2.2.2 Sales, Revenue & Costs

Formulas that you need to know:

$$Sales volume = Total revenue/selling price$$ $$= Sales of a product in a given time period$$ $$Sales revenue = Quantity sold x Selling price$$ $$= Income generated from sales$$ $$Fixed costs = Costs that don't change with output e.g., rent, insurance, salaries$$ $$Variable costs = Costs that change with output e.g., raw materials, wages, packaging$$ $$Total costs = Fixed costs + Variable costs$$ $$Total variable costs = Variable cost per unit x Number of units sold$$

Sales, Revenue, and Costs Example Questions

a) Calculation of Sales Volume and Sales Revenue

Example Question 1:

• A company sells a product for £25 per unit. In one month, the company sold 1,200 units. Calculate the sales revenue for that month.

• Sales Revenue = Sales Price per Unit x Sales Volume
• Sales Revenue = £25 x 1,200 = £30,000

Example Question 2:

• If a business aims to generate £50,000 in sales revenue by selling a product priced at £20 per unit, how many units must the business sell?

• Sales Volume = Sales Revenue ÷ Sales Price per Unit
• Sales Volume = £50,000 ÷ £20 = 2,500 units

Example Question 3:

• A business expects to sell 800 units of its product. If the expected sales revenue is £64,000, what is the price per unit?

• Sales Price per Unit = Sales Revenue ÷ Sales Volume
• Sales Price per Unit = £64,000 ÷ 800 = £80 per unit

b) Calculation of Fixed and Variable Costs

Example Question 1:

• A company has fixed costs of £10,000 per month. The variable cost per unit is £5, and the company produces 2,000 units in a month. Calculate the total costs for that month.

• Total Variable Costs = Variable Cost per Unit x Number of Units Produced
• Total Variable Costs = £5 x 2,000 = £10,000
• Total Costs = Fixed Costs + Total Variable Costs
• Total Costs = £10,000 + £10,000 = £20,000

Example Question 2:

• A company's fixed costs are £15,000 per year. If the business produces 5,000 units and the variable cost per unit is £3, what are the total variable costs and the total costs?

• Total Variable Costs = Variable Cost per Unit x Number of Units Produced
• Total Variable Costs = £3 x 5,000 = £15,000
• Total Costs = Fixed Costs + Total Variable Costs
• Total Costs = £15,000 + £15,000 = £30,000

Example Question 3:

• If a business has fixed costs of £12,000 and total costs of £25,000 when producing 1,300 units, what is the variable cost per unit?

• Total Variable Costs = Total Costs - Fixed Costs
• Total Variable Costs = £25,000 - £12,000 = £13,000
• Variable Cost per Unit = Total Variable Costs ÷ Number of Units Produced
• Variable Cost per Unit = £13,000 ÷ 1,300 = £10 per unit

These questions and answers provide practice for calculating key finan