Edexcel AS Business

2.2.2 Sales, revenue and costs

 Theme 2 Retrieval Challenge Matrix
1 point 2 points 3 points
Define ‘economic Describe the assets that a Explain two uses of cash-
variables’ business might sell to flow forecasting
raise finance
What is ‘crowdfunding’? Describe the finance Explain two difficulties in
suitable for an unlimited sales forecasting
liability business
Why is limited liability Describe the advantages Give two appropriate
good news for business? of trade credit to a small methods of finance for a
business small start-up business
Calculators will be needed for this topic
You will need worksheet 2.2.2 for this unit
From Edexcel
a) Calculation of sales volume and sales revenue
b) Calculation of fixed and variable costs
Starter
• If you were going to start a business selling products
at a festival – what products would you sell?
Your festival business
• You have decided to set up a
business selling a variety of fun
items on a stall at music festivals
including; wellies, hats and
sunglasses
Some basic terms
Your festival stall is ready and you are trading today:
• Cash that buyers pay you for goods is sales
revenue
• The amount that you bought the wellies from the
wholesaler for is a variable cost
• The amount you paid out to rent the stall is also a
fixed cost
• If, at the end of the festival, you have more revenue
than you paid out in costs – then you have made a
profit
Calculation of sales volume and sales
revenue
Sales Volume formula
• This is the quantity of products sold in a specified period (e.g. a year)

SV = SR /SP
Where:
• SV = Sales Volume
• SR = Sales Revenue
• SP = Selling Price

Write down this formula and get out your calculator

and prepare to try some examples
Calculation of sales volume example

SP = Selling Price SV = Sales Volume SR = Sales Revenue

SR SP SV

Hats £100,000 40p

Sunglasses £60,000 £1.20

Wellies £80,000 £4.60

Express your answers in number of units sold

Calculation of sales volume answer

SR SP SV

Hats £100,000 40p 250,000 units

Sunglasses £60,000 £1.20 50,000 units

Wellies £80,000 £4.60 17,391 units

 Sales Revenue formula
• Money into your business through sales is called sales revenue (it is
also sometimes called turnover). This will be cash paid by customers
for your goods. It may help to imagine a cash tin full of coins.

SR = SP x SV

Write down this formula and get out your calculator

and prepare to try some examples
Calculation of sales revenue example

SP = Selling Price SV = Sales Volume SR = Sales Revenue

SP SV SR

Hats £5.50 40,000

Sunglasses 30p 125,000

Wellies £2.00 65,000

Express your answers in £ pounds

Calculation of sales revenue answer

SP SV SR

Hats £5.50 40,000 £220,000

Sunglasses 30p 125,000 £37,500

Wellies £2.00 65,000 £130,000

Calculation of fixed and variable costs
Definition: Fixed costs
• Fixed costs are costs that do NOT vary with the level of output e.g.
rent
Examples of fixed costs
• Rent payments
• Mortgage payments
• Loan payments
• Insurances
• Lease of machinery or van (monthly
fixed payments)
• Salaries of managers (not wages - which
may vary with output) managers will be
there no matter what the level of output
• What do you think the fixed costs to
your festival business would be?
Fixed costs of a festival business
• The fixed cost to a festival
business would be the rental
cost of the stall – this would be
paid to the festival organisers

• A good pitch at Latitude festival

can cost as much as £10,000*
this has to be paid – even if the
business makes no revenue at
all, so it is a fixed cost
Calculation of fixed costs
• These costs are the same at all levels of production
• From 0 to full capacity the fixed cost line will be the same
£ cost

In this example the

fixed costs at zero
unit production is
£40,000 and the
FC fixed costs when
40,000 making 500 units is
still £40,000

0 Output 500
Fixed costs on a bank loan
• Fixed costs for a business may include 1) To calculate the total cost of credit:
the interest (payable monthly) on a 5000 x 9.9% = 495
business loan
• For example a loan of £5,000 at 9.9% 2) To calculate the total amount repayable
over 3 years would be:
5000 + 495 for the credit = 5495

Total cost of credit £____________

3) To calculate the monthly repayments on

Total amount repayable £______________ 3 years
5495 / 36 (months) = 152.64 (Rounded to 2
Monthly repayments £_________________ decimal places)
Bank loan calculation examples
Example A Example B Example C Example D
Amount borrowed £30,000 £10,500 £4,500 £9,000
Number of years 5 10 3 4
loan is over
Percentage rate of 7% 5.5% 6% 8.25%
the loan
Total cost of credit
Total amount
repayable
Monthly repayments
 Bank loan calculation answers
Example A Example B Example C Example D

Amount borrowed £30,000 £10,500 £4,500 £9,000

Number of years loan 5 10 3 4

is over

Percentage rate of the 7% 5.5% 6% 8.25%

loan

Total cost of credit £2,100 £577.50 £270 £742.50

Total amount repayable £32,100 £11,077.50 £4,770 £9,742.50

Monthly repayments 60 months 120 months 36 months 48 months

£535 a month £92.31 a month £132.50 a month £202.97
Definition: Variable costs
• Variable costs are costs that do vary with level of output.
Variable costs
Examples of variable costs:
• Cost of stock sold
• Raw materials
• Fuel
• Packaging
• Wages (not salaries) of staff

• What do you think are the variable

costs of your festival business? (See
next slide for answers)
Variable costs of a festival business
• Variable costs of a festival
business might be:
• Food and drink if that is what is
being sold
• Clothes to sell
• Wages of any temp staff hired just
for the festival
Total variable cost formula

TVC = AVC x Q
Where:
• TVC is Total Variable Costs
• AVC is the Average Variable Costs
• Q is the Quantity Sold (also known as SV or sales volume)

Write down this formula and get out your calculator

and prepare to try some examples
 Total variable costs calculation
• Calculate the Total variable costs (TVC) for these three business

AVC Q TVC

A £2.25 40,000

B 40p 125,000

C £6.50 65,000

Express your answers in £ pounds

Total variable costs answers

AVC Q TVC

A £2.25 40,000 £90,000

B 40p 125,000 £50,000

C £6.50 65,000 £422,500

Total costs formula
The Total Costs figure is the sum of all the costs in reaching a certain level
of output:

TC = VC + FC
Where:
• TC = Total Costs
• VC = Variable Costs
• FC = Fixed Costs
Write down this formula and get out your calculator
and prepare to try some examples
 Total costs calculation
• Calculate the Total costs for these three businesses

FC VC TC

A £30,000 £66,000

B £42,000 £52,400

C £127,000 £170,000

Express your answers in £ pounds

Total costs answers

FC VC TC

A £30,000 £66,000 £96,000

B £42,000 £52,400 £94,400

C £127,000 £170,000 £297,000

Formula to calculate changes
• From time to time you may need to calculate percentage changes in
sales revenue, sales volume, quantity sold or price

New - old
X 100
Old

To get the change use, if it helps think NOOOOOOOO

Plenary Quiz
• Give the formula for:

A. Total costs
B. Total variable costs
C. Sales volume
D. Sales revenue
E. Total revenue
F. % change in total costs or total revenue
 Sample AS questions
AS exam questions on Paper 1
Marketing and People have the
following tariffs:
2 marks
4 marks
8 marks
10 marks
20 marks
Sample question 1

Knowledge 2
Peer / self marking grid for 2 mark essay
question
Mark
Knowledge 2 Giving a correct definition, award 1 mark
Adding some development, extra information, or an example, award 1 mark
Max 2 marks

Examples of peer review comments:

What went well: You gave a correct business definition
Even better if: You had developed your point, or given an example
Sample question 2

Knowledge 2
Peer / self marking grid for 2 mark essay
question
Mark
Knowledge 2 Giving a correct definition, award 1 mark
Adding some development, extra information, or an example, award 1 mark
Max 2 marks

Examples of peer review comments:

What went well: You gave a correct business definition
Even better if: You had developed your point, or given an example
Case Study for sample question 3
Sample question 3

Knowledge 2
Peer / self marking grid for 2 mark essay
question
Mark
Knowledge 2 Giving a correct definition, award 1 mark
Adding some development, extra information, or an example, award 1 mark
Max 2 marks

Examples of peer review comments:

What went well: You gave a correct business definition
Even better if: You had developed your point, or given an example
Sample question 4

Knowledge 2
Peer / self marking grid for 2 mark essay
question
Mark
Knowledge 2 Giving a correct definition, award 1 mark
Adding some development, extra information, or an example, award 1 mark
Max 2 marks

Examples of peer review comments:

What went well: You gave a correct business definition
Even better if: You had developed your point, or given an example
Sample question 5

Knowledge 2
Peer / self marking grid for 2 mark essay
question
Mark
Knowledge 2 Giving a correct definition, award 1 mark
Adding some development, extra information, or an example, award 1 mark
Max 2 marks

Examples of peer review comments:

What went well: You gave a correct business definition
Even better if: You had developed your point, or given an example
Glossary
• Sales revenue; Also known as turnover, this is the amount the
business is sold and is calculated by price x quantity, or p x q
• Sales volume; the quantity sold
• Fixed cost; A cost to the business which does not vary with output
• Variable cost; A cost to the business which does vary with output
Thank You