ESCOLA TÈCNICA GIRONA “GIRONA”

Codi 17007968, 17008638 Centre autoritzat

Sales and costs

A. SALES
The goods and services that a business sells, and the money it receives from them
from customers, are its sales. Denise van Beek of Nordsee Marine works in sales. In
fact, she is sales director, in charge of the sales department. Denise is talking to her
sales team at a sales meeting.

‘Our sales figures last year were good and revenue or turnover – money from sales
– was 14.5 million euros, on sales volume or unit sales of 49 boats. This was above
our target for the year of 13 million euros. We estimate our sales growth next year at
10 per cent as the world economy looks good and there is demand for our products, so
my sales forecast for next year is nearly 16 million euros.’

Sale and sales are nouns. Sell (sold, sold) is a verb. In shops, the sales are a period
when goods are sold more cheaply than at other times. BrE/AmE: sales revenue; BrE
only: sales turnover

Uses of the word ‘sale’:

make a sale: sell something
be on sale: be available to buy
unit sales: the number of things sold
Sales: a company department
A sale: a period when a shop is charging less than usual for goods
The sales: a period when a lot of shops are having a sale

B. COSTS
Cost accounting involves calculating the costs of different products or services, so
that company managers can know what price to charge for particular products and
services and which are the most profitable. Direct costs - those that can be directly
related to the production of particular units of a product — are quite easy to calculate.
Examples include manufacturing materials and manufacturing wages. But there are
also indirect costs or overheads - costs and expenses that cannot be identified with
particular manufacturing processes or units of production. Examples include rent or
property taxes for the company’s offices and factories, electricity' for lighting and
heating, the maintenance department, the factory canteen or restaurant, managers'
salaries, and so on. Costs such as these are often grouped together on the profit and
loss account or income statement as Selling, General and Administrative Expenses.
Some costs, especially indirect ones, are also called expenses or operating
expenses.

Companies also differentiate between fixed costs and variable costs. Fixed costs are
those that do not change in the short term, even if the production level changes, such
as rent and interest payments. Variable costs are those that change in proportion to the
volume of production, such as components and raw materials, and overtime payments.

 direct costs are directly related to providing the product (e.g. salaries).
 fixed costs do not change when production goes up or down (e.g. rent, heating,
etc.).
 variable costs change when production goes up or down (e.g. materials).
 cost of goods sold (COGS): the variable costs in making particular goods (e.g.
materials and salaries).
 ESCOLA TÈCNICA GIRONA “GIRONA”
Codi 17007968, 17008638 Centre autoritzat

 overheads, overhead costs or indirect costs are not directly related to

production (e.g. administration). Overheads is much more commonly used than
overhead costs, and indirect costs is the least frequently used.

C. MARGINS AND MARK-UPS BrE: overheads (plural noun);

Here are the calculations for one of Nordsee’s boats: AmE: overhead (uncountable

■ selling price = 50,000 euros

■ direct production costs = 35,000 euros
■ selling price – direct production costs = gross margin = 15,000 euros
■ total costs = 40,000 euros
■ selling price – total costs = net margin, profit margin or mark-up = 10,000 euros

The net margin or profit margin is usually given as a percentage of the selling price,
in this case 20 per cent.
The mark-up is usually given as a percentage of the total costs, in this case 25 per
cent.

Choose the correct expression from B to describe Ford Motor’s costs.

1. the salary of an office receptionist (direct cost / indirect cost)

2. heating and lighting of the building where cars are made (fixed cost / variable cost)
3. the materials used in the cars, and the salaries of production workers (overhead cost /
COGS)
4. running the office (overhead cost / direct cost)
5. metal used in making the cars (fixed cost/ variable cost)
6. the salary of a worker building the cars (direct cost / indirect cost)

Sort the following into direct, indirect, fixed and variable costs.

Cost Direct Indirect Fixed Variable

Advertising expenses
Components  
Electricity to run machines
Electricity for heating
Equipment repairs
Factory canteen
Overtime pay
Raw materials
Property tax
Rent
ESCOLA TÈCNICA GIRONA “GIRONA”
Codi 17007968, 17008638 Centre autoritzat