Sales Revenue Calculation and Quality Control Expenditure

What is the impact of a firm's expenditure on quality control on its sales revenue?

How does the firm's sales revenue change based on different scenarios of quantity and price?

Impact of Quality Control Expenditure on Sales Revenue

The firm's sales revenue is directly affected by its expenditure on quality control. While sales revenue is calculated by multiplying the price per unit by the quantity of units sold, the total expenditure, including quality control costs, must be subtracted from the revenue to determine profits or losses.

When a firm invests heavily in quality control, its total expenditure increases, thereby reducing the overall profit margin. On the other hand, cutting costs on quality control may result in lower quality products and potential loss of customers.

For example, if a firm sets the price per unit at $25 and sells five units, the total sales revenue would be $125. However, if the total expenditure exceeds this amount (e.g., quality control costs add up to $130), the firm will operate at a loss.

Alternatively, selling 40 units at a price of $16 each would yield a sales revenue of $640. If the total cost, including quality control, is $580, the firm would make a profit.

In conclusion, a firm's sales revenue is impacted by its expenditure on quality control. Balancing investment in quality with profitability is crucial for long-term success in the marketplace.