measure the amount of a good or service that a business sells over a period of time.
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Sales volume definition
tells us the number of a specific product that is sold in a given time period.
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Sales revenue definition
is the income that is generated from sales of a product or service.
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Total revenue (TR) definition
(sales revenue) is the total of all revenues earned by a business, many businesses sell a range of products or services.
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Sales volume formula
Sales revenue/Unit price
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Sales revenue formula
Selling price x sales volume
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Costs definition
are the expenses a business must pay in order to produce goods and services. Payments including wages, rent, power, advertising and raw materials.
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Total costs (TC) definition
are all costs involved in producing goods or services.
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Total cost (TC) formula
Total fixed costs (TFC) + Total variable costs (TVC)
TC = TFC +TVC
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Fixed costs (FC) definition
Costs do not change with level of output produced.
(Eg. rent, loan repayments, managers' salaries)
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Average fixed costs (AFC) formula
total fixed costs (TFC) / output (Q)
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Total variable costs (VC) definition
Costs do change with level of output.
(Eg. raw materials, energy bills and wage costs)
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Average variable costs (AVC) formula
total variable costs (TVC) / output (Q)
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Average total costs (ATC) formula
total costs (TC) / output (Q)
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Total costs can also be calculated as...
cost per unit of output x quantity produced
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Profit definition
the difference between the value of the total sales revenue of a business and the total costs involved in producing that output. Total revenue - total costs.
Profit = TR - TC
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Profit formula
total revenue - total costs
TR - TC
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Break even definition
A business breaks even when total costs are exactly equal to total sales revenue.
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Contribution formula
selling price - variable cost per unit
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Total contribution formula
sales revenue - total variable costs
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Contribution definition
the difference between the price of a product and its variable cost.
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Describe contribution
Subtracting the AVC from the unit price the actual costs of producing are one item paid off.
What is left over is contribution (not profit), fixed costs still need to be paid for.
Can be used to pay off fixed costs.
Once paid off the breakeven point is re
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Break even point (BEP) definition
the level of output at which the total revenue is exactly the same as the total costs. Neither a profit or a loss is being made.
TR = TC
When sales revenue is above BEP a profit is made if below a loss is made.
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Break even point formula
Fixed costs/ contribution (P - VC)
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Another profit formula
(total sales - breakeven sales level) x contribution
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Margin of safety definition
the difference between the actual level of output and the break even level of output.
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Other cards in this set
Card 2
Front
tells us the number of a specific product that is sold in a given time period.
Back
Sales volume definition
Card 3
Front
is the income that is generated from sales of a product or service.
Back
Card 4
Front
(sales revenue) is the total of all revenues earned by a business, many businesses sell a range of products or services.
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