Sales, Revenue, Costs 2.2.2

Sales volume - The amount of sales expressed as a number of units sold

Sales revenue - is the amount of sales expressed as the total sum of money spent by consumers. Revenue is the money coming in from the sale of goods and services.

Fixed costs - Fixed costs do not change as output varies.  In other words, they are fixed even if output moves up or down from period to period.

Variable costs - Costs which change when output changes are called “variable costs”

Total costs - Fixed costs + Variable costs

Sales volume =Sales revenue / Selling price
Sales revenue = selling price x quantity sold
Total variable costs = number of units sold x variable cost per unit
Total costs = Fixed costs + variable costs

 

 This is what fixed, variable, total costs and revenue would look like on a graph

 1) Revenue
 Increases with the amount of units sold and therefore starts at 0 and slopes upwards when shown on a graph.

2) Fixed Costs 
Fixed costs remain the same regardless of output so are shown as a straight horizontal line when shown on a graph.

3) Variable Costs
Variables costs change in relation to the number of items produced e.g. raw materials. 
Variable costs per unit or average variable costs (AVC) are multiplied by the number of units to calculate total variable costs (TVC)    


AVC x Q = TVC

Variable costs start at zero and slope upwards when shown on a graph.

4) Total Costs
Total costs are fixed costs plus total variable costs

FC + TVC = TC   

Total costs start at the fixed costs point on the Y axis and slope upwards parallel to the variable cost line.