3.3 Costs and revenues

Question 1

what are costs

Answer 1

Costs are the charges that an organization incurs from its operations

Question 2

Set-up costs

Answer 2

items of expenditure needed to start a business

Question 3

Running costs

Answer 3

ongoing costs of operating the business

Question 4

what are Fixed costs

Answer 4

Fixed costs are costs of production that a business has to pay regardless of how much it produces or sells.
e.x: rent, loans, salaries, etc

Question 5

what are variable costs

Answer 5

Variable costs are the costs of production that change in proportion with the level of output or sales.

i.e As output increases total variable cost increases

Question 6

Total cost equation

Answer 6

TC= TVC + TFC
Total cost = total variable cost + total fixed costs

Question 7

Direct cost

Answer 7

items of expenditure that can be evidently and explicitly associated with the output or sale of a certain good, service, or business operation.

example: direct costs for a hair salon include the money spent on hair products such as shampoos, conditioners, hair sprays, and hair dyes.

Question 8

Direct costs may comprise of (3)

Answer 8

Variable costs, such as direct raw materials and direct labour costs,

Fixed costs, such as third party motor insurance and depreciation costs for taxi operators. Rent is another example of a direct cost if this fixed cost is for a production facility.

Question 9

Indirect costs

Answer 9

those that cannot be clearly traced to the production or sale of any single product

examples:
-Rent on premises.
-Salaries for administrative staff.
-Fees paid for legal and accounting services.
-Utility bills (gas, electricity, and water).
-General insurance for third parties, fire, and theft.
-Costs involved with maintaining and running the organization.

Question 10

definition of revenue

Answer 10

Revenue refers to the money coming into a business from the sale of goods and services.

Question 11

what are revenue streams

Answer 11

refers to the various sources of revenue for a business.

Question 12

Total reveunue

Answer 12

sum of income received by a business from its trading activities

Question 13

Formula of Total revenue

Answer 13

TR = P × Q

Total revenue = P) of a good or service X the quantity sold (Q)

Question 14

Formula of Average revenue

Answer 14

AR = TR ÷ Q

Average revenue = Total revenue divided ÷ Quanitity

Question 15

Examples of revenue streams (10)

Answer 15

-Advertising revenue
-Transaction fees
-Franchise costs and royalties
-Sponsor ship revenue
-Subscription fees
-Merchandise
-Interest earnings
-Dividends
-Donations
-Subventions