Sales, revenue and costs — Edexcel A-Level Business
Test yourself on Sales, revenue and costs with PEARSON EDEXCEL A-Level practice questions.
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Sales, revenue and costs explained
Volume is the count of units sold in a period, measured in units, and revenue is selling price multiplied by quantity sold, measured in pounds.
Read the full explanation
Rearranged, volume is revenue divided by price and average selling price is revenue divided by volume, which is how an examiner hides a price change inside a revenue table. Market share is the firm sales divided by total market sales times one hundred, and it differs by volume and by value, so a discounter can hold a large volume share and a small value share. Reading the two together is the point. Revenue rising while volume falls means price increases are carrying the growth, which is fragile if demand is price elastic; volume rising while revenue stalls means discounting is buying customers at the expense of margin.
b) Calculation of fixed and variable costs
The split is by behaviour as output changes, not by size. Rent, salaried staff, insurance, business rates and depreciation stay the same whether the factory runs flat out or stands idle; materials, packaging, commission and piece rate pay move directly with units made. Total variable cost is variable cost per unit multiplied by output, and total cost is fixed cost plus total variable cost. Semi variable items such as an energy bill or a supervisor on overtime have to be separated before either sum works. The decision use follows immediately: fixed cost per unit falls as output rises, so capacity utilisation drives unit cost, and contribution per unit, selling price minus variable cost per unit, feeds break-even output, which is fixed costs divided by contribution per unit. A high fixed cost base lifts break-even and makes a recession dangerous.
Your focus
- a) Calculation of sales volume and sales revenue
- b) Calculation of fixed and variable costs
Sales, revenue and costs exam tips
Marking Points
- Show the method as price multiplied by quantity with the units stated, pounds for revenue and units for volume, since a naked number rarely gets full credit.
- Convert time periods consistently, multiplying a weekly figure by the number of weeks or an average daily figure by opening days before comparing with an annual total.
- Where price and volume both change, apply the new price to the new volume rather than to the original quantity.
- Interpret the result, saying whether revenue growth came from volume or from price and what that implies for margin and for the resilience of the business.
- Classify by behaviour with a reason, so a salaried supervisor is fixed because the wage is paid whatever the output while a piece rate operative is variable.
- Use the formulae correctly, total variable cost as cost per unit multiplied by output and total cost as fixed plus total variable, with units in pounds.
- Divide correctly to get a unit figure, since fixed cost per unit is total fixed cost divided by output and therefore changes with output while variable cost per unit does not.
- Draw the consequence out, that a firm with heavy fixed costs needs high capacity utilisation and carries more risk when demand falls.
Examiner Tips
- 💡Calculate questions here are two to four marks and method is credited, so set out the formula line before the arithmetic.
- 💡Round only at the end and keep the same number of decimal places the data uses, then state the unit.
- 💡Expect the figure to be reused immediately in contribution, break-even or a margin calculation, so keep the working where you can find it.
- 💡Classification questions often hide a semi variable cost such as a phone bill or utilities, so say which part is fixed and which varies rather than forcing a single label.
- 💡The numbers here feed straight into contribution and break-even, so lay the cost table out clearly and keep the per unit and total columns apart.
- 💡In an analyse or assess answer, use the cost structure to explain the risk profile of the business rather than stopping at the classification.
Common Mistakes
- Treating revenue as profit, so an answer says the firm made ninety thousand pounds when that is turnover before any cost is deducted.
- Mixing up volume and value, typically by using the pounds sales figure where the number of units is needed in a break-even or capacity calculation.
- Getting the percentage change base wrong by dividing the change by the new figure rather than by the original one.
- Calling all labour variable, when most contracted staff are a fixed cost in the short run and only overtime or piece rates vary with output.
- Multiplying fixed cost per unit by a new output to find total fixed costs, which double counts the change and inflates the cost base.
- Forgetting that fixed costs are only fixed within a capacity range, so leasing a second unit steps them up rather than leaving them flat.