Calculating revenue from sales

Revenue represents the total income a business generates, mainly from selling goods or services to customers.

Formula for revenue

$\text{Revenue}=\text{quantity sold}\times \text{price per unit}$

Where:

• Quantity sold = Number of units sold
• Price per unit = Amount paid by the customer for each unit (£)

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Worked example - Calculating revenue from sales

A company sells 15,000 footballs at £3 each. Calculate the total revenue.

Step 1: Identify the values

• Quantity sold = 15,000 units
• Price per unit = £3

Step 2: Apply the formula

$\text{Revenue}=\mathrm{15,000}\times \pounds 3$

Step 3: Calculate the result

$\text{Revenue}=\pounds \mathrm{45,000}$

Different types of costs and total costs

Costs are the expenses a business incurs to operate and produce its goods or services.

Categories of costs

• Fixed costs - These remain constant regardless of production levels. They have to be paid even if no output is produced. Examples include rent, insurance, and salaries for permanent staff.
• Variable costs - These rise directly with increases in output. Examples include wages for temporary workers, raw materials, and energy costs for operating equipment.

Formula for total variable costs

$\text{Total variable costs}=\text{quantity produced}\times \text{variable cost per unit}$

Where:

• Quantity produced = Number of units made
• Variable cost per unit = Cost associated with producing each unit (£)

Formula for total costs

$\text{Total costs}=\text{total variable costs}+\text{fixed costs}$

Where:

• Total variable costs = Sum of all costs that vary with output (£)
• Fixed costs = Sum of all constant costs (£)

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Worked example - Calculating total costs

A firm produces 12,000 widgets. Fixed costs are £25,000, and the variable cost per widget is £1.50. Calculate the total variable costs and total costs.

Step 1: Identify the values

• Quantity produced = 12,000 units
• Variable cost per unit = £1.50
• Fixed costs = £25,000

Step 2: Calculate total variable costs

$\text{Total variable costs}=\mathrm{12,000}\times \pounds 1.50=\pounds \mathrm{18,000}$

Step 3: Calculate total costs

$\text{Total costs}=\pounds \mathrm{18,000}+\pounds \mathrm{25,000}=\pounds \mathrm{43,000}$

Interest on loans and savings

Interest is a financial charge or reward related to borrowing or saving money.

Interest on loans

Businesses often borrow funds to support operations or growth, but they must repay more than the original amount due to interest. Interest is expressed as a percentage of the borrowed sum.

Formula for interest on loans:

$\text{Interest (\%)}=\frac{\text{total repayment}-\text{borrowed amount}}{\text{borrowed amount}}\times 100$

Where:

• Total repayment = Full amount paid back, including interest (£)
• Borrowed amount = Original sum borrowed (£)

The total repayment can also be found by multiplying the monthly repayment amount by the number of months in the repayment period.

Interest on savings

Savings can generate income for a business through interest added by banks or financial institutions.

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Worked example - Calculating interest on a loan

A business borrows £15,000 and repays a total of £16,500. Calculate the interest percentage.

Step 1: Identify the values

• Borrowed amount = £15,000
• Total repayment = £16,500

Step 2: Apply the formula

$\text{Interest (\%)}=\frac{\pounds \mathrm{16,500}-\pounds \mathrm{15,000}}{\pounds \mathrm{15,000}}\times 100$

Step 3: Calculate the result

$\text{Interest (\%)}=\frac{\pounds \mathrm{1,500}}{\pounds \mathrm{15,000}}\times 100=10\%$

Calculating profit or loss

Profit is the positive difference between a business's revenue and its total costs over a specific period. If costs exceed revenue, the result is a loss, shown as a negative figure.

Formula for profit or loss

$\text{Profit (or loss)}=\text{revenue}-\text{total costs}$

Where:

• Revenue = Total income from sales (£)
• Total costs = Sum of fixed and variable costs (£)

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Worked example - Calculating profit or loss

A business sells 18,000 items at £4 each, generating revenue of £72,000. Total costs for the period are £55,000. Calculate the profit.

Step 1: Identify the values

• Revenue = £72,000
• Total costs = £55,000

Step 2: Apply the formula

$\text{Profit}=\pounds \mathrm{72,000}-\pounds \mathrm{55,000}$

Step 3: Calculate the result

$\text{Profit}=\pounds \mathrm{17,000}$