Unit 2.3.2

Question 1

29 sales, revenue and costs: sales volume

Answer 1

Sales volume refers to the number of units a business sells. It’s a way to track how much of a product or service is sold over a certain period. The method of measuring sales volume varies based on the type of business.

For example:

A cereal farmer measures sales by tonnes of wheat sold.
A car manufacturer counts the number of cars sold.
An airline tracks the number of passengers carried.
An oil company measures sales by barrels of oil sold.
A hotel counts the number of rooms rented out.

This measurement is easy when businesses sell clear, identifiable units. However, in some businesses with diverse products or services, like supermarkets or construction companies, sales volume can be harder to track because the units are not uniform.

For example, a supermarket sells thousands of different products, and a construction company builds different types of structures. In these cases, businesses may find it more practical to calculate sales revenue (the total money earned from sales) instead of counting units.

Question 2

29 sales, revenue and costs: sales revenue

Answer 2

Sales revenue is the total amount of money a business earns from selling its products or services. It can be calculated over different time periods, like a day, week, month, or year. If a business sells many products, sales revenue can also be calculated for each product.

The formula for calculating sales revenue is:

Sales Revenue = Price × Quantity of output

In other words, it’s the price of each product multiplied by the number of products sold.

Answer 3

Business costs are the expenses a company pays to operate and produce goods or services — like wages, rent, raw materials, and insurance. Just like people track personal costs, businesses need accurate cost information to make smart decisions, especially when they want to increase production or offer more services.

Understanding how costs behave over time is important:

• Short run: At least one resource (like factory space or machines) is fixed. A business can hire more workers or buy more materials, but can’t instantly expand its building or equipment.
• Long run: All resources can change. The business can buy more machines, open a new factory, or expand capacity. For example, an airline could buy or lease more planes in the long run to carry more passengers. In the short run, it might just use existing planes more often.

Knowing the difference between short-run and long-run costs helps businesses plan better and grow efficiently.

Answer 4

Fixed costs are business expenses that stay the same, no matter how much is produced — at least in the short run. Even if a business produces nothing or is running at full capacity, these costs don’t change.

Examples include:

Rent
Insurance
Business rates
Machinery and factory costs
Heating bills
For instance, a factory still has to pay rent during a 2-week shutdown, even if no products are made. So, “fixed” means the cost doesn’t change with output in the short run — but it can go up over time due to things like inflation.

In the Long Run:
Fixed costs can increase if the business grows. For example, if a company needs more space or machines to make more products, they’ll have to spend more — this is shown on a graph as a “step”, meaning costs rise in chunks.