cost cannot be 0 as all firms have some level of fixed costs
• as firms grow, it can increase its scale of output generating efficiencies that lower it's average total costs of production. these efficiencies are called economies of scale. as a firm continues increasingly its scale of output it will reach a point where its average total costs will start to increase - increase is called diseconomies of scale
• diseconomies of scale?


  occurs when an increase in the scale of output results in a higher cost per unit
• contribution?


  product's selling price minus the variable cost directly involved in producing that unit
• equation for contribution?


  selling price per unit - variable cost per unit
• why is contribution called contribution?


  because at this amount of contributes towards paying off the fixed costs of the business. once fixed costs has been paid off, then the contribution starts to contribute to the profits of the business
• contribution is used to calculate Break Even Point
• Break Even Point?


  where total revenue earned for product is = to its total costs and were business is making neither a profit nor a loss